Mar 31, 2019
A. Significant accounting policies
A summary of the significant accounting policies applied in the preparation of the financial statements are as given below. These accounting policies have been applied consistently to all periods presented in the financial statements.
The Company has elected to utilise the option under Ind AS 101 by not applying the provisions of Ind AS 16 & Ind AS 38 retrospectively and continue to use the previous GAAP carrying amount as a deemed cost under Ind AS at the date of transition to Ind AS i.e. 1 April 2015. Therefore, the carrying amount of property, plant and equipment and intangible assets as per the previous GAAP as at 1 April 2015, i.e; the Companyâs date of transition to Ind AS, were maintained on transition to Ind AS.
1. Property, plant and equipment
1.1. Initial recognition and measurement
An item of property, plant and equipment is recognised as an asset if and only if it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably.
Items of property, plant and equipment are initially recognised at cost. Subsequent measurement is done at cost less accumulated depreciation/amortisation and accumulated impairment losses. Cost includes expenditure that is directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management.
When parts of an item of property, plant and equipment have different useful lives, they are recognised separately.
Deposits, payments/liabilities made provisionally towards compensation, rehabilitation and other expenses relatable to land in possession are treated as cost of land.
In the case of assets put to use, where final settlement of bills with contractors is yet to be effected, capitalisation is done on provisional basis subject to necessary adjustment in the year of final settlement.
Assets and systems common to more than one generating unit are capitalised on the basis of engineering estimates/ assessments.
Items of spare parts, stand-by equipment and servicing equipment which meet the definition of property, plant and equipment are capitalised. Other spare parts are carried as inventory and recognised in the statement of profit and loss on consumption.
1.2. Subsequent costs
Subsequent expenditure is recognised as an increase in the carrying amount of the asset when it is probable that future economic benefits deriving from the cost incurred will flow to the enterprise and the cost of the item can be measured reliably.
Expenditure on major inspection and overhauls of generating unit is capitalised, when it meets the asset recognition criteria.
The cost of replacing part of an item of property, plant and equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Company and its cost can be measured reliably. The carrying amount of the replaced part is derecognised. The costs of the day-to-day servicing of property, plant and equipment are recognised in profit or loss as incurred.
1.3. Decommissioning costs
The present value of the expected cost for the decommissioning of the asset after its use is included in the cost of the respective asset if the recognition criteria for a provision are met.
1.4. De-recognition
Property, plant and equipment is derecognised when no future economic benefits are expected from their use or upon their disposal. Gains and losses on de-recognition of an item of property, plant and equipment are determined by comparing the proceeds from disposal, if any, with the carrying amount of property, plant and equipment, and are recognised in the statement of profit and loss.
1.5. Depreciation/amortisation
Depreciation is recognised in statement of profit and loss on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment. Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the Company will obtain ownership by the end of the lease term.
Depreciation on the assets of the generation of electricity business and on the assets of Corporate & other offices of the Company, covered under Part B of Schedule II of the Companies Act, 2013, is charged on straight-line method following the rates and methodology notified by the CERC Tariff Regulations.
Depreciation on the assets of the coal mining, oil & gas exploration and consultancy business is charged on straight-line method following the useful life specified in Schedule II of the Companies Act, 2013 except for the assets referred in policy no. C.6.
Depreciation on the following assets is provided on their estimated useful life, which are different from the useful life as prescribed under Schedule II to the Companies Act, 2013, ascertained on the basis of technical evaluation:
Major overhaul and inspection costs which have been capitalised are depreciated over the period until the next scheduled outage or actual major inspection/overhaul, whichever is earlier.
Leasehold land and buildings relating to generation of electricity business are fully amortised over lease period or life of the related plant whichever is lower following the rates and methodology notified by the CERC Tariff Regulations.
Leasehold land and buildings relating to corporate and other offices are fully amortised over lease period or twenty-five years whichever is lower following the rates and methodology notified by the CERC Tariff Regulations.
Land acquired for mining business under Coal Bearing Areas (Acquisition & Development) Act, 1957 is amortised on the basis of balance useful life of the project. Other leasehold land acquired for mining business is amortised over the lease period or balance life of the project whichever is less.
Depreciation on additions to/deductions from property, plant and equipment during the year is charged on pro-rata basis from/up to the month in which the asset is available for use/disposed.
Where the cost of depreciable assets has undergone a change during the year due to increase/decrease in long-term liabilities on account of exchange fluctuation, price adjustment, change in duties or similar factors, the unamortised balance of such asset is charged off prospectively over the remaining useful life determined following the applicable accounting policies relating to depreciation/amortisation.
Where it is probable that future economic benefits deriving from the cost incurred will flow to the enterprise and the cost of the item can be measured reliably, subsequent expenditure on a PPE along-with its unamortised depreciable amount is charged off prospectively over the revised useful life determined by technical assessment.
In circumstance, where a property is abandoned, the cumulative capitalised costs relating to the property are written off in the same period.
The residual values, useful lives and method of depreciation of assets other than the assets of generation of electricity business are reviewed at each financial year end and adjusted prospectively, wherever required.
2. Capital work-in-progress
The cost of self-constructed assets includes the cost of materials & direct labour, any other costs directly attributable to bringing the assets to the location and condition necessary for it to be capable of operating in the manner intended by management and borrowing costs.
Expenses directly attributable to construction of property, plant and equipment incurred till they are ready for their intended use are identified and allocated on a systematic basis on the cost of related assets.
Deposit works/cost plus contracts are accounted for on the basis of statements of account received from the contractors.
Unsettled liabilities for price variation/exchange rate variation in case of contracts are accounted for on estimated basis as per terms of the contracts.
3. Intangible assets and intangible assets under development
3.1. Initial recognition and measurement
An intangible asset is recognised if and only if it is probable that the expected future economic benefits that are attributable to the asset will flow to the Company and the cost of the asset can be measured reliably.
Intangible assets that are acquired by the Company, which have finite useful lives, are recognised at cost. Subsequent measurement is done at cost less accumulated amortisation and accumulated impairment losses. Cost includes any directly attributable incidental expenses necessary to make the assets ready for its intended use.
Expenditure on development activities is capitalised only if the expenditure can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable and the Company intends to & has sufficient resources to complete development and to use or sell the asset.
Expenditure incurred which are eligible for capitalisations under intangible assets are carried as intangible assets under development till they are ready for their intended use.
3.2. Subsequent costs:
Subsequent expenditure is recognised as an increase in the carrying amount of the asset when it is probable that future economic benefits deriving from the cost incurred will flow to the enterprise and the cost of the item can be measured reliably.
3.3. De-recognition
An intangible asset is derecognised when no future economic benefits are expected from their use or upon their disposal. Gains & losses on de-recognition of an item of intangible assets are determined by comparing the proceeds from disposal, if any, with the carrying amount of intangible assets and are recognised in the statement of profit and loss.
3.4. Amortisation
Cost of software recognised as intangible asset, is amortised on straight-line method over a period of legal right to use or 3 years, whichever is less. Other intangible assets are amortised on straight-line method over the period of legal right to use or life of the related plant, whichever is less.
The amortisation period and the amortisation method of intangible assets with a finite useful life is reviewed at each financial year end and adjusted prospectively, wherever required.
4. Regulatory deferral account balances
Expense/income recognised in the statement of profit and loss to the extent recoverable from or payable to the beneficiaries in subsequent periods as per CERC Tariff Regulations are recognised as âRegulatory deferral account balancesâ.
Regulatory deferral account balances are adjusted from the year in which the same become recoverable from or payable to the beneficiaries.
Regulatory deferral account balances are evaluated at each balance sheet date to ensure that the underlying activities meet the recognition criteria and it is probable that future economic benefits associated with such balances will flow to the entity. If these criteria are not met, the regulatory deferral account balances are derecognised.
5. Exploration for and evaluation of mineral resources
5.1. Oil and gas exploration costs
All exploration costs incurred in drilling and equipping exploratory and appraisal wells, cost of drilling exploratory type stratigraphic test wells are initially capitalised as âExploratory wells-in-progressâ till the time these are either transferred to oil and gas assets on completion or expensed as exploration cost (including allocated depreciation) as and when determined to be dry or of no further use, as the case may be.
Costs of exploratory wells are not carried over unless it could be reasonably demonstrated that there are indications of sufficient quantity of reserves and sufficient progress is being made in assessing the reserves and the economic & operating viability of the project. All such carried over costs are subject to review for impairment as per the policy of the Company.
Cost of surveys and prospecting activities conducted in the search of oil and gas are expensed in the year in which these are incurred.
5.2. Coal mining exploration costs
Exploration and evaluation costs comprise capitalised costs which are attributable to the search for coal, pending the determination of technical feasibility and the assessment of commercial viability of an identified resource which comprises inter-alia the following:
- researching and analyzing historical exploration data;
- gathering exploration data through topographical, geo chemical and geo physical studies;
- exploratory drilling, trenching and sampling;
- determining & examining the volume and grade of the resource; and
- surveying transportation and infrastructure requirements.
Exploration and evaluation expenditure incurred after obtaining the mining right or the legal right to explore are capitalised as exploration and evaluation assets (intangible assets under development) and stated at cost less impairment. Exploration and evaluation assets are assessed for impairment indicators at least annually.
Exploration and evaluation expenditure incurred prior to obtaining the mining right or the legal right to explore are expensed as incurred.
6. Development expenditure on coal mines
Once proved reserves are determined and development of mines/project is sanctioned, exploration and evaluation assets are transferred to âDevelopment of coal minesâ under Capital work-in-progress. However, if proved reserves are not determined, the exploration and evaluation costs are derecognised.
The development expenditure capitalised is net of value of coal extracted during development phase.
Subsequent expenditure is capitalised only where it either enhances the economic benefits of the development/ producing asset or replaces part of the existing development/producing asset. Any remaining costs associated with the part replaced are expensed.
Mines under development are brought to revenue on occurrence of earliest of the following milestones except otherwise when commercial readiness is stated in the project report:
a) From the beginning of the financial year immediately after the year in which the project achieves physical output of 25% of rated capacity as per approved project report; or
b) From the beginning of the financial year in which the value of production is more than total expenses; or
c) 2 years of touching of coal.
The above is subject to commercial readiness to yield production on a sustainable basis (i.e. when the Company determines that the mining property will provide sufficient and sustainable return relative to its perceived risks and therefore it is considered probable that future economic benefits will flow to the Company).
On being brought to revenue, the assets under capital work-in-progress are classified as a component of property, plant and equipment under âMining propertyâ.
Gains and losses on de-recognition of tangible/intangible assets, as referred above, are determined by comparing the proceeds from disposal, if any, with the carrying amount of respective assets and are recognised in the statement of profit and loss.
6.1. Stripping activity expense/adjustment
Expenditure incurred on removal of mine waste materials (overburden) necessary to extract the coal reserves is referred to as stripping cost. The Company has to incur such expenses over the life of the mine as technically estimated.
Cost of stripping is charged on technically evaluated average stripping ratio at each mine with due adjustment for stripping activity asset and ratio-variance account after the mines are brought to revenue.
Net of the balances of stripping activity asset and ratio variance at the Balance Sheet date is shown as âStripping activity adjustmentâ under the head âNon-current assets/Non-current provisionsâ as the case may be.
6.2. Mines closure, site restoration and decommissioning obligations
The Companyâs obligations for land reclamation and decommissioning of structure consist of spending at mines in accordance with the guidelines from Ministry of Coal, Government of India. The Company estimates its obligations for mine closure, site restoration and decommissioning based on the detailed calculation & technical assessment of the amount and timing of future cash spending for the required work and provided for as per approved mine closure plan. The estimate of expenses is escalated for inflation and then discounted at a discount rate that reflect current market assessment of the time value of money and risk, such that the amount of provision reflects the present value of expenditure required to settle the obligation. The Company records a corresponding asset under property, plant and equipment associated with the obligation.
The value of the obligation is progressively increased over time as the effect of discounting unwinds and the same is recognised as finance costs.
6.3. Amortisation
On being brought to revenue, the mines closure, site restoration and decommissioning obligations are amortised over the balance life of the mine. Mining property is amortised from the year in which the mine is brought under revenue, in 20 years or life of mine whichever is less.
7. Joint operations
The Company has entered into joint arrangements with others for operations in the nature of joint operations. The Company recognises, on a line-by-line basis its share of the assets, liabilities and expenses of these joint operations as per the arrangement which are accounted based on the respective accounting policies of the Company.
8. Borrowing costs
Borrowing costs consist of (a) interest expense calculated using the effective interest method as described in Ind AS 109, âFinancial Instrumentsâ (b) finance charges in respect of finance leases recognised in accordance with Ind AS 17, âLeasesâ and (c) exchange differences arising from foreign currency borrowings to the extent that they are regarded as an adjustment to interest costs.
Borrowing costs that are directly attributable to the acquisition, construction/exploration/ development or erection of qualifying assets are capitalised as part of cost of such asset until such time the assets are substantially ready for their intended use. Qualifying assets are assets which necessarily take substantial period of time to get ready for their intended use or sale.
When the Company borrows funds specifically for the purpose of obtaining a qualifying asset, the borrowing costs incurred are capitalised. When Company borrows funds generally and uses them for the purpose of obtaining a qualifying asset, the capitalisation of the borrowing costs is computed based on the weighted average cost of general borrowing that are outstanding during the period and used for the acquisition, construction/exploration or erection of the qualifying asset.
Income earned on temporary investment of the borrowings pending their expenditure on the qualifying assets is deducted from the borrowing costs eligible for capitalisation.
Capitalisation of borrowing costs ceases when substantially all the activities necessary to prepare the qualifying assets for their intended uses are complete.
Other borrowing costs are recognised as an expense in the year in which they are incurred.
9. Inventories
Inventories are valued at the lower of cost and net realisable value. Cost includes cost of purchase, cost of conversion and other costs incurred in bringing the inventories to their present location and condition. Cost is determined on weighted average basis. Costs of purchased inventory are determined after deducting rebates and discounts. 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 diminution in the value of obsolete, unserviceable, surplus and non-moving items of stores and spares is ascertained on review and provided for.
Steel scrap is valued at estimated realisable value.
10. Cash and cash equivalents
Cash and cash equivalents in the balance sheet comprise cash at banks, cash on hand and short-term deposits with an original maturity of three months or less, which are subject to an insignificant risk of changes in value.
11. Government grants
Government grants are recognised initially as deferred income when there is reasonable assurance that they will be received and the Company will comply with the conditions associated with the grant. Grants that compensate the Company for the cost of an asset are recognised in profit or loss on a systematic basis over the useful life of the related asset. Grants that compensate the Company for expenses incurred are recognised over the period in which the related costs are incurred and deducted from the related expenses.
12. Fly ash utilisation reserve fund
Proceeds from sale of ash/ash products along-with income on investment of such proceeds are transferred to âFly ash utilisation reserve fundâ in terms of provisions of gazette notification dated 3 November 2009 issued by Ministry of Environment and Forests, Government of India. The fund is utilised towards expenditure on development of infrastructure/ facilities, promotion & facilitation activities for use of fly ash.
13. Provisions, contingent liabilities and contingent assets
A provision is recognised if, as a result of a past event, the Company has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability.
When discounting is used, the increase in the provision due to the passage of time is recognised as a finance costs.
The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at reporting date, taking into account the risks and uncertainties surrounding the obligation.
When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, the receivable is recognised as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably. The expense relating to a provision is presented in the statement of profit and loss net of any reimbursement.
Contingent liabilities are possible obligations that arise from past events and whose existence will only be confirmed by the occurrence or non-occurrence of one or more future events not wholly within the control of the Company. Where it is not probable that an outflow of economic benefits will be required, or the amount cannot be estimated reliably, the obligation is disclosed as a contingent liability, unless the probability of outflow of economic benefits is remote. Contingent liabilities are disclosed on the basis of judgment of the management/independent experts. These are reviewed at each balance sheet date and are adjusted to reflect the current management estimate.
Contingent assets are possible assets that arise from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Company. Contingent assets are disclosed in the financial statements when inflow of economic benefits is probable on the basis of judgment of management. These are assessed continually to ensure that developments are appropriately reflected in the financial statements.
14. Foreign currency transactions and translation
Transactions in foreign currencies are initially recorded at the functional currency spot rates at the date the transaction first qualifies for recognition.
Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency spot rates of exchange at the reporting date. Exchange differences arising on settlement or translation of monetary items are recognised in profit or loss in the year in which it arises with the exception that exchange differences on long term monetary items related to acquisition of property, plant and equipment recognised upto 31 March 2016 are adjusted to the carrying cost of property, plant and equipment.
Non-monetary items are measured in terms of historical cost in a foreign currency and translated using the exchange rate at the date of the transaction. In case of advance consideration received or paid in a foreign currency, the date of transaction for the purpose of determining the exchange rate to use on initial recognition of the related asset, expense or income (or part of it), is when the Company initially recognises the non-monetary asset or non-monetary liability arising from the payment or receipt of advance consideration.
15. Revenue
Companyâs revenues arise from sale and trading of energy, consultancy, project management & supervision services, income on assets under lease and other income. Revenue from other income comprises interest from banks, employees, contractors etc., dividend from investments in joint venture & subsidiary companies, dividend from mutual fund investments, surcharge received from beneficiaries for delayed payments, sale of scrap, other miscellaneous income, etc.
Effective 1 April 2018, the Company has adopted Ind AS 115 âRevenue from Contracts with Customersâ using the cumulative effect method, applied to the contracts that were not completed as of 1 April 2018 and therefore the comparatives have not been restated and continues to be reported as per Ind AS 18 âRevenueâ and Ind AS 11 âConstruction Contractsâ. The details of accounting policies as per Ind AS 18 and Ind AS 11 are disclosed separately if they are different from those under Ind AS 115.
15.1. Revenue from sale of energy
The majority of the Companyâs operations in India are regulated under the Electricity Act, 2003. Accordingly, the CERC determines the tariff for the Companyâs power plants based on the norms prescribed in the tariff regulations as applicable from time to time. Tariff is based on the capital cost incurred for a specific power plant and primarily comprises two components: capacity charge i.e. a fixed charge, that includes depreciation, return on equity, interest on working capital, operating & maintenance expenses, interest on loan and energy charge i.e. a variable charge primarily based on fuel costs.
Revenue is measured based on the consideration that is specified in a contract with a customer or is expected to be received in exchange for the products or services and excludes amounts collected on behalf of third parties. The Company recognises revenue when (or as) the performance obligation is satisfied, which typically occurs when (or as) control over the products or services is transferred to a customer.
In the comparative period, revenue from the sale of energy was measured at the fair value of the consideration received or receivable. Revenue was recognised when the significant risks and rewards of ownership had been transferred to the buyer, recovery of the consideration was probable, the associated costs could be estimated reliably, there was no continuing management involvement, and the amount of revenue could be measured reliably.
Revenue from sale of energy is accounted for based on tariff rates approved by the CERC (except items indicated as provisional) as modified by the orders of Appellate Tribunal for Electricity to the extent applicable. In case of power stations where the tariff rates are yet to be approved/items indicated provisional by the CERC in their orders, provisional rates are adopted considering the applicable CERC Tariff Regulations. Revenue from sale of energy is recognised once the electricity has been delivered to the beneficiary and is measured through a regular review of usage meters. Beneficiaries are billed on a periodic and regular basis. As at each reporting date, revenue from sale of energy includes an accrual for sales delivered to beneficiaries but not yet billed i.e. unbilled revenue.
The incentives/disincentives are accounted for based on the norms notified/approved by the CERC as per principles enunciated in Ind AS 115. In cases of power stations where the same have not been notified/approved, incentives/disincentives are accounted for on provisional basis.
Part of revenue from energy sale is recognised based on the rates, terms & conditions mutually agreed with the beneficiaries and trading of power through power exchanges.
Advance against depreciation considered as deferred revenue in earlier years is included in sales, to the extent depreciation recovered in tariff during the year is lower than the corresponding depreciation charged.
Exchange differences arising from settlement/translation of monetary items denominated in foreign currency to the extent recoverable from or payable to the beneficiaries in subsequent periods as per the CERC Tariff Regulations are accounted as âRegulatory deferred account balancesâ and adjusted from the year in which the same becomes recoverable/payable.
Exchange differences on account of translation of foreign currency borrowings recognised upto 31 March 2016, recoverable from or payable to the beneficiaries in subsequent periods as per the CERC Tariff Regulations are accounted as âDeferred foreign currency fluctuation assetâ. The increase or decrease in depreciation for the year due to the accounting of such exchange differences as mentioned above is adjusted in depreciation. Fair value changes in respect of forward exchange contracts of derivative contracts recoverable from/payable to the beneficiaries as per the CERC Tariff Regulations, are recognised in sales.
Revenue from sale of energy through trading is recognised based on the rates, terms & conditions mutually agreed with the beneficiaries as per the guidelines issued by Ministry of New and Renewable Energy, Government of India.
Rebates allowed to beneficiaries as early payment incentives are deducted from the amount of revenue.
15.2. Revenue from services
Revenue from consultancy, project management and supervision services rendered is measured based on the consideration that is specified in a contract with a customer or is expected to be received in exchange for the services and excludes amounts collected on behalf of third parties. The Company recognises revenue when (or as) the performance obligation is satisfied, which typically occurs when (or as) control over the services is transferred to a customer.
In the comparative period, revenue from consultancy, project management and supervision services rendered was recognised in profit or loss in proportion to the stage of completion of the transaction at the reporting date. The stage of completion was assessed by reference to actual progress/technical assessment of work executed, in line with the terms of the respective consultancy contracts.
Reimbursement of expenses are recognised as other income, as per the terms of the service contracts.
Contract modifications are accounted for when additions, deletions or changes are approved either to the contract scope or contract price. The accounting for modifications of contracts involves assessing whether the services added to an existing contract are distinct and whether the pricing is at the standalone selling price. Services added that are not distinct are accounted for on a cumulative catchup basis, while those that are distinct are accounted for prospectively, either as a separate contract, if the additional services are priced at the standalone selling price, or as a termination of the existing contract and creation of a new contract if not priced at the standalone selling price.
15.3. Other income
Interest income is recognised, when no significant uncertainty as to measurability or collectability exist, on a time proportion basis taking into account the amount outstanding and the applicable interest rate, using the effective interest rate method (EIR).
Scrap other than steel scrap is accounted for as and when sold.
Insurance claims for loss of profit are accounted for in the year of acceptance. Other insurance claims are accounted for based on certainty of realisation.
Revenue from rentals and operating leases is recognised on an accrual basis in accordance with the substance of the relevant agreement.
For debt instruments measured either at amortised cost or at fair value through other comprehensive income (OCI), interest income is recorded using the EIR. EIR is the rate that exactly discounts the estimated future cash payments or receipts over the expected life of the financial instrument or a shorter period, where appropriate, to the gross carrying amount of the financial asset or to the amortised cost of a financial liability. When calculating the EIR, the Company estimates the expected cash flows by considering all the contractual terms of the financial instrument (for example, prepayment, extension, call and similar options) but does not consider the expected credit losses. Interest income is included in other income in the statement of profit and loss.
The interest/surcharge on late payment/overdue trade receivables for sale of energy is recognised when no significant uncertainty as to measurability or collectability exists.
Interest/surcharge recoverable on advances to suppliers as well as warranty claims wherever there is uncertainty of realisation/acceptance are not treated as accrued and are therefore, accounted for on receipt/acceptance.
Dividend income is recognised in profit or loss only when the right to receive is established, it is probable that the economic benefits associated with the dividend will flow to the Company, and the amount of the dividend can be measured reliably.
16. Employee benefits
16.1. Defined contribution plans
A defined contribution plan is a post-employment benefit plan under which an entity pays fixed contributions into separate entities and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution plans are recognised as an employee benefits expense in profit or loss in the period during which services are rendered by employees. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in future payments is available. Contributions to a defined contribution plan that are due after more than 12 months after the end of the period in which the employees render the service are discounted to their present value.
The Company has a defined contribution pension scheme which is administered through a separate trust. The obligation of the Company is to contribute to the trust to the extent of amount not exceeding 30% of basic pay and dearness allowance less employerâs contribution towards provident fund, gratuity, post-retirement medical facility (PRMF) or any other retirement benefits. The contributions to the fund for the year are recognised as an expense and charged to the statement of profit and loss.
16.2. Defined benefit plans
A defined benefit plan is a post-employment benefit plan other than a defined contribution plan. The Companyâs liability towards gratuity, pension scheme at two of the stations in respect of taken over employees from the erstwhile state government power utility, post-retirement medical facility, baggage allowance for settlement at home town after retirement, farewell gift on retirement and provident fund scheme to the extent of interest liability on provident fund contribution are in the nature of defined benefit plans.
The Company pays fixed contribution to the provident fund at predetermined rates to a separate trust, which invests the funds in permitted securities. The contributions to the fund for the year are recognised as expense and are charged to the profit or loss. The obligation of the Company is to make such fixed contributions and to ensure a minimum rate of return to the members as specified by the Government of India.
The gratuity is funded by the Company and is managed by separate trust. Pension scheme at one of the taken over projects is also funded by the Company and is managed by separate trust. The Company has PRMF, under which retired employee and the spouse are provided medical facilities in the Company hospitals/empaneled hospitals. They can also avail treatment as out-patient subject to a ceiling fixed by the Company.
The Companyâs net obligation in respect of defined benefit plans is calculated separately for each plan by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine its present value. Any unrecognised past service costs and the fair value of any plan assets are deducted. The discount rate is based on the prevailing market yields of Indian government securities as at the reporting date that have maturity dates approximating the terms of the Companyâs obligations and that are denominated in the same currency in which the benefits are expected to be paid.
The calculation is performed annually by a qualified actuary using the projected unit credit method. When the calculation results in a benefit to the Company, the recognised asset is limited to the total of any unrecognised past service costs and the present value of economic benefits available in the form of any future refunds from the plan or reductions in future contributions to the plan. An economic benefit is available to the Company if it is realisable during the life of the plan, or on settlement of the plan liabilities. Any actuarial gains or losses are recognised in OCI in the period in which they arise.
When the benefits of a plan are improved, the portion of the increased benefit relating to past service by employees is recognised in profit or loss on a straight-line basis over the average period until the benefits become vested. To the extent that the benefits vest immediately, the expense is recognised immediately in statement of profit and loss.
16.3. Other long-term employee benefits
Benefits under the Companyâs leave encashment, long-service award and economic rehabilitation scheme constitute other long term employee benefits.
The Companyâs net obligation in respect of leave encashment is the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine its present value, and the fair value of any related assets is deducted. The discount rate is based on the prevailing market yields of Indian government securities as at the reporting date that have maturity dates approximating the terms of the Companyâs obligations. The calculation is performed using the projected unit credit method. Any actuarial gains or losses are recognised in profit or loss in the period in which they arise.
As per the Companyâs economic rehabilitation scheme which is optional, the nominee of the deceased employee is paid a fixed amount based on the last salary drawn by the employee till the date of superannuation of the employee by depositing the final provident fund and gratuity amount which will be interest free.
The obligations are presented as current liabilities in the balance sheet if the entity does not have an unconditional right to defer settlement for at least twelve months after the reporting period, regardless of when the actual settlement is expected to occur.
16.4. Short-term benefits
Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided.
A liability is recognised for the amount expected to be paid under performance related pay if the Company has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably.
17. Other expenses
Expenses on ex-gratia payments under voluntary retirement scheme, training & recruitment and voluntary community development are charged to statement of profit and loss in the year incurred.
Expenditure on research is charged to revenue as and when incurred. Expenditure on development is charged to revenue as and when incurred unless it meets the recognition criteria for intangible asset as per Ind AS 38, âIntangible assetsâ.
Preliminary expenses on account of new projects incurred prior to approval of feasibility report/techno economic clearance are charged to statement of profit and loss.
Net pre-commissioning income/expenditure is adjusted directly in the cost of related assets and systems.
Transit and handling losses of coal as per Companyâs norms are included in cost of coal.
18. Income tax
Income tax expense comprises current and deferred tax. Current tax expense is recognised in profit or loss except to the extent that it relates to items recognised directly in other comprehensive income or equity, in which case it is recognised in OCI or equity, respectively.
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted and as applicable at the reporting date, and any adjustment to tax payable in respect of previous years.
Deferred tax is recognised using the balance sheet method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority.
Deferred tax is recognised in profit or loss except to the extent that it relates to items recognised directly in OCI or equity, in which case it is recognised in OCI or equity, respectively.
A deferred tax asset is recognised to the extent that it is probable that future taxable profits will be available against which the temporary difference can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised.
Additional income taxes that arise from the distribution of dividends are recognised at the same time that the liability to pay the related dividend is recognised.
Deferred tax assets include Minimum Alternative Tax (MAT) paid in accordance with the tax laws in India, which is likely to give future economic benefits in the form of availability of set off against future income tax liability. MAT is recognised as deferred tax asset in the balance sheet when the asset can be measured reliably and it is probable that the future economic benefit associated with the asset will be realised.
19. Leases
19.1. As lessee Accounting for finance leases
Leases of property, plant and equipment where the Company, as lessee has substantially all risks and rewards of ownership are classified as finance lease. On initial recognition, assets held under finance leases are recorded as property, plant and equipment and the related liability is recognised under borrowings. At inception of the lease, finance leases are recorded at amounts equal to the fair value of the leased asset or, if lower, the present value of the minimum lease payments. Minimum lease payments made under finance leases are apportioned between the finance cost and the reduction of the outstanding liability.
The finance cost is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability.
Accounting for operating leases
Leases in which a significant portion of the risks and rewards of ownership are not transferred to the Company as lessee are classified as operating lease. Payments made under operating leases are recognised as an expense on a straight-line basis over the lease term unless the payments are structured to increase in line with expected general inflation to compensate for the lessorâs expected inflationary cost increases. Lease incentives received are recognised as an integral part of the total lease expense, over the term of the lease.
19.2. As lessor
At the inception of an arrangement, the Company determines whether such an arrangement is or contains a lease. A specific asset is subject of a lease if fulfillment of the arrangement is dependent on the use of that specified asset. An arrangement conveys the right to use the asset if the arrangement conveys to the customer the right to control the use of the underlying asset. Arrangements that do not take the legal form of a lease but convey rights to customers/suppliers to use an asset in return for a payment or a series of payments are identified as either finance leases or operating leases.
Accounting for finance leases
Where the Company determines a long term PPA to be or to contain a lease and where the off taker has the principal risk and rewards of ownership of the power plant through its contractual arrangements with the Company, the arrangement is considered a finance lease. Capacity payments are apportioned between capital repayments relating to the provision of the plant, finance income and service income. The finance income element of the capacity payment is recognised as revenue, using a rate of return specific to the plant to give a constant periodic rate of return on the net investment in each period. The service income element of the capacity payment is the difference between the total capacity payment and the amount recognised as finance income and capital repayments and recognised as revenue as it is earned.
The amounts due from lessees under finance leases are recorded in the balance sheet as financial assets, classified as âFinance lease receivablesâ, at the amount of the net investment in the lease.
Accounting for operating leases
Where the Company determines a long term PPA to be or to contain a lease and where the Company retains the principal risks and rewards of ownership of the power plant, the arrangement is considered an operating lease.
For operating leases, the power plant is capitalised as property, plant and equipment and depreciated over its economic life. Rental income from operating leases is recognised on a straight line basis over the term of the arrangement unless the receipts are structured to increase in line with expected general inflation to compensate for the expected inflationary cost increases.
20. Impairment of non-financial assets
The carrying amounts of the Companyâs non-financial assets are reviewed at each reporting date to determine whether there is any indication of impairment considering the provisions of Ind AS 36 - âImpairment of Assetsâ. If any such indication exists, then the assetâs recoverable amount is estimated.
The recoverable amount of an asset or cash-generating unit is the higher of its fair value less costs to disposal and its value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the âcash-generating unitâ, or âCGUâ).
An impairment loss is recognised if the carrying amount of an asset or its CGU exceeds its estimated recoverable amount. Impairment losses are recognised in profit or loss. Impairment losses recognised in respect of CGUs are reduced from the carrying amounts of the assets of the CGU.
Impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the assetâs carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.
21. Operating segments
In accordance with Ind AS 108, the operating segments used to present segment information are identified on the basis of internal reports used by the Companyâs management to allocate resources to the segments and assess their performance. The Board of Directors is collectively the Companyâs âChief Operating Decision Makerâ or âCODMâ within the meaning of Ind AS 108. The indicators used for internal reporting purposes may evolve in connection with performance assessment measures put in place.
Segment results that are reported to the CODM include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items comprise mainly corporate expenses, finance costs, income tax expenses and corporate income.
Revenue directly attributable to the segments is considered as segment revenue. Expenses directly attributable to the segments and common expenses allocated on a reasonable basis are considered as segment expenses.
Segment capital expenditure is the total cost incurred during the period to acquire property, plant and equipment, and intangible assets other than goodwill.
Segment assets comprise property, plant and equipment, intangible assets, trade and other receivables, inventories and other assets that can be directly or reasonably allocated to segments. For the purpose of segment reporting, property, plant and equipment have been allocated to segments based on the extent of usage of assets for operations attributable to the respective segments. Segment assets do not include investments, income tax assets, capital work in progress, capital advances, corporate assets and other current assets that cannot reasonably be allocated to segments.
Segment liabilities include all operating liabilities in respect of a segment and consist principally of trade and other payables, employee benefits and provisions. Segment liabilities do not include equity, income tax liabilities, loans and borrowings and other liabilities and provisions that cannot reasonably be allocated to segments.
22. Business Combinations
Business combinations are accounted for using the acquisition accounting method as at the date of the acquisition, which is the date at which control is transferred to the Company. The consideration transferred in the acquisition and the identifiable assets acquired and liabilities assumed are recognised at fair values on their acquisition date. Goodwill is initially measured at cost, being the excess of the consideration transferred over the net identifiable assets acquired and liabilities assumed. Where the fair value of net identifiable assets acquired and liabilities assumed exceed the consideration transferred, after reassessing the fair values of the net assets and contingent liabilities, the excess is recognised as capital reserve. Acquisition-related costs are expensed as incurred.
23. Dividends
Dividends and interim dividends payable to the Companyâs shareholders are recognised as changes in equity in the period in which they are approved by the shareholders and the Board of Directors respectively.
24. Material prior period errors
Material prior period errors are corrected retrospectively by restating the comparative amounts for the prior periods presented in which the error occurred. If the error occurred before the earliest period presented, the opening balances of assets, liabilities and equity for the earliest period presented, are restated.
25. Earnings per share
Basic earnings per equity share is computed by dividing the net profit or loss attributable to equity shareholders of the Company by the weighted average number of equity shares outstanding during the financial year.
Diluted earnings per equity share is computed by dividing the net profit or loss attributable to equity shareholders of the Company by the weighted average number of equity shares considered for deriving basic earnings per equity share and also the weighted average number of equity shares that could have been issued upon conversion of all dilutive potential equity shares.
The number of equity shares and potentially dilutive equity shares are adjusted retrospectively for all periods presented for any bonus shares issued during the financial year.
Basic and diluted earnings per equity share are also computed using the earnings amounts excluding the movements in regulatory deferral account balances.
26. statement of cash flows
Statement of cash flows is prepared in accordance with the indirect method prescribed in Ind AS 7 âStatement of cash flowsâ.
27. 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.
27.1. Financial assets initial recognition and measurement
The company recognises financial assets when it becomes a party to the contractual provisions of the instrument. All financial assets 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 of financial assets, which are not at fair value through profit or loss, are added to the fair value on initial recognition.
Subsequent measurement
Debt instruments at amortised cost
A âdebt instrumentâ is measured at the amortised cost if both the following conditions are met:
(a) The asset is held within a business model whose objective is to hold assets for collecting contractual cash flows, and
(b) Contractual terms of the asset give rise on specified dates to cash flows that are solely payments of principal and interest (SPPI) on the principal amount outstanding.
After initial measurement, such financial assets are subsequently measured at amortised cost using the EIR method. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortisation is included in finance income in the profit or loss. The losses arising from impairment are recognised in the profit or loss. This category generally applies to trade and other receivables.
Debt instrument at FVTOCI (Fair value through OCI)
A âdebt instrumentâ is classified as at the FVTOCI if both of the following criteria are met:
(a) The objective of the business model is achieved both by collecting contractual cash flows and selling the financial assets, and
(b) The assetâs contractual cash flows represent SPPI
Debt instruments included within the FVTOCI category are measured initially as well as at each reporting date at fair value. Fair value movements are recognised in the OCI. However, the Company recognises interest income, impairment losses & reversals and foreign exchange gain or loss in the profit and loss. On derecognition of the asset, cumulative gain or loss previously recognised in OCI is reclassified from the equity to profit and loss. Interest earned whilst holding FVTOCI debt instrument is reported as interest income using the EIR method.
Debt instrument at FvtpL (fair value through profit or loss)
FVTPL is a residual category for debt instruments. Any debt instrument, which does not meet the criteria for categorisation as at amortised cost or as FVTOCI, is classified as at FVTPL.
In addition, the Company may elect to classify a debt instrument, which otherwise meets amortised cost or FVTOCI criteria, as at FVTPL. However, such election is allowed only if doing so reduces or eliminates a measurement or recognition inconsistency (referred to as âaccounting mismatchâ). Debt instruments included within the FVTPL category are measured at fair value with all changes recognised in the profit and loss.
Equity investments
All equity investments in entities other than subsidiaries and joint venture companies are measured at fair value. Equity instruments which are held for trading are classified as at FVTPL. For all other equity instruments, the Company decides to classify the same either as at FVTOCI or FVTPL. The Company makes such election on an instrument by instrument basis. The classification is made on initial recognition and is irrevocable.
If the Company decides to classify an equity instrument as at FVTOCI, then all fair value changes on the instrument, excluding dividends, are recognised in the OCI. There is no recycling of the amounts from OCI to statement of profit and loss, even on sale of investment. However, the Company may transfer the cumulative gain or loss within equity.
Equity instruments included within the FVTPL category are measured at fair value with all changes recognised in the profit and loss.
Equity investments in subsidiaries and joint ventures companies are measured at cost less impairment, if any. de-recognition
A financial asset (or, where applicable, a part of a financial asset or part of a Group of similar financial assets) is primarily derecognised (i.e. removed from the Companyâs balance sheet) when:
- The rights to receive cash flows from the asset have expired, or
- The Company has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a âpass-throughâ arrangement; and either (a) the Company has transferred substantially all the risks and rewards of the asset, or (b) the Company has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.
The difference between the carrying amount and the amount of consideration received / receivable is recognised in the Statement of Profit and Loss.
Impairment of financial assets
In accordance with Ind AS 109, the Company applies expected credit loss (ECL) model for measurement and recognition of impairment loss on the following financial assets and credit risk exposure:
(a) Financial assets that are debt instruments, and are measured at amortised cost e.g., loans, debt securities, deposits and bank balance.
(b) Financial assets that are debt instruments and are measured as at FVTOCI.
(c) Lease receivables under Ind AS 17.
(d) Trade receivables, unbilled revenue and contract assets under Ind AS 115.
(e) Loan commitments which are not measured as at FVTPL.
(f) Financial guarantee contracts which are not measured as at FVTPL.
For trade receivables and unbilled revenue, the Company applies the simplified approach required by Ind AS 109 Financial Instruments, which requires expected lifetime losses to be recognised from initial recognition of the receivables.
For recognition of impairment loss on other financial assets and risk exposure, the Company determines that whether there has been a significant increase in the credit risk since initial recognition. If credit risk has not increased significantly, 12-month ECL is used to provide for impairment loss. However, if credit risk has increased significantly, lifetime ECL is used. If, in a subsequent period, credit quality of the instrument improves such that there is no longer a significant increase in credit risk since initial recognition, then the entity reverts to recognising impairment loss allowance based on 12 month ECL.
27.2. Financial liabilities
Initial recognition and measurement
Financial liabilities are classified, at initial recognition, as financial liabilities at fair value through profit or loss, borrowings, payables, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. All financial liabilities are recognised initially at fair value and, in the case of borrowings and payables, net of directly attributable transaction costs. The Companyâs financial liabilities include trade and other payables, borrowings including bank overdrafts, financial guarantee contracts and derivative financial instruments.
Subsequent measurement
The measurement of financial liabilities depends on their classification, as described below: financial liabilities at amortised cost
After initial measurement, such financial liabilities are subsequently measured at amortised cost using the EIR method. Gains and losses are recognised in profit or loss when the liabilities are derecognised as well as through the EIR amortisation process Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortisation is included in finance costs in the profit or loss. This category generally applies to borrowings, trade payables and other contractual liabilities.
Financial liabilities at fair value through profit or loss
Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated upon initial recognition as at fair value through profit or loss. Financial liabilities are classified as held for trading if they are incurred for the purpose of repurchasing in the near term. This category also includes derivative financial instruments entered into by the Company that are not designated as hedging instruments in hedge relationships as defined by Ind-AS 109. Separated embedded derivatives are also classified as held for trading unless they are designated as effective hedging instruments.
Gains or losses on liabilities held for trading are recognised in the statement of profit and loss.
Financial liabilities designated upon initial recognition
Mar 31, 2018
Note 1. Company Information and Significant Accounting Policies
A. Â Â Â Reporting entity
NTPC Limited (the âCompanyâ) is a Company domiciled in India and limited by shares (CIN: L40101DL1975GOI007966). The shares of the Company are publicly traded on the National Stock Exchange of India Limited and BSE Limited. The address of the Company's registered office is NTPC Bhawan, SCOPE Complex, 7 Institutional Area, Lodi Road, New Delhi -110003. The Company is primarily involved in the generation and sale of bulk power to State Power Utilities. Other business includes providing consultancy, project management &Â supervision, energy trading, oil &Â gas exploration and coal mining.
B. Â Â Â Basis of preparation
1. Â Â Â Statement of Compliance
These standalone financial statements are prepared on going concern basis following accrual system of accounting and comply with the Indian Accounting Standards (Ind AS) notified under the Companies (Indian Accounting Standards) Rules, 2015 and subsequent amendments thereto, the Companies Act, 2013 (to the extent notified and applicable), applicable provisions of the Companies Act, 1956, and the provisions of the Electricity Act, 2003 to the extent applicable.
These financial statements were authorized for issue by the Board of Directors on 28 May 2018.
2. Â Â Â Basis of measurement
The financial statements have been prepared on the historical cost basis except for:
- Â Â Â Certain financial assets and liabilities (including derivative instruments) that are measured at fair value (refer accounting policy regarding financial instruments); and
- Â Â Â Plan assets in the case of employees defined benefit plans that are measured at fair value.
The methods used to measure fair values are discussed in notes to the financial statements.
Historical cost is the amount of cash or cash equivalents paid or the fair value of the consideration given to acquire assets at the time of their acquisition or the amount of proceeds received in exchange for the obligation, or at the amounts of cash or cash equivalents expected to be paid to satisfy the liability in the normal course of business.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
3. Â Â Â Functional and presentation currency
These financial statements are presented in Indian Rupees (INR), which is the Company's functional currency. All financial information presented in INR has been rounded to the nearest crore (up to two decimals), except as stated otherwise.
4. Â Â Â Current and non-current classification
The Company presents assets and liabilities in the balance sheet based on current/non-current classification.
An asset is current when it is:
- Â Â Â Expected to be realized or intended to be sold or consumed in normal operating cycle;
- Â Â Â Held primarily for the purpose of trading;
- Â Â Â Expected to be realized within twelve months after the reporting period; or
- Â Â Â Cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period.
All other assets are classified as non-current.
A liability is current when:
- Â Â Â It is expected to be settled in normal operating cycle;
- Â Â Â It is held primarily for the purpose of trading;
- Â Â Â It is due to be settled within twelve months after the reporting period; or
- Â Â Â There is no unconditional right to defer settlement of the liability for at least twelve months after the reporting period. All other liabilities are classified as non-current.
Deferred tax assets/liabilities are classified as non-current.
C. Significant accounting policies
A summary of the significant accounting policies applied in the preparation of the financial statements are as given below. These accounting policies have been applied consistently to all periods presented in the financial statements.
The Company has elected to utilize the option under Ind AS 101 by not applying the provisions of Ind AS 16 &Â Ind AS 38 retrospectively and continue to use the previous GAAP carrying amount as a deemed cost under Ind AS at the date of transition to Ind AS i.e. 1 April 2015. Therefore, the carrying amount of property, plant and equipment and intangible assets as per the previous GAAP as at 1 April 2015, i.e. the Company's date of transition to Ind AS, were maintained on transition to Ind AS.
1. Property, plant and equipment
1.1. Â Â Â Initial recognition and measurement
An item of property, plant and equipment is recognized as an asset if and only if it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably.
Items of property, plant and equipment are initially recognized at cost. Subsequent measurement is done at cost less accumulated depreciation/amortization and accumulated impairment losses. Cost includes expenditure that is directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management.
When parts of an item of property, plant and equipment have different useful lives, they are recognized separately.
Deposits, payments/liabilities made provisionally towards compensation, rehabilitation and other expenses relatable to land in possession are treated as cost of land.
In the case of assets put to use, where final settlement of bills with contractors is yet to be effected, capitalization is done on provisional basis subject to necessary adjustment in the year of final settlement.
Assets and systems common to more than one generating unit are capitalized on the basis of engineering estimates/ assessments.
Items of spare parts, stand-by equipment and servicing equipment which meet the definition of property, plant and equipment are capitalized. Other spare parts are carried as inventory and recognized in the statement of profit and loss on consumption.
1.2. Â Â Â Subsequent costs
Subsequent expenditure is recognized as an increase in the carrying amount of the asset when it is probable that future economic benefits deriving from the cost incurred will flow to the enterprise and the cost of the item can be measured reliably.
Expenditure on major inspection and overhauls of generating unit is capitalized, when it meets the asset recognition criteria.
The cost of replacing part of an item of property, plant and equipment is recognized in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Company and its cost can be measured reliably. The carrying amount of the replaced part is derecognized. The costs of the day-to-day servicing of property, plant and equipment are recognized in profit or loss as incurred.
1.3. Â Â Â Decommissioning costs
The present value of the expected cost for the decommissioning of the asset after its use is included in the cost of the respective asset if the recognition criteria for a provision are met.
1.4. Â Â Â De-recognition
Property, plant and equipment is derecognized when no future economic benefits are expected from their use or upon their disposal. Gains and losses on de-recognition of an item of property, plant and equipment are determined by comparing the proceeds from disposal, if any, with the carrying amount of property, plant and equipment, and are recognized in the statement of profit and loss.
1.5. Â Â Â Depreciation/amortization
Depreciation is recognized in statement of profit and loss on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment. Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the Company will obtain ownership by the end of the lease term.
Depreciation on the assets of the generation of electricity business and on the assets of Corporate &Â other offices is charged on straight line method following the rates and methodology notified by the CERC Tariff Regulations in accordance with Schedule II of the Companies Act, 2013.
Depreciation on the assets of the coal mining, oil &Â gas exploration and consultancy business is charged on straight line method following the useful life specified in Schedule II of the Companies Act, 2013 except for the assets referred in policy no. C.6.
Major overhaul and inspection costs which have been capitalized are depreciated over the period until the next scheduled outage or actual major inspection/overhaul, whichever is earlier.
Leasehold land and buildings relating to generation of electricity business are fully amortized over lease period or life of the related plant whichever is lower following the rates and methodology notified by the CERC Tariff Regulations.
Leasehold land and buildings relating to corporate and other offices are fully amortized over lease period or twenty five years whichever is lower following the rates and methodology notified by the CERC Tariff Regulations.
Land acquired for mining business under Coal Bearing Areas (Acquisition &Â Development) Act, 1957 is amortized on the basis of balance useful life of the project. Other leasehold land acquired for mining business is amortized over the lease period or balance life of the project whichever is less.
Depreciation on additions to/deductions from property, plant and equipment during the year is charged on pro-rata basis from/up to the month in which the asset is available for use/disposed.
Where the cost of depreciable assets has undergone a change during the year due to increase/decrease in long-term liabilities on account of exchange fluctuation, price adjustment, change in duties or similar factors, the unamortized balance of such asset is charged off prospectively over the remaining useful life determined following the applicable accounting policies relating to depreciation/amortization.
Where it is probable that future economic benefits deriving from the cost incurred will flow to the enterprise and the cost of the item can be measured reliably, subsequent expenditure on a PPE along-with its unamortized depreciable amount is charged off prospectively over the revised useful life determined by technical assessment.
In circumstance, where a property is abandoned, the cumulative capitalized costs relating to the property are written off in the same period.
. Capital work-in-progress
The cost of self-constructed assets includes the cost of materials &Â direct labour, any other costs directly attributable to bringing the assets to the location and condition necessary for it to be capable of operating in the manner intended by management and borrowing costs.
Expenses directly attributable to construction of property, plant and equipment incurred till they are ready for their intended use are identified and allocated on a systematic basis on the cost of related assets.
Deposit works/cost plus contracts are accounted for on the basis of statements of account received from the contractors.
Unsettled liabilities for price variation/exchange rate variation in case of contracts are accounted for on estimated basis as per terms of the contracts.
. Intangible assets and intangible assets under development
3.1. Â Â Â Initial recognition and measurement
An intangible asset is recognized if and only if it is probable that the expected future economic benefits that are attributable to the asset will flow to the Company and the cost of the asset can be measured reliably.
Intangible assets that are acquired by the Company, which have finite useful lives, are recognized at cost. Subsequent measurement is done at cost less accumulated amortization and accumulated impairment losses. Cost includes any directly attributable incidental expenses necessary to make the assets ready for its intended use.
Expenditure on development activities is capitalized only if the expenditure can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable and the Company intends to &Â has sufficient resources to complete development and to use or sell the asset.
Expenditure incurred which are eligible for capitalizations under intangible assets are carried as intangible assets under development till they are ready for their intended use.
3.2. Â Â Â Subsequent costs:
Subsequent expenditure is recognized as an increase in the carrying amount of the asset when it is probable that future economic benefits deriving from the cost incurred will flow to the enterprise and the cost of the item can be measured reliably.
3.3. Â Â Â De-recognition
An intangible asset is derecognized when no future economic benefits are expected from their use or upon their disposal. Gains &Â losses on de-recognition of an item of intangible assets are determined by comparing the proceeds from disposal, if any, with the carrying amount of intangible assets and are recognized in the statement of profit and loss.
3.4. Amortization
Cost of software recognized as intangible asset, is amortized on straight-line method over a period of legal right to use or 3 years, whichever is less. Other intangible assets are amortized on straight-line method over the period of legal right to use or life of the related plant, whichever is less.
4. Â Â Â Regulatory deferral account balances
Expense/income recognized in the statement of profit and loss to the extent recoverable from or payable to the beneficiaries in subsequent periods as per CERC Tariff Regulations are recognized as âRegulatory deferral account balances'.
Regulatory deferral account balances are adjusted from the year in which the same become recoverable from or payable to the beneficiaries.
Regulatory deferral account balances are evaluated at each balance sheet date to ensure that the underlying activities meet the recognition criteria and it is probable that future economic benefits associated with such balances will flow to the entity. If these criteria are not met, the regulatory deferral account balances are derecognized.
5. Â Â Â Exploration for and evaluation of mineral resources
5.1. Â Â Â Oil and gas exploration costs
All exploration costs incurred in drilling and equipping exploratory and appraisal wells, cost of drilling exploratory type stratigraphic test wells are initially capitalized as âExploratory wells-in-progress' till the time these are either transferred to oil and gas assets on completion or expensed as exploration cost (including allocated depreciation) as and when determined to be dry or of no further use, as the case may be.
Costs of exploratory wells are not carried over unless it could be reasonably demonstrated that there are indications of sufficient quantity of reserves and sufficient progress is being made in assessing the reserves and the economic &Â operating viability of the project. All such carried over costs are subject to review for impairment as per the policy of the Company.
Cost of surveys and prospecting activities conducted in the search of oil and gas are expensed in the year in which these are incurred.
5.2. Â Â Â Coal mining exploration costs
Exploration and evaluation costs comprise capitalized costs which are attributable to the search for coal, pending the determination of technical feasibility and the assessment of commercial viability of an identified resource which comprises inter-alia the following:
- Â Â Â researching and analyzing historical exploration data;
- Â Â Â gathering exploration data through topographical, geo chemical and geo physical studies;
- Â Â Â exploratory drilling, trenching and sampling;
- Â Â Â determining &Â examining the volume and grade of the resource; and
- Â Â Â surveying transportation and infrastructure requirements.
Exploration and evaluation expenditure incurred after obtaining the mining right or the legal right to explore are capitalized as exploration and evaluation assets (intangible assets under development) and stated at cost less impairment. Exploration and evaluation assets are assessed for impairment indicators at least annually.
Exploration and evaluation expenditure incurred prior to obtaining the mining right or the legal right to explore are expensed as incurred.
6. Development expenditure on coal mines
Once proved reserves are determined and development of mines/project is sanctioned, exploration and evaluation assets are transferred to âDevelopment of coal mines' under Capital work-in-progress. However, if proved reserves are not determined, the exploration and evaluation costs are derecognized.
The development expenditure capitalized is net of value of coal extracted during development phase.
Subsequent expenditure is capitalized only where it either enhances the economic benefits of the development/ producing asset or replaces part of the existing development/producing asset. Any remaining costs associated with the part replaced are expensed.
Mines under development are capitalized on occurrence of earliest of the following milestones except when commercial readiness is stated in the project report:
a) Â Â Â From the beginning of the financial year immediately after the year in which the project achieves physical output of 25% of rated capacity as per approved project report; or
b) Â Â Â From the beginning of the financial year in which the value of production is more than total expenses; or
c) Â Â Â 2 years of touching of coal.
On being brought to revenue, the assets under capital work-in-progress are reclassified as a component of property, plant and equipment under âMining property'.
Gains and losses on de-recognition of tangible/intangible assets, as referred above, are determined by comparing the proceeds from disposal, if any, with the carrying amount of respective assets and are recognized in the statement of profit and loss.
6.1. Â Â Â Stripping activity expense/adjustment
Expenditure incurred on removal of mine waste materials (overburden) necessary to extract the coal reserves is referred to as stripping cost. The Company has to incur such expenses over the life of the mine as technically estimated.
Cost of stripping is charged on technically evaluated average stripping ratio at each mine with due adjustment for stripping activity asset and ratio-variance account after the mines are brought to revenue.
Net of the balances of stripping activity asset and ratio variance at the Balance Sheet date is shown as âStripping activity adjustment' under the head âNon-current assets/Non-current provisions' as the case may be.
6.2. Â Â Â Mines closure, site restoration and decommissioning obligations
The Company's obligations for land reclamation and decommissioning of structure consist of spending at mines in accordance with the guidelines from Ministry of Coal, Government of India. The Company estimates its obligations for mine closure, site restoration and decommissioning based on the detailed calculation &Â technical assessment of the amount and timing of future cash spending for the required work and provided for as per approved mine closure plan. The estimate of expenses is escalated for inflation and then discounted at a discount rate that reflect current market assessment of the time value of money and risk, such that the amount of provision reflects the present value of expenditure required to settle the obligation. The Company records a corresponding asset under property, plant and equipment associated with the obligation.
The value of the obligation is progressively increased over time as the effect of discounting unwinds and the same is recognized as finance costs.
6.3. Â Â Â Amortization
On being brought to revenue, the mines closure, site restoration and decommissioning obligations are amortized over the balance life of the mine. Mining property is amortized from the year in which the mine is brought under revenue, in 20 years or life of mine whichever is less.
7. Â Â Â Joint operations
The Company has entered into joint arrangements with others for operations in the nature of joint operations. The Company recognizes, on a line-by-line basis its share of the assets, liabilities and expenses of these joint operations as per the arrangement which are accounted based on the respective accounting policies of the Company.
8. Â Â Â Borrowing costs
Borrowing costs consist of (a) interest expense calculated using the effective interest method as described in Ind AS 109 âFinancial Instruments' (b) finance charges in respect of finance leases recognized in accordance with Ind AS 17 âLeases' and (c) exchange differences arising from foreign currency borrowings to the extent that they are regarded as an adjustment to interest costs.
Borrowing costs that are directly attributable to the acquisition, construction/exploration/ development or erection of qualifying assets are capitalized as part of cost of such asset until such time the assets are substantially ready for their intended use. Qualifying assets are assets which necessarily take substantial period of time to get ready for their intended use or sale.
When the Company borrows funds specifically for the purpose of obtaining a qualifying asset, the borrowing costs incurred are capitalized. When Company borrows funds generally and uses them for the purpose of obtaining a qualifying asset, the capitalization of the borrowing costs is computed based on the weighted average cost of general borrowing that are outstanding during the period and used for the acquisition, construction/exploration or erection of the qualifying asset.
Income earned on temporary investment of the borrowings pending their expenditure on the qualifying assets is deducted from the borrowing costs eligible for capitalization.
Capitalization of borrowing costs ceases when substantially all the activities necessary to prepare the qualifying assets for their intended uses are complete.
Other borrowing costs are recognized as an expense in the year in which they are incurred.
9. Â Â Â Inventories
Inventories are valued at the lower of cost and net realizable value. Cost includes cost of purchase, cost of conversion and other costs incurred in bringing the inventories to their present location and condition. Cost is determined on weighted average basis. Costs of purchased inventory are determined after deducting rebates and discounts. Net realizable 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 diminution in the value of obsolete, unserviceable, surplus and non-moving items of stores and spares is ascertained on review and provided for.
Steel scrap is valued at estimated realizable value.
10. Â Â Â Cash and cash equivalents
Cash and cash equivalents in the balance sheet comprise cash at banks, cash on hand and short-term deposits with an original maturity of three months or less, which are subject to an insignificant risk of changes in value.
11. Â Â Â Government grants
Government grants are recognized initially as deferred income when there is reasonable assurance that they will be received and the Company will comply with the conditions associated with the grant. Grants that compensate the Company for the cost of an asset are recognized in profit or loss on a systematic basis over the useful life of the related asset. Grants that compensate the Company for expenses incurred are recognized over the period in which the related costs are incurred and deducted from the related expenses.
12. Â Â Â Fly ash utilization reserve fund
Proceeds from sale of ash/ash products along-with income on investment of such proceeds are transferred to âFly ash utilization reserve fund' in terms of provisions of gazette notification dated 3 November 2009 issued by Ministry of Environment and Forests, Government of India. The fund is utilized towards expenditure on development of infrastructure/ facilities, promotion &Â facilitation activities for use of fly ash.
13. Â Â Â Provisions, contingent liabilities and contingent assets
A provision is recognized if, as a result of a past event, the Company has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. When discounting is used, the increase in the provision due to the passage of time is recognized as a finance costs.
The amount recognized as a provision is the best estimate of the consideration required to settle the present obligation at reporting date, taking into account the risks and uncertainties surrounding the obligation.
When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, the receivable is recognized as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably. The expense relating to a provision is presented in the statement of profit and loss net of any reimbursement.
Contingent liabilities are possible obligations that arise from past events and whose existence will only be confirmed by the occurrence or non-occurrence of one or more future events not wholly within the control of the Company. Where it is not probable that an outflow of economic benefits will be required, or the amount cannot be estimated reliably, the obligation is disclosed as a contingent liability, unless the probability of outflow of economic benefits is remote. Contingent liabilities are disclosed on the basis of judgment of the management/independent experts. These are reviewed at each balance sheet date and are adjusted to reflect the current management estimate.
Contingent assets are possible assets that arise from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Company. Contingent assets are disclosed in the financial statements when inflow of economic benefits is probable on the basis of judgment of management. These are assessed continually to ensure that developments are appropriately reflected in the financial statements.
14. Â Â Â Foreign currency transactions and translation
Transactions in foreign currencies are initially recorded at the functional currency spot rates at the date the transaction first qualifies for recognition.
Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency spot rates of exchange at the reporting date. Exchange differences arising on settlement or translation of monetary items are recognized in profit or loss in the year in which it arises with the exception that exchange differences on long term monetary items related to acquisition of property, plant and equipment recognized up to 31 March 2016 are adjusted to the carrying cost of property, plant and equipment.
Non-monetary items are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction.
15. Â Â Â Revenue
Company's revenues arise from sale and trading of energy, consultancy, project management &Â supervision services and other income. Revenue from other income comprises interest from banks, employees, contractors etc., dividend from investments in joint venture &Â subsidiary companies, dividend from mutual fund investments, surcharge received from beneficiaries for delayed payments, sale of scrap, other miscellaneous income, etc.
15.1. Revenue from sale of energy
The majority of the Company's operations in India are regulated under the Electricity Act, 2003. Accordingly, the CERC determines the tariff for the Company's power plants based on the norms prescribed in the tariff regulations as applicable from time to time. Tariff is based on the capital cost incurred for a specific power plant and primarily comprises two components: capacity charge i.e. a fixed charge, that includes depreciation, return on equity, interest on working capital, operating &Â maintenance expenses, interest on loan and energy charge i.e. a variable charge primarily based on fuel costs.
Revenue from the sale of energy is measured at the fair value of the consideration received or receivable. Revenue is recognized when the significant risks and rewards of ownership have been transferred to the buyer, recovery of the consideration is probable, the associated costs can be estimated reliably, there is no continuing management involvement, and the amount of revenue can be measured reliably.
Revenue from sale of energy is accounted for based on tariff rates approved by the CERC (except items indicated as provisional) as modified by the orders of Appellate Tribunal for Electricity to the extent applicable. In case of power stations where the tariff rates are yet to be approved/items indicated provisional by the CERC in their orders, provisional rates are adopted considering the applicable CERC Tariff Regulations. Revenue from sale of energy is recognized once the electricity has been delivered to the beneficiary and is measured through a regular review of usage meters. Beneficiaries are billed on a periodic and regular basis. As at each reporting date, revenue from sale of energy includes an accrual for sales delivered to beneficiaries but not yet billed i.e. unbilled revenue.
The incentives/disincentives are accounted for based on the norms notified/approved by the CERC as per principles enunciated in Ind AS 18. In cases of power stations where the same have not been notified/approved, incentives/disincentives are accounted for on provisional basis.
Part of revenue from sale of energy is recognized based on the rates, terms &Â conditions mutually agreed with the beneficiaries and trading of power through power exchanges.
Rebates allowed to beneficiaries as early payment incentives are deducted from the amount of revenue.
Advance against depreciation considered as deferred revenue in earlier years is included in sales, to the extent depreciation recovered in tariff during the year is lower than the corresponding depreciation charged.
Exchange differences arising from settlement/translation of monetary items denominated in foreign currency to the extent recoverable from or payable to the beneficiaries in subsequent periods as per the CERC Tariff Regulations are accounted as âRegulatory deferred account balances' and adjusted from the year in which the same becomes recoverable/payable.
Exchange differences on account of translation of foreign currency borrowings recognized upto 31 March 2016, recoverable from or payable to the beneficiaries in subsequent periods as per the CERC Tariff Regulations are accounted as âDeferred foreign currency fluctuation asset'. The increase or decrease in depreciation for the year due to the accounting of such exchange differences as mentioned above is adjusted in depreciation. Fair value changes in respect of forward exchange contracts of derivative contracts recoverable from/payable to the beneficiaries as per the CERC Tariff Regulations, are recognized in sales.
15.2. Â Â Â Revenue from services
Revenue from consultancy, project management and supervision services rendered is recognized in profit or loss in proportion to the stage of completion of the transaction at the reporting date. The stage of completion is assessed by reference to actual progress/technical assessment of work executed, in line with the terms of the respective consultancy contracts. Reimbursement of expenses are recognized as other income, as per the terms of the consultancy service contracts.
15.3. Â Â Â Other income
Interest income is recognized, when no significant uncertainty as to measurability or collectability exist, on a time proportion basis taking into account the amount outstanding and the applicable interest rate, using the effective interest rate method (EIR).
Scrap other than steel scrap is accounted for as and when sold.
Insurance claims for loss of profit are accounted for in the year of acceptance. Other insurance claims are accounted for based on certainty of realization.
Revenue from rentals and operating leases is recognized on an accrual basis in accordance with the substance of the relevant agreement.
For debt instruments measured either at amortized cost or at fair value through other comprehensive income (OCI), interest income is recorded using the EIR. EIR is the rate that exactly discounts the estimated future cash payments or receipts over the expected life of the financial instrument or a shorter period, where appropriate, to the gross carrying amount of the financial asset or to the amortized cost of a financial liability. When calculating the EIR, the Company estimates the expected cash flows by considering all the contractual terms of the financial instrument (for example, prepayment, extension, call and similar options) but does not consider the expected credit losses. Interest income is included in other income in the statement of profit and loss.
The interest/surcharge on late payment/overdue sundry debtors for sale of energy is recognized when no significant uncertainty as to measurability or collectability exists.
Interest/surcharge recoverable on advances to suppliers as well as warranty claims wherever there is uncertainty of realization/acceptance are not treated as accrued and are therefore, accounted for on receipt/acceptance.
Dividend income is recognized in profit or loss only when the right to receive is established, it is probable that the economic benefits associated with the dividend will flow to the Company, and the amount of the dividend can be measured reliably.
16. Employee benefits
16.1. Â Â Â Defined contribution plans
A defined contribution plan is a post-employment benefit plan under which an entity pays fixed contributions into separate entities and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution plans are recognized as an employee benefits expense in profit or loss in the period during which services are rendered by employees. Prepaid contributions are recognized as an asset to the extent that a cash refund or a reduction in future payments is available. Contributions to a defined contribution plan that are due after more than 12 months after the end of the period in which the employees render the service are discounted to their present value.
The Company has a defined contribution pension scheme which is administered through a separate trust. The obligation of the Company is to contribute to the trust to the extent of amount not exceeding 30% of basic pay and dearness allowance less employer's contribution towards provident fund, gratuity, post-retirement medical facility (PRMF) or any other retirement benefits. The contributions to the fund for the year are recognized as an expense and charged to the statement of profit and loss.
16.2. Â Â Â Defined benefit plans
A defined benefit plan is a post-employment benefit plan other than a defined contribution plan. The Company's liability towards gratuity, pension scheme at two of the stations in respect of taken over employees from the erstwhile state government power utility, post-retirement medical facility, baggage allowance for settlement at home town after retirement, farewell gift on retirement and provident fund scheme to the extent of interest liability on provident fund contribution are in the nature of defined benefit plans.
The Company pays fixed contribution to the provident fund at predetermined rates to a separate trust, which invests the funds in permitted securities. The contributions to the fund for the year are recognized as expense and are charged to the profit or loss. The obligation of the Company is to make such fixed contributions and to ensure a minimum rate of return to the members as specified by the Government of India.
The gratuity is funded by the Company and is managed by separate trust. Pension scheme at one of the taken over projects is also funded by the Company and is managed by separate trust. The Company has PRMF, under which retired employee and the spouse are provided medical facilities in the Company hospitals/empanelled hospitals. They can also avail treatment as out-patient subject to a ceiling fixed by the Company.
The Company's net obligation in respect of defined benefit plans is calculated separately for each plan by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine its present value. Any unrecognized past service costs and the fair value of any plan assets are deducted. The discount rate is based on the prevailing market yields of Indian government securities as at the reporting date that have maturity dates approximating the terms of the Company's obligations and that are denominated in the same currency in which the benefits are expected to be paid.
The calculation is performed annually by a qualified actuary using the projected unit credit method. When the calculation results in a benefit to the Company, the recognized asset is limited to the total of any unrecognized past service costs and the present value of economic benefits available in the form of any future refunds from the plan or reductions in future contributions to the plan. An economic benefit is available to the Company if it is realizable during the life of the plan, or on settlement of the plan liabilities. Any actuarial gains or losses are recognized in OCI in the period in which they arise.
When the benefits of a plan are improved, the portion of the increased benefit relating to past service by employees is recognized in profit or loss on a straight-line basis over the average period until the benefits become vested. To the extent that the benefits vest immediately, the expense is recognized immediately in statement of profit and loss.
16.3. Â Â Â Other long-term employee benefits
Benefits under the Company's leave encashment, long-service award and economic rehabilitation scheme constitute other long term employee benefits.
The Company's net obligation in respect of leave encashment is the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine its present value, and the fair value of any related assets is deducted. The discount rate is based on the prevailing market yields of Indian government securities as at the reporting date that have maturity dates approximating the terms of the Company's obligations. The calculation is performed using the projected unit credit method. Any actuarial gains or losses are recognized in profit or loss in the period in which they arise.
As per the Company's economic rehabilitation scheme which is optional, the nominee of the deceased employee is paid a fixed amount based on the last salary drawn by the employee till the date of superannuation of the employee by depositing the final provident fund and gratuity amount which will be interest free.
The obligations are presented as current liabilities in the balance sheet if the entity does not have an unconditional right to defer settlement for at least twelve months after the reporting period, regardless of when the actual settlement is expected to occur.
16.4. Â Â Â Short-term benefits
Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided.
A liability is recognized for the amount expected to be paid under performance related pay if the Company has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably.
17. Â Â Â Other expenses
Expenses on ex-gratia payments under voluntary retirement scheme, training &Â recruitment and voluntary community development are charged to statement of profit and loss in the year incurred.
Expenditure on research is charged to revenue as and when incurred. Expenditure on development is charged to revenue as and when incurred unless it meets the recognition criteria for intangible asset as per Ind AS 38 âIntangible assets'.
Preliminary expenses on account of new projects incurred prior to approval of feasibility report/techno economic clearance are charged to statement of profit and loss.
Net pre-commissioning income/expenditure is adjusted directly in the cost of related assets and systems.
Transit and handling losses of coal as per Company's norms are included in cost of coal.
18. Â Â Â Income tax
Income tax expense comprises current and deferred tax. Current tax expense is recognized in profit or loss except to the extent that it relates to items recognized directly in other comprehensive income or equity, in which case it is recognized in OCI or equity.
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted and as applicable at the reporting date, and any adjustment to tax payable in respect of previous years.
Deferred tax is recognized using the balance sheet method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority.
Deferred tax is recognized in profit or loss except to the extent that it relates to items recognized directly in OCI or equity, in which case it is recognized in OCI or equity.
A deferred tax asset is recognized to the extent that it is probable that future taxable profits will be available against which the temporary difference can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.
Additional income taxes that arise from the distribution of dividends are recognized at the same time that the liability to pay the related dividend is recognized.
19. Leases
19.1. Â Â Â As lessee Accounting for finance leases
Leases of property, plant and equipment where the Company, as lessee has substantially all risks and rewards of ownership are classified as finance lease. On initial recognition, assets held under finance leases are recorded as property, plant and equipment and the related liability is recognized under borrowings. At inception of the lease, finance leases are recorded at amounts equal to the fair value of the leased asset or, if lower, the present value of the minimum lease payments. Minimum lease payments made under finance leases are apportioned between the finance expense and the reduction of the outstanding liability.
The finance expense is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability.
Accounting for operating leases
Leases in which a significant portion of the risks and rewards of ownership are not transferred to the Company as lessee are classified as operating lease. Payments made under operating leases are recognized as an expense on a straight-line basis over the lease term unless the payments are structured to increase in line with expected general inflation to compensate for the less orâs expected inflationary cost increases. Lease incentives received are recognized as an integral part of the total lease expense, over the term of the lease.
19.2. Â Â Â As less or
At the inception of an arrangement, the Company determines whether such an arrangement is or contains a lease. A specific asset is subject of a lease if fulfillment of the arrangement is dependent on the use of that specified asset. An arrangement conveys the right to use the asset if the arrangement conveys to the customer the right to control the use of the underlying asset. Arrangements that do not take the legal form of a lease but convey rights to customers/suppliers to use an asset in return for a payment or a series of payments are identified as either finance leases or operating leases.
Accounting for finance leases
Where the Company determines a long term PPA to be or to contain a lease and where the off taker has the principal risk and rewards of ownership of the power plant through its contractual arrangements with the Company, the arrangement is considered a finance lease. Capacity payments are apportioned between capital repayments relating to the provision of the plant, finance income and service income. The finance income element of the capacity payment is recognized as revenue, using a rate of return specific to the plant to give a constant periodic rate of return on the net investment in each period. The service income element of the capacity payment is the difference between the total capacity payment and the amount recognized as finance income and capital repayments and recognized as revenue as it is earned.
The amounts due from lessees under finance leases are recorded in the balance sheet as financial assets, classified as âFinance lease receivables', at the amount of the net investment in the lease.
Accounting for operating leases
Where the Company determines a long term PPA to be or to contain a lease and where the Company retains the principal risks and rewards of ownership of the power plant, the arrangement is considered an operating lease.
For operating leases, the power plant is capitalized as property, plant and equipment and depreciated over its economic life. Rental income from operating leases is recognized on a straight line basis over the term of the arrangement unless the receipts are structured to increase in line with expected general inflation to compensate for the expected inflationary cost increases.
20. Â Â Â Impairment of non-financial assets
The carrying amounts of the Company's non-financial assets are reviewed at each reporting date to determine whether there is any indication of impairment considering the provisions of Ind AS 36 âImpairment of Assets'. If any such indication exists, then the asset's recoverable amount is estimated.
The recoverable amount of an asset or cash-generating unit is the higher of its fair value less costs to disposal and its value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the âcash-generating unitâ, or âCGUâ).
An impairment loss is recognized if the carrying amount of an asset or its CGU exceeds its estimated recoverable amount. Impairment losses are recognized in profit or loss. Impairment losses recognized in respect of CGUs are reduced from the carrying amounts of the assets of the CGU.
Impairment losses recognized in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized.
21. Â Â Â Operating segments
In accordance with Ind AS 108, the operating segments used to present segment information are identified on the basis of internal reports used by the Company's management to allocate resources to the segments and assess their performance. The Board of Directors is collectively the Company's âChief Operating Decision Maker' or âCODM' within the meaning of Ind AS 108. The indicators used for internal reporting purposes may evolve in connection with performance assessment measures put in place.
Segment results that are reported to the CODM include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items comprise mainly corporate expenses, finance costs, income tax expenses and corporate income.
Revenue directly attributable to the segments is considered as segment revenue. Expenses directly attributable to the segments and common expenses allocated on a reasonable basis are considered as segment expenses.
Segment capital expenditure is the total cost incurred during the period to acquire property, plant and equipment, and intangible assets other than goodwill.
Segment assets comprise property, plant and equipment, intangible assets, trade and other receivables, inventories and other assets that can be directly or reasonably allocated to segments. For the purpose of segment reporting for the year, property, plant and equipment have been allocated to segments based on the extent of usage of assets for operations attributable to the respective segments. Segment assets do not include investments, income tax assets, capital work in progress, capital advances, corporate assets and other current assets that cannot reasonably be allocated to segments.
Segment liabilities include all operating liabilities in respect of a segment and consist principally of trade and other payables, employee benefits and provisions. Segment liabilities do not include equity, income tax liabilities, loans and borrowings and other liabilities and provisions that cannot reasonably be allocated to segments.
22. Â Â Â Dividends
Dividends and interim dividends payable to a Company's shareholders are recognized as changes in equity in the period in which they are approved by the shareholders' meeting and the Board of Directors respectively.
23. Â Â Â Material prior period errors
Material prior period errors are corrected retrospectively by restating the comparative amounts for the prior periods presented in which the error occurred. If the error occurred before the earliest period presented, the opening balances of assets, liabilities and equity for the earliest period presented, are restated.
24. Â Â Â Earnings per share
Basic earnings per equity share is computed by dividing the net profit or loss attributable to equity shareholders of the Company by the weighted average number of equity shares outstanding during the financial year.
Diluted earnings per equity share is computed by dividing the net profit or loss attributable to equity shareholders of the Company by the weighted average number of equity shares considered for deriving basic earnings per equity share and also the weighted average number of equity shares that could have been issued upon conversion of all dilutive potential equity shares.
Basic and diluted earnings per equity share are also computed using the earnings amounts excluding the movements in regulatory deferral account balances.
25. Â Â Â Statement of cash flows
Statement of cash flows is prepared in accordance with the indirect method prescribed in Ind AS 7 âStatement of cash flows'.
26. Â Â Â 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.
26.1. Financial assets Initial recognition and measurement
All financial assets are recognized initially at fair value plus, in the case of financial assets not recorded at fair value through profit or loss, transaction costs that are attributable to the acquisition or issue of the financial asset.
Subsequent measurement Debt instruments at amortized cost
A âdebt instrument' is measured at the amortized cost if both the following conditions are met:
(a) Â Â Â The asset is held within a business model whose objective is to hold assets for collecting contractual cash flows, and
(b) Â Â Â Contractual terms of the asset give rise on specified dates to cash flows that are solely payments of principal and interest (SPPI) on the principal amount outstanding.
After initial measurement, such financial assets are subsequently measured at amortized cost using the EIR method. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortization is included in finance income in the profit or loss. The losses arising from impairment are recognized in the profit or loss. This category generally applies to trade and other receivables.
Debt instrument at FVTOCI (Fair value through OCI)
A âdebt instrument' is classified as at the FVTOCI if both of the following criteria are met:
(a) Â Â Â The objective of the business model is achieved both by collecting contractual cash flows and selling the financial assets, and
(b) Â Â Â The asset's contractual cash flows represent SPPI
Debt instruments included within the FVTOCI category are measured initially as well as at each reporting date at fair value. Fair value movements are recognized in the OCI. However, the Company recognizes interest income, impairment losses &Â reversals and foreign exchange gain or loss in the profit and loss. On derecognition of the asset, cumulative gain or loss previously recognized in OCI is reclassified from the equity to profit and loss. Interest earned whilst holding FVTOCI debt instrument is reported as interest income using the EIR method.
Debt instrument at FVTPL (Fair value through profit or loss)
FVTPL is a residual category for debt instruments. Any debt instrument, which does not meet the criteria for categorization as at amortized cost or as FVTOCI, is classified as at FVTPL.
In addition, the Company may elect to classify a debt instrument, which otherwise meets amortized cost or FVTOCI criteria, as at FVTPL. However, such election is allowed only if doing so reduces or eliminates a measurement or recognition inconsistency (referred to as âaccounting mismatch'). Debt instruments included within the FVTPL category are measured at fair value with all changes recognized in the profit and loss.
Equity investments
All equity investments in entities other than subsidiaries and joint venture companies are measured at fair value. Equity instruments which are held for trading are classified as at FVTPL. For all other equity instruments, the Company decides to classify the same either as at FVTOCI or FVTPL. The Company makes such election on an instrument by instrument basis. The classification is made on initial recognition and is irrevocable.
If the Company decides to classify an equity instrument as at FVTOCI, then all fair value changes on the instrument, excluding dividends, are recognized in the OCI. There is no recycling of the amounts from OCI to statement of profit and loss, even on sale of investment. However, the Company may transfer the cumulative gain or loss within equity.
Equity instruments included within the FVTPL category are measured at fair value with all changes recognized in the profit and loss.
Equity investments in subsidiaries and joint ventures companies are measured at cost.
De-recognition
A financial asset (or, where applicable, a part of a financial asset or part of a Company of similar financial assets) is primarily derecognized (i.e. removed from the Company's balance sheet) when:
- Â Â Â The rights to receive cash flows from the asset have expired, or
- Â Â Â The Company has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a âpass-through' arrangement; and either (a) the Company has transferred substantially all the risks and rewards of the asset, or (b) the Company has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.
Impairment of financial assets
I n accordance with Ind AS 109, the Company applies expected credit loss (ECL) model for measurement and recognition of impairment loss on the following financial assets and credit risk exposure:
(a) Â Â Â Financial assets that are debt instruments, and are measured at amortized cost e.g., loans, debt securities, deposits and bank balance.
(b) Â Â Â Financial assets that are debt instruments and are measured as at FVTOCI.
(c) Â Â Â Lease receivables under Ind AS 17.
(d) Â Â Â Trade receivables under Ind AS 11 and Ind AS 18.
(e) Â Â Â Loan commitments which are not measured as at FVTPL.
(f) Â Â Â Financial guarantee contracts which are not measured as at FVTPL.
For recognition of impairment loss on other financial assets and risk exposure, the Company determines that whether there has been a significant increase in the credit risk since initial recognition. If credit risk has not increased significantly, 12 month ECL is used to provide for impairment loss. However, if credit risk has increased significantly, lifetime ECL is used. If, in a subsequent period, credit quality of the instrument improves such that there is no longer a significant increase in credit risk since initial recognition, then the entity reverts to recognizing impairment loss allowance based on 12 month ECL.
26.2. Financial liabilities Initial recognition and measurement
Financial liabilities are classified, at initial recognition, as financial liabilities at fair value through profit or loss, borrowings, payables, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. All financial liabilities are recognized initially at fair value and, in the case of borrowings and payables, net of directly attributable transaction costs. The Company's financial liabilities include trade and other payables, borrowings including bank overdrafts, financial guarantee contracts and derivative financial instruments.
Subsequent measurement
The measurement of financial liabilities depends on their classification, as described below:
Financial liabilities at amortized cost
After initial measurement, such financial liabilities are subsequently measured at amortized cost using the EIR method. Gains and losses are recognized in profit or loss when the liabilities are derecognized as well as through the EIR amortization process Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortization is included in finance costs in the profit or loss. This category generally applies to borrowings, trade payables and other contractual liabilities.
Financial liabilities at fair value through profit or loss
Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated upon initial recognition as at fair value through profit or loss. Financial liabilities are classified as held for trading if they are incurred for the purpose of repurchasing in the near term. This category also includes derivative financial instruments entered into by the Company that are not designated as hedging instruments in hedge relationships as defined by Ind AS 109. Separated embedded derivatives are also classified as held for trading unless they are designated as effective hedging instruments.
Gains or losses on liabilities held for trading are recognized in the statement of profit and loss.
Financial liabilities designated upon initial recognition at fair value through profit or loss are designated at the initial date of recognition, and only if the criteria in Ind AS 109 are satisfied. For liabilities designated as FVTPL, fair value gains/losses attributable to changes in own credit risk are recognized in OCI. These gains/losses are not subsequently transferred to profit and loss. However, the Company may transfer the cumulative gain or loss within equity. All other changes in fair value of such liability are recognized in the statement of profit and loss. The Company has not designated any financial liability as at fair value through profit and loss.
De-recognition
A financial liability is dere
Mar 31, 2017
summary of the significant accounting policies applied in the preparation of the financial statements are as given below. These accounting policies have been applied consistently to all periods presented in the financial statements. The Company has elected to utilize the option under Ind AS 101 by not applying the provisions of Ind AS 16 & Ind AS 38 retrospectively and continue to use the previous GAAP carrying amount as a deemed cost under Ind AS at the date of transition to Ind AS. Therefore, the carrying amount of property, plant and equipment and intangible assets as per the previous GAAP as at 1 April 2015, i.e; the Companyâs date of transition to Ind AS, were maintained on transition to Ind AS.
1. Property, plant and equipment
1.1. Initial recognition and measurement
Items of property, plant and equipment are initially recognized at cost. Subsequent measurement is done at cost less accumulated depreciation/amortization and accumulated impairment losses. Cost includes expenditure that is directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management.
When parts of an item of property, plant and equipment have different useful lives, they are recognized separately.
Deposits, payments/liabilities made provisionally towards compensation, rehabilitation and other expenses relatable to land in possession are treated as cost of land.
In the case of assets put to use, where final settlement of bills with contractors is yet to be effected, capitalization is done on provisional basis subject to necessary adjustment in the year of final settlement. Assets and systems common to more than one generating unit are capitalized on the basis of engineering estimates/assessments.
Expenditure on major inspection and overhauls of generating unit is capitalized, when it meets the asset recognition criteria.
Items of spare parts, stand-by equipment and servicing equipment which meet the definition of property, plant and equipment are capitalized. Other spare parts are carried as inventory and recognized in the statement of profit and loss on consumption.
1.2. Subsequent costs
Subsequent expenditure is recognized as an increase in the carrying amount of the asset when it is probable that future economic benefits deriving from the cost incurred will flow to the enterprise and the cost of the item can be measured reliably.
The cost of replacing part of an item of property, plant and equipment is recognized in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Company and its cost can be measured reliably. The carrying amount of the replaced part is derecognized. The costs of the day-to-day servicing of property, plant and equipment are recognized in profit or loss as incurred.
1.3. Decommissioning costs
The present value of the expected cost for the decommissioning of the asset after its use is included in the cost of the respective asset if the recognition criteria for a provision are met.
1.4. Derecognition
Property, plant and equipment is derecognized when no future economic benefits are expected from their use or upon their disposal. Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment, and are recognized in the statement of profit and loss.
1.5. Depreciation/amortization
Depreciation is recognized in statement of profit and loss on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment. Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the Company will obtain ownership by the end of the lease term.
Depreciation on the assets of the generation of electricity business and on the assets of Corporate & other offices is charged on straight line method following the rates and methodology notified by the CERC Tariff Regulations in accordance with Schedule II of the Companies Act, 2013.
Depreciation on the assets of the coal mining, oil & gas exploration and consultancy business is charged on straight line method following the useful life specified in Schedule II of the Companies Act, 2013 except for the assets referred in policy no. C.6.
Depreciation on the following assets is provided on their estimated useful life ascertained on technical evaluation:
Major overhaul and inspection costs which have been capitalized are depreciated over the period until the next scheduled outage or actual major inspection/overhaul, whichever is earlier.
Leasehold land and buildings relating to generation of electricity business are fully amortized over lease period or life of the related plant whichever is lower following the rates and methodology notified by the CERC Tariff Regulations.
Leasehold land and buildings relating to Corporate and other offices are fully amortized over lease period or twenty-five years whichever is lower following the rates and methodology notified by the CERC Tariff Regulations.
Land acquired for mining business under Coal Bearing Areas (Acquisition & Development) Act, 1957 is amortized on the basis of balance useful life of the project. Other leasehold land acquired for mining business is amortized over the lease period or balance life of the project whichever is less.
Depreciation on additions to/deductions from property, plant & equipment during the year is charged on pro-rata basis from/up to the month in which the asset is available for use/disposed.
Where the cost of depreciable assets has undergone a change during the year due to increase/decrease in long term liabilities on account of exchange fluctuation, price adjustment, change in duties or similar factors, the unamortized balance of such asset is charged off prospectively over the remaining useful life determined following the applicable accounting policies relating to depreciation/ amortization.
Where it is probable that future economic benefits deriving from the cost incurred will flow to the enterprise and the cost of the item can be measured reliably, subsequent expenditure on a PPE along-with its unamortized depreciable amount is charged off prospectively over the revised useful life determined by technical assessment.
In circumstance, where a property is abandoned, the cumulative capitalized costs relating to the property are written off in the same period.
2. Capital work-in-progress
The cost of self-constructed assets includes the cost of materials & direct labour, any other costs directly attributable to bringing the assets to the location and condition necessary for it to be capable of operating in the manner intended by management and borrowing costs.
Expenses directly attributable to construction of property, plant and equipment incurred till they are ready for their intended use are identified and allocated on a systematic basis on the cost of related assets.
Deposit works/cost plus contracts are accounted for on the basis of statements of account received from the contractors.
Unsettled liabilities for price variation/exchange rate variation in case of contracts are accounted for on estimated basis as per terms of the contracts.
3. Intangible assets and intangible assets under development
3.1. Initial recognition and measurement
Intangible assets that are acquired by the Company, which have finite useful lives, are recognized at cost. Subsequent measurement is done at cost less accumulated amortization and accumulated impairment losses. Cost includes any directly attributable incidental expenses necessary to make the assets ready for its intended use.
Expenditure incurred which are eligible for capitalizations under intangible assets are carried as intangible assets under development till they are ready for their intended use.
3.2. Derecognition
An intangible asset is derecognized when no future economic benefits are expected from their use or upon their disposal. Gains and losses on disposal of an item of intangible assets are determined by comparing the proceeds from disposal with the carrying amount of intangible assets and are recognized in the statement of profit and loss.
3.3. Amortisation
Cost of software recognized as intangible asset, is amortized on straight line method over a period of legal right to use or 3 years, whichever is less. Other intangible assets are amortized on straight line method over the period of legal right to use or life of the related plant, whichever is less.
4. Regulatory deferral account balances
Expense/income recognized in the Statement of Profit & Loss to the extent recoverable from or payable to the beneficiaries in subsequent periods as per CERC Tariff Regulations are recognized as âRegulatory deferral account balancesâ.
Regulatory deferral accounts balances are adjusted from the year in which the same become recoverable from or payable to the beneficiaries.
5. Oil and gas exploration costs
5.1. Interest in Joint Operations
The Company has entered into joint arrangements with others for operations in the nature of joint operations. The Company recognizes, on a line-by-line basis its share of the assets, liabilities and expenses of these joint operations as per the arrangement which are accounted based on the respective accounting policies of the Company.
5.2. Intangible assets under development - Exploratory wells in progress
All exploration costs incurred in drilling and equipping exploratory and appraisal wells, cost of drilling exploratory type stratigraphic test wells are initially capitalized as âExploratory wells-in-progressâ till the time these are either transferred to Oil and Gas Assets on completion or expensed as exploration cost (including allocated depreciation) as and when determined to be dry or of no further use, as the case may be.
Costs of exploratory wells are not carried over unless it could be reasonably demonstrated that there are indications of sufficient quantity of reserves and sufficient progress is being made in assessing the reserves and the economic & operating viability of the project. All such carried over costs are subject to review for impairment as per the policy of the Company.
Survey costs - Cost of surveys and prospecting activities conducted in the search of oil and gas are expensed in the year in which these are incurred.
6. Development of coal mines
The costs of mining properties, which include the costs of acquiring and developing mining properties and mineral rights, are capitalized as âMining propertiesâ in the year in which they are incurred.
6.1. Mine development expenditure
Pre-production primary development expenditure (including stripping costs as mentioned below) other than land, buildings, plant & equipment is capitalized as capital work-in-progress as and when incurred until the mining property is capable of commercial production and then capitalised as part of the cost of the mining property. Development costs incurred after the commencement of production are capitalised to the extent they are expected to give rise to a future economic benefit.
Mines under development are capitalised on occurrence of earliest of the following milestones except when commercial readiness is stated in the project report -
a) From the beginning of the financial year immediately after the year in which the project achieves physical output of 25% of rated capacity as per approved project report; or
b) From the beginning of the financial year in which the value of production is more than total expenses: or
c) 2 years of touching of coal.
6.2. Stripping costs
Expenditure incurred on removal of overburden and other waste material necessary to extract the coal reserves is referred to as stripping cost.
6.3. Decommissioning costs
Decommissioning costs - Costs to decommission the mines are estimated at their present value based on approved mine closure plan of the Company and included in âTangible assets - Mining propertiesâ.
6.4. Amortisation
Mining properties are amortized over the life of the mine on a unit of production basis on stripping ratio. The stripping ratio for the life of the mine is obtained by dividing the estimated quantity of overburden by the estimated quantity of mineable coal reserve to be extracted over the life of the mine. This ratio is periodically reviewed and changes, if any, are accounted for prospectively.
7. Borrowing costs
Borrowing costs that are directly attributable to the acquisition, construction/exploration/ development or erection of qualifying assets are capitalized as part of cost of such asset until such time the assets are substantially ready for their intended use. Qualifying assets are assets which take a substantial period of time to get ready for their intended use or sale.
When the Company borrows funds specifically for the purpose of obtaining a qualifying asset, the borrowing costs incurred are capitalized. When Company borrows funds generally and uses them for the purpose of obtaining a qualifying asset, the capitalization of the borrowing costs is computed based on the weighted average cost of general borrowing that are outstanding during the period and used for the acquisition, construction/exploration or erection of the qualifying asset.
Capitalization of borrowing costs ceases when substantially all the activities necessary to prepare the qualifying assets for their intended uses are complete. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds. Income earned on temporary investment of the borrowings pending their expenditure on the qualifying assets is deducted from the borrowing costs eligible for capitalization. Borrowing costs include exchange differences arising from foreign currency borrowings to the extent that they are regarded as an adjustment to interest costs.
Other borrowing costs are recognized as an expense in the year in which they are incurred.
8. Inventories
Inventories are valued at the lower of cost and net realizable value. Cost includes cost of purchase, cost of conversion and other costs incurred in bringing the inventories to their present location and condition. Cost is determined on weighted average basis. Costs of purchased inventory are determined after deducting rebates and discounts. Net realizable 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 diminution in the value of obsolete, unserviceable and surplus stores & spares is ascertained on review and provided for.
9. Cash and cash equivalents
Cash and cash equivalents in the balance sheet comprise cash at banks and on hand and short-term deposits with an original maturity of three months or less, which are subject to an insignificant risk of changes in value.
10. Government grants
Government grants are recognized initially as deferred income when there is reasonable assurance that they will be received and the Company will comply with the conditions associated with the grant. Grants that compensate the Company for the cost of an asset are recognized in profit or loss on a systematic basis over the useful life of the related asset. Grants that compensate the Company for expenses incurred are recognized over the period in which the related costs are incurred and deducted from the related expenses.
11. Fly ash utilization reserve fund
Proceeds from sale of ash/ash products along-with income on investment of such proceeds are transferred to âFly ash utilization reserve fundâ in terms of provisions of gazette notification dated 3 November 2009 issued by Ministry of Environment and Forests, Government of India. The fund is utilized towards expenditure on development of infrastructure/facilities, promotion & facilitation activities for use of fly ash.
12. Provisions and contingent liabilities
A provision is recognized if, as a result of a past event, the Company has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. When discounting is used, the increase in the provision due to the passage of time is recognized as a finance cost.
The amount recognized as a provision is the best estimate of the consideration required to settle the present obligation at reporting date, taking into account the risks and uncertainties surrounding the obligation.
When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, the receivable is recognized as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably. The expense relating to a provision is presented in the statement of profit and loss net of any reimbursement.
Contingent liabilities are possible obligations that arise from past events and whose existence will only be confirmed by the occurrence or non-occurrence of one or more future events not wholly within the control of the Company. Where it is not probable that an outflow of economic benefits will be required, or the amount cannot be estimated reliably, the obligation is disclosed as a contingent liability, unless the probability of outflow of economic benefits is remote. Contingent liabilities are disclosed on the basis of judgment of the management/independent experts. These are reviewed at each balance sheet date and are adjusted to reflect the current management estimate.
13. Foreign currency transactions and translation
Transactions in foreign currencies are initially recorded at the functional currency spot rates at the date the transaction first qualifies for recognition.
Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency spot rates of exchange at the reporting date. Exchange differences arising on settlement or translation of monetary items are recognized in profit or loss in the year in which it arises with the exception that exchange differences on long term monetary items related to acquisition of property, plant & equipment recognized upto 31 March 2016 are adjusted to carrying cost of property, plant & equipment.
Non-monetary items are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction.
Companyâs revenues arise from sale of energy, consultancy, project management & supervision services and other income. Revenue from sale of energy is mostly regulated and governed by the applicable CERC Tariff Regulations under Electricity Act, 2003. Certain revenue from sale of energy is recognized based on the rates & terms and conditions mutually agreed with the beneficiaries and trading of power through power exchanges. Revenue from other income comprises interest from banks, employees, contractors etc., dividend from investments in joint venture and subsidiary companies, dividend from mutual fund investments, surcharge received from customers for delayed payments, sale of scrap, other miscellaneous income, etc.
14.1. Revenue from sale of energy
The majority of the Companyâs operations in India are regulated under the Electricity Act, 2003. Accordingly, the CERC determines the tariff for the Companyâs power plants based on the norms prescribed in the tariff regulations as applicable from time to time. Tariff is based on the capital cost incurred for a specific power plant and primarily comprises two components: capacity charge i.e. a fixed charge, that includes depreciation, return on equity, interest on working capital, operating & maintenance expenses, interest on loan and energy charge i.e. a variable charge primarily based on fuel costs.
Revenue from the sale of energy is measured at the fair value of the consideration received or receivable. Revenue is recognized when the significant risks and rewards of ownership have been transferred to the buyer, recovery of the consideration is probable, the associated costs can be estimated reliably, there is no continuing management involvement, and the amount of revenue can be measured reliably.
Revenue from sale of energy is accounted for based on tariff rates approved by the CERC (except items indicated as provisional) as modified by the orders of Appellate Tribunal for Electricity to the extent applicable. In case of power stations where the tariff rates are yet to be approved/items indicated provisional by the CERC in their orders, provisional rates are adopted considering the applicable CERC Tariff Regulations. Revenue from sale of energy is recognized once the electricity has been delivered to the customer and is measured through a regular review of usage meters. Customers are billed on a periodic and regular basis. As at each reporting date, revenue from sale of energy includes an accrual for sales delivered to customers but not yet billed i.e. unbilled revenue. The incentives/disincentives are accounted for based on the norms notified/approved by the CERC as per principles enunciated in Ind AS 18. In cases of power stations where the same have not been notified/ approved, incentives/disincentives are accounted for on provisional basis.
Part of revenue from sale of energy is recognized based on the rates & terms and conditions mutually agreed with the beneficiaries and trading of power through power exchanges.
Rebates allowed to beneficiaries as early payment incentives are deducted from the amount of revenue.
Advance against depreciation considered as deferred revenue in earlier years is included in sales, to the extent depreciation recovered in tariff during the year is lower than the corresponding depreciation charged. Exchange differences arising from settlement/translation of monetary items denominated in foreign currency to the extent recoverable from or payable to the beneficiaries in subsequent periods as per the CERC Tariff Regulations are accounted as âRegulatory deferred account balancesâ and adjusted from the year in which the same becomes recoverable/payable.
Exchange differences on account of translation of foreign currency borrowings recognized upto 31 March 2016, recoverable from or payable to the beneficiaries in subsequent periods as per the CERC Tariff Regulations are accounted as âDeferred foreign currency fluctuation assetâ. The increase or decrease in depreciation for the year due to the accounting of such exchange differences as mentioned above is adjusted in depreciation. Fair value changes in respect of forward exchange contracts of derivative contracts recoverable from/payable to the beneficiaries as per the CERC Tariff Regulations, are recognized in sales.
14.2. Revenue from services
Revenue from consultancy, project management and supervision services rendered is recognized in profit or loss in proportion to the stage of completion of the transaction at the reporting date. The stage of completion is assessed by reference to actual progress/technical assessment of work executed, in line with the terms of the respective consultancy contracts. Claims for reimbursement of expenses are recognized as other income, as per the terms of the consultancy service contracts.
14.3.Other income
Interest income is recognized, when no significant uncertainty as to measurability or collectability exists, on a time proportion basis taking into account the amount outstanding and the applicable interest rate, using the effective interest rate method (EIR).
Scrap other than steel scrap is accounted for as and when sold.
Insurance claims for loss of profit are accounted for in the year of acceptance. Other insurance claims are accounted for based on certainty of realization.
Revenue from rentals and operating leases is recognized on an accrual basis in accordance with the substance of the relevant agreement.
For debt instruments measured either at amortized cost or at fair value through other comprehensive income (OCI), interest income is recorded using the EIR. EIR is the rate that exactly discounts the estimated future cash payments or receipts over the expected life of the financial instrument or a shorter period, where appropriate, to the gross carrying amount of the financial asset or to the amortized cost of a financial liability. When calculating the EIR, the Company estimates the expected cash flows by considering all the contractual terms of the financial instrument (for example, prepayment, extension, call and similar options) but does not consider the expected credit losses. Interest income is included in other income in the statement of profit and loss.
The interest/surcharge on late payment/overdue sundry debtors for sale of energy is recognized when no significant uncertainty as to measurability or collectability exists.
Interest/surcharge recoverable on advances to suppliers as well as warranty claims wherever there is uncertainty of realization/acceptance are not treated as accrued and are therefore, accounted for on receipt/acceptance.
Dividend income is recognized in profit or loss on the date that the Companyâs right to receive payment is established, which in the case of quoted securities is the ex-dividend date.
15. Employee benefits
15.1. Defined contribution plans
A defined contribution plan is a post-employment benefit plan under which an entity pays fixed contributions into separate entities and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution plans are recognized as an employee benefits expense in profit or loss in the period during which services are rendered by employees. Prepaid contributions are recognized as an asset to the extent that a cash refund or a reduction in future payments is available. Contributions to a defined contribution plan that are due after more than 12 months after the end of the period in which the employees render the service are discounted to their present value.
The Company has a defined contribution pension scheme which is administered through a separate trust. The obligation of the Company is to contribute to the trust to the extent of amount not exceeding 30% of basic pay and dearness allowance less employerâs contribution towards provident fund, gratuity, post retirement medical facility (PRMF) or any other retirement benefits. The contributions to the fund for the year are recognized as an expense and charged to the statement of profit and loss.
15.2. Defined benefit plans
A defined benefit plan is a post-employment benefit plan other than a defined contribution plan. The Companyâs liability towards gratuity, pension scheme at two of the stations in respect of taken over employees from the erstwhile State Government Power Utility, post-retirement medical facility, baggage allowance for settlement at home town after retirement, farewell gift on retirement and provident fund scheme to the extent of interest liability on provident fund contribution are in the nature of defined benefit plans.
The Company pays fixed contribution to Provident Fund at predetermined rates to a separate trust, which invests the funds in permitted securities. The contributions to the fund for the year are recognized as expense and are charged to the profit or loss. The obligation of the Company is to make such fixed contributions and to ensure a minimum rate of return to the members as specified by the Government of India (GoI).
The gratuity is funded by the Company and is managed by separate trust. Pension scheme at one of the taken over projects is also funded by the Company and is managed by separate trust. The Company has Post-Retirement Medical Facility (PRMF), under which retired employee and the spouse are provided medical facilities in the Company hospitals/empanelled hospitals. They can also avail treatment as out-patient subject to a ceiling fixed by the Company.
The Companyâs net obligation in respect of defined benefit plans is calculated separately for each plan by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine its present value. Any unrecognized past service costs and the fair value of any plan assets are deducted. The discount rate is based on the prevailing market yields of Indian government securities as at the reporting date that have maturity dates approximating the terms of the Companyâs obligations and that are denominated in the same currency in which the benefits are expected to be paid.
The calculation is performed annually by a qualified actuary using the projected unit credit method. When the calculation results in a benefit to the Company, the recognized asset is limited to the total of any unrecognized past service costs and the present value of economic benefits available in the form of any future refunds from the plan or reductions in future contributions to the plan. An economic benefit is available to the Company if it is realizable during the life of the plan, or on settlement of the plan liabilities. Any actuarial gains or losses are recognized in OCI in the period in which they arise.
When the benefits of a plan are improved, the portion of the increased benefit relating to past service by employees is recognized in profit or loss on a straight-line basis over the average period until the benefits become vested. To the extent that the benefits vest immediately, the expense is recognized immediately in profit or loss.
15.3. Other long-term employee benefits
Benefits under the Companyâs leave encashment, long-service award and economic rehabilitation scheme constitute other long term employee benefits.
The Companyâs net obligation in respect of leave encashment is the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine its present value, and the fair value of any related assets is deducted. The discount rate is based on the prevailing market yields of Indian government securities as at the reporting date that have maturity dates approximating the terms of the Companyâs obligations. The calculation is performed using the projected unit credit method. Any actuarial gains or losses are recognized in profit or loss in the period in which they arise. As per the Companyâs economic rehabilitation scheme which is optional, the nominee of the deceased employee is paid a fixed amount based on the last salary drawn by the employee till the date of superannuation of the employee by depositing the final provident fund and gratuity amount which will be interest free.
15.4. Short-term benefits
Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided.
A liability is recognized for the amount expected to be paid under performance related pay if the Company has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably.
16. Other expenses
Expenses on ex-gratia payments under voluntary retirement scheme, training & recruitment and research & development are charged to the Statement of Profit and Loss in the year incurred.
Preliminary expenses on account of new projects incurred prior to approval of feasibility report/techno economic clearance are charged to Statement of Profit and Loss.
Net pre-commissioning income/expenditure is adjusted directly in the cost of related assets and systems.
Transit and handling losses of coal as per Companyâs norms are included in cost of coal.
Voluntary community development expenditure is charged to Statement of Profit & Loss in the year incurred.
17. Income tax
Income tax expense comprises current and deferred tax. Current tax expense is recognized in profit or loss except to the extent that it relates to items recognized directly in other comprehensive income or equity, in which case it is recognized in OCI or equity.
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted and as applicable at the reporting date, and any adjustment to tax payable in respect of previous years.
Deferred tax is recognized using the balance sheet method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority.
Deferred tax is recognized in profit or loss except to the extent that it relates to items recognized directly in OCI or equity, in which case it is recognized in OCI or equity.
A deferred tax asset is recognized to the extent that it is probable that future taxable profits will be available against which the temporary difference can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized. Additional income taxes that arise from the distribution of dividends are recognized at the same time that the liability to pay the related dividend is recognized.
18. Leases
18.1. As lessee
Accounting for finance leases
Leases of property, plant and equipment where the Company, as lessee has substantially all risks and rewards of ownership are classified as finance lease. On initial recognition, assets held under finance leases are recorded as property, plant and equipment and the related liability is recognized under borrowings. At inception of the lease, finance leases are recorded at amounts equal to the fair value of the leased asset or, if lower, the present value of the minimum lease payments. Minimum lease payments made under finance leases are apportioned between the finance expense and the reduction of the outstanding liability.
The finance expense is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability.
Accounting for operating leases
Leases in which a significant portion of the risks and rewards of ownership are not transferred to the Company as lessee are classified as operating lease. Payments made under operating leases are recognized as an expense over the lease term. Lease incentives received are recognized as an integral part of the total lease expense, over the term of the lease.
18.2. As lessor
At inception of an arrangement, the Company determines whether such an arrangement is or contains a lease. A specific asset is subject of a lease if fulfillment of the arrangement is dependent on the use of that specified asset. An arrangement conveys the right to use the asset if the arrangement conveys to the customer the right to control the use of the underlying asset. Arrangements that do not take the legal form of a lease but convey rights to customers/suppliers to use an asset in return for a payment or a series of payments are identified as either finance leases or operating leases.
Accounting for finance leases
Where the Company determines a long term PPA to be or to contain a lease and where the off taker has the principal risk and rewards of ownership of the power plant through its contractual arrangements with the Company, the arrangement is considered a finance lease. Capacity payments are apportioned between capital repayments relating to the provision of the plant, finance income and service income. The finance income element of the capacity payment is recognized as revenue, using a rate of return specific to the plant to give a constant periodic rate of return on the net investment in each period. The service income element of the capacity payment is the difference between the total capacity payment and the amount recognized as finance income and capital repayments and recognized as revenue as it is earned.
The amounts due from lessees under finance leases are recorded in the balance sheet as financial assets, classified as finance lease receivables, at the amount of the net investment in the lease.
Accounting for operating leases
Where the Company determines a long term PPA to be or to contain a lease and where the Company retains the principal risks and rewards of ownership of the power plant, the arrangement is considered an operating lease.
For operating leases, the power plant is capitalized as property, plant and equipment and depreciated over its economic life. Rental income from operating leases is recognized on a straight line basis over the term of the arrangement.
19. Impairment of non-financial assets
The carrying amounts of the Companyâs non-financial assets are reviewed at each reporting date to determine whether there is any indication of impairment considering the provisions of Ind AS 36 âImpairment of Assetsâ. If any such indication exists, then the assetâs recoverable amount is estimated.
The recoverable amount of an asset or cash-generating unit is the higher of its fair value less costs to disposal and its value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the âcash-generating unitâ, or âCGUâ).
An impairment loss is recognized if the carrying amount of an asset or its CGU exceeds its estimated recoverable amount. Impairment losses are recognized in profit or loss. Impairment losses recognized in respect of CGUs are reduced from the carrying amounts of the assets of the CGU.
Impairment losses recognized in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the assetâs carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized.
20. Operating segments
In accordance with Ind AS 108, the operating segments used to present segment information are identified on the basis of internal reports used by the Companyâs Management to allocate resources to the segments and assess their performance. The Board of Directors is collectively the Companyâs âChief Operating Decision Makerâ or âCODMâ within the meaning of Ind AS 108. The indicators used for internal reporting purposes may evolve in connection with performance assessment measures put in place.
Segment results that are reported to the CODM include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items comprise mainly corporate expenses, finance expenses and income tax expenses.
Revenue directly attributable to the segments is considered as segment revenue. Expenses directly attributable to the segments and common expenses allocated on a reasonable basis are considered as segment expenses.
Segment capital expenditure is the total cost incurred during the period to acquire property, plant and equipment, and intangible assets other than goodwill.
Segment assets comprise property, plant and equipment, intangible assets, trade and other receivables, inventories and other assets that can be directly or reasonably allocated to segments. For the purpose of segment reporting for the year, property, plant and equipment have been allocated to segments based on the extent of usage of assets for operations attributable to the respective segments. Segment assets do not include investments, income tax assets, capital work in progress, capital advances, corporate assets and other current assets that cannot reasonably be allocated to segments.
Segment liabilities include all operating liabilities in respect of a segment and consist principally of trade and other payables, employee benefits and provisions. Segment liabilities do not include equity, income tax liabilities, loans and borrowings and other liabilities and provisions that cannot reasonably be allocated to segments.
21. Dividends
Dividends and interim dividends payable to a Companyâs shareholders are recognized as changes in equity in the period in which they are approved by the shareholdersâ meeting and the Board of Directors respectively.
22. Material prior period errors
Material prior period errors are corrected retrospectively by restating the comparative amounts for the prior periods presented in which the error occurred. If the error occurred before the earliest period presented, the opening balances of assets, liabilities and equity for the earliest period presented, are restated.
23. Earnings per share
Basic earnings per equity share is computed by dividing the net profit or loss attributable to equity shareholders of the Company by the weighted average number of equity shares outstanding during the financial year.
Diluted earnings per equity share is computed by dividing the net profit or loss attributable to equity shareholders of the Company by the weighted average number of equity shares considered for deriving basic earnings per equity share and also the weighted average number of equity shares that could have been issued upon conversion of all dilutive potential equity shares.
Basic and diluted earnings per equity share are also computed using the earnings amounts excluding the movements in regulatory deferral account balances.
24. Cash flow statement
Cash flow statement is prepared in accordance with the indirect method prescribed in Ind AS 7 âStatement of Cash Flowsâ.
25. 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.
25.1.Financial assets
Initial recognition and measurement
All financial assets are recognized initially at fair value plus, in the case of financial assets not recorded at fair value through profit or loss, transaction costs that are attributable to the acquisition or issue of the financial asset.
Subsequent measurement Debt instruments at amortized cost
A âdebt instrumentâ is measured at the amortized cost if both the following conditions are met:
(a) The asset is held within a business model whose objective is to hold assets for collecting contractual cash flows, and
(b) Contractual terms of the asset give rise on specified dates to cash flows that are solely payments of principal and interest (SPPI) on the principal amount outstanding.
After initial measurement, such financial assets are subsequently measured at amortized cost using the EIR method. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortization is included in finance income in the profit or loss. The losses arising from impairment are recognized in the profit or loss. This category generally applies to trade and other receivables.
Debt instrument at FVTOCI (Fair Value through OCI)
A âdebt instrumentâ is classified as at the FVTOCI if both of the following criteria are met:
(a) The objective of the business model is achieved both by collecting contractual cash flows and selling the financial assets, and
(b) The assetâs contractual cash flows represent SPPI
Debt instruments included within the FVTOCI category are measured initially as well as at each reporting date at fair value. Fair value movements are recognized in the OCI. However, the Company recognizes interest income, impairment losses & reversals and foreign exchange gain or loss in the profit and loss. On derecognition of the asset, cumulative gain or loss previously recognized in OCI is reclassified from the equity to profit and loss. Interest earned whilst holding FVTOCI debt instrument is reported as interest income using the EIR method.
Debt instrument at FVTPL (Fair value through profit or loss)
FVTPL is a residual category for debt instruments. Any debt instrument, which does not meet the criteria for categorization as at amortized cost or as FVTOCI, is classified as at FVTPL.
In addition, the Company may elect to classify a debt instrument, which otherwise meets amortized cost or FVTOCI criteria, as at FVTPL. However, such election is allowed only if doing so reduces or eliminates a measurement or recognition inconsistency (referred to as âaccounting mismatchâ). Debt instruments included within the FVTPL category are measured at fair value with all changes recognized in the profit and loss.
Equity investments
All equity investments in entities other than subsidiaries and joint ventures are measured at fair value. Equity instruments which are held for trading are classified as at FVTPL. For all other equity instruments, the Company decides to classify the same either as at FVTOCI or FVTPL. The Company makes such election on an instrument by instrument basis. The classification is made on initial recognition and is irrevocable.
If the Company decides to classify an equity instrument as at FVTOCI, then all fair value changes on the instrument, excluding dividends, are recognized in the OCI. There is no recycling of the amounts from OCI to P&L, even on sale of investment. However, the Company may transfer the cumulative gain or loss within equity.
Equity instruments included within the FVTPL category are measured at fair value with all changes recognized in the profit and loss.
Equity investments in subsidiaries and joint ventures are measured at cost.
Derecognition
A financial asset (or, where applicable, a part of a financial asset or part of a Company of similar financial assets) is primarily derecognised (i.e. removed from the Companyâs balance sheet) when:
- The rights to receive cash flows from the asset have expired, or
- The Company has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a âpass-throughâ arrangement; and either (a) the Company has transferred substantially all the risks and rewards of the asset, or (b) the Company has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.
Impairment of financial assets
In accordance with Ind AS 109, the Company applies expected credit loss (ECL) model for measurement and recognition of impairment loss on the following financial assets and credit risk exposure:
(a) Financial assets that are debt instruments, and are measured at amortized cost e.g., loans, debt securities, deposits, trade receivables and bank balance.
(b) Financial assets that are debt instruments and are measured as at FVTOCI.
(c) Lease receivables under Ind AS 17.
(d) Trade receivables under Ind AS 18.
(e) Loan commitments which are not measured as at FVTPL.
(f) Financial guarantee contracts which are not measured as at FVTPL.
For recognition of impairment loss on other financial assets and risk exposure, the Company determines that whether there has been a significant increase in the credit risk since initial recognition. If credit risk has not increased significantly, 12-month ECL is used to provide for impairment loss. However, if credit risk has increased significantly, lifetime ECL is used. If, in a subsequent period, credit quality of the instrument improves such that there is no longer a significant increase in credit risk since initial recognition, then the entity reverts to recognizing impairment loss allowance based on 12-month ECL.
25.2. Financial liabilities
Initial recognition and measurement
Financial liabilities are classified, at initial recognition, as financial liabilities at fair value through profit or loss, borrowings, payables, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. All financial liabilities are recognized initially at fair value and, in the case of borrowings and payables, net of directly attributable transaction costs. The Companyâs financial liabilities include trade and other payables, borrowings including bank overdrafts, financial guarantee contracts and derivative financial instruments.
Subsequent measurement
The measurement of financial liabilities depends on their classification, as described below:
Financial liabilities at amortized cost
After initial measurement, such financial liabilities are subsequently measured at amortized cost using the EIR method. Gains and losses are recognized in profit or loss when the liabilities are derecognized as well as through the EIR amortization process Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortization is included in finance costs in the profit or loss. This category generally applies to borrowings, trade payables and other contractual liabilities.
Financial liabilities at fair value through profit or loss
Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated upon initial recognition as at fair value through profit or loss. Financial liabilities are classified as held for trading if they are incurred for the purpose of repurchasing in the near term. This category also includes derivative financial instruments entered into by the Company that are not designated as hedging instruments in hedge relationships as defined by Ind-AS 109. Separated embedded derivatives are also classified as held for trading unless they are designated as effective hedging instruments.
Gains or losses on liabilities held for trading are recognized in the profit or loss.
Financial liabilities designated upon initial recognition at fair value through profit or loss are designated at the initial date of recognition, and only if the criteria in Ind AS 109 are satisfied. For liabilities designated as FVTPL, fair value gains/losses attributable to changes in own credit risk are recognized in OCI. These gains/losses are not subsequently transferred to profit and loss. However, the Company may transfer the cumulative gain or loss within equity. All other changes in fair value of such liability are recognized in the statement of profit or loss. The Company has not designated any financial liability as at fair value through profit and loss.
Derecognition
A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognized in the statement of profit or loss.
Derivative financial instruments
Initial recognition and subsequent measurement.
The Company uses derivative financial instruments, such as forward currency contracts and interest rate swaps to hedge its foreign currency risks and interest rate risks of foreign currency loans. Such derivative financial instruments are initially recognized at fair value on the date on which a derivative contract is entered into and are subsequently re-measured at fair value. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative. Any gains or losses arising from changes in the fair value of derivatives are taken to statement of profit and loss.
D. Use of estimates and management judgments
The preparation of financial statements requires management to make judgments, estimates and assumptions that may impact the application of accounting policies and the reported value of assets, liabilities, income, expenses and related disclosures concerning the items involved as well as contingent assets and liabilities at the balance sheet date. The estimates and managementâs judgments are based on previous experience and other factors considered reasonable and prudent in the circumstances. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected.
In order to enhance understanding of the financial statements, information about significant areas of estimation, uncertainty and critical judgments in applying accounting policies that have the most significant effect on the amounts recognised in the financial statements is as under:
1. Useful life of property, plant and equipment
The estimated useful life of property, plant and equipment is based on a number of factors including the effects of obsolescence, demand, competition and other economic factors (such as the stability of the industry and known technological advances) and the level of maintenance expenditures required to obtain the expected future cash flows from the asset.
Useful life of the assets of the generation of electricity business is determined by the CERC Tariff Regulations in accordance with Schedule II of the Companies Act, 2013.
The Company reviews at the end of each reporting date the useful life of property, plant and equipment, other than the assets of generation of electricity business which are governed by CERC Regulations, and are adjusted prospectively, if appropriate.
2. Recoverable amount of property, plant and equipment
The recoverable amount of plant and equipment is based on estimates and assumptions regarding in particular the expected market outlook and future cash flows associated with the power plants. Any changes in these assumptions may have a material impact on the measurement of the recoverable amount and could result in impairment.
3. Post-employment benefit plans
Employee benefit obligations are measured on the basis of actuarial assumptions which include mortality and withdrawal rates as well as assumptions concerning future developments in discount rates, the rate of salary increases and the inflation rate. The Company considers that the assumptions used to measure its obligations are appropriate and documented. However, any changes in these assumptions may have a material impact on the resulting calculations.
4. Revenues
The Company records revenue from sale of energy based on tariff rates approved by the CERC as modified by the orders of Appellate Tribunal for Electricity, as per principles enunciated under Ind AS 18. However, in cases where tariff rates are yet to be approved, provisional rates are adopted considering the applicable CERC Tariff Regulations.
5. Leases not in legal form of lease
Significant judgment is required to apply lease accounting rules under Appendix C to Ind AS 17 âDetermining whether an arrangement contains a leaseâ. In assessing the applicability to arrangements entered into by the
Company, management has exercised judgment to evaluate the right to use the underlying asset, substance of the transactions including legally enforceable agreements and other significant terms and conditions of the arrangements to conclude whether the arrangement needs the criteria under Appendix C to Ind AS 17.
6. Assets held for sale
Significant judgment is required to apply the accounting of non-current assets held for sale under Ind AS 105 âNon-current Assets Held for Sale and Discontinued Operationsâ. In assessing the applicability, management has exercised judgment to evaluate the availability of the asset for immediate sale, managementâs commitment for the sale and probability of sale within one year to conclude if their carrying amount will be recovered principally through a sale transaction rather than through continuing use.
7. Provisions and contingencies
The assessments undertaken in recognizing provisions and contingencies have been made in accordance with Ind AS 37, âProvisions, Contingent Liabilities and Contingent Assetsâ. The evaluation of the likelihood of the contingent events has required best judgment by management regarding the probability of exposure to potential loss. Should circumstances change following unforeseeable developments, this likelihood could alter.
8. Impairment test of non-financial assets
The recoverable amount of investment in joint ventures is based on estimates and assumptions regarding in particular the future cash flows associated with the operations of the investee company. Any changes in these assumptions may have a material impact on the measurement of the recoverable amount and could result in impairment.
A. Reporting entity
NTPC Limited (the âCompanyâ) is a Company domiciled in India and limited by shares (CIN: L40101DL1975GOI007966). The shares of the Company are publicly traded on the National Stock Exchange of India Limited and BSE Limited. The address of the Companyâs registered office is NTPC Bhawan, SCOPE Complex, 7 Institutional Area, Lodi Road, New Delhi - 110003. The Company is primarily involved in the generation and sale of bulk power to State Power Utilities. Other business includes providing consultancy, project management & supervision, oil & gas exploration and coal mining.
B. Basis of preparation
1. Statement of Compliance
These standalone financial statements are prepared on accrual basis of accounting and comply with the Indian Accounting Standards (Ind AS) notified under the Companies (Indian Accounting Standards) Rules, 2015 and subsequent amendments thereto, the Companies Act, 2013 (to the extent notified and applicable), applicable provisions of the Companies Act, 1956, and the provisions of the Electricity Act, 2003 to the extent applicable. These are the Companyâs first Ind AS compliant financial statements and Ind AS 101 âFirst Time Adoption of Indian Accounting Standardsâ has been applied.
For all the periods upto and including 31 March 2016, the Company prepared its financial statements in accordance with Generally Accepted Accounting Principles (GAAP) in India, accounting standards specified under Section 133 of the Companies Act, 2013, the Companies Act, 2013 (to the extent notified and applicable), applicable provisions of the Companies Act, 1956, and the provisions of the Electricity Act, 2003 to the extent applicable. The Company followed the provisions of Ind AS 101 in preparing its opening Ind AS Balance Sheet as of the date of transition, viz. 1 April 2015. Some of the Companyâs Ind AS accounting policies used in the opening Balance Sheet are different from its previous GAAP policies applied as at 31 March 2015, and accordingly the adjustments were made to restate the opening balances as per Ind AS. The resulting adjustments arose from events and transactions before the date of transition to Ind AS. Therefore, as required by Ind AS 101, those adjustments were recognized directly through retained earnings as at 1 April 2015. This is the effect of the general rule of Ind AS 101 which is to apply Ind AS retrospectively.
An explanation of how the transition to Ind AS has affected the reported financial position, financial performance and cash flows of the Company is provided in Note 62.
These financial statements were authorized for issue by Board of Directors on 29 May 2017.
2. Basis of measurement
The financial statements have been prepared on the historical cost basis except for certain financial assets and liabilities (including derivative instruments) that are measured at fair value (refer accounting policy regarding financial instruments). The methods used to measure fair values are discussed further in notes to financial statements.
3. Functional and presentation currency
These financial statements are presented in Indian Rupees (INR), which is the Companyâs functional currency. All financial information presented in INR has been rounded to the nearest crore (upto two decimals), except as stated otherwise.
4. Current and non-current classification
The Company presents assets and liabilities in the balance sheet based on current/non-current classification.
An asset is current when it is:
- Expected to be realized or intended to be sold or consumed in normal operating cycle;
- Held primarily for the purpose of trading;
- Expected to be realized within twelve months after the reporting period; or
- Cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period.
All other assets are classified as non-current.
A liability is current when:
- It is expected to be settled in normal operating cycle;
- It is held primarily for the purpose of trading;
- It is due to be settled within twelve months after the reporting period; or
- There is no unconditional right to defer settlement of the liability for at least twelve months after the reporting period.
All other liabilities are classified as non-current.
Deferred tax assets/liabilities are classified as non-current.
2. Non-current assets - Property, plant & equipment
a) The conveyancing of the title to 9,235 acres of freehold land of value Rs.1,940.44 crore (31 March 2016: 10,753 acres of value Rs.2,217.27 crore, 1 April 2015: 9,719 acres of value Rs.1,969.68 crore), buildings & structures of value Rs.4.97 crore (31 March 2016: Rs.4.97 crore, 1 April 2015: Rs.4.97 crore) and also execution of lease agreements for 12,570 acres of land of value Rs.1
Mar 31, 2015
Mar 31, 2014
Mar 31, 2013
Mar 31, 2012
Mar 31, 2011
Mar 31, 2010
Mar 31, 2000
A. Basis of preparation
These financial statements are prepared on accrual basis of accounting
under historical cost convention in accordance with generally accepted
accounting principles in India, accounting standards specified under
Section 133 of the Companies Act, 2013, read with Rule 7 of the
Companies (Accounts) Rules, 2014, the Companies Act, 2013 (to the
extent notified and applicable), applicable provisions of the Companies
Act, 1956, and the provisions of the Electricity Act, 2003 to the
extent applicable.
B. Use of estimates
The preparation of financial statements requires estimates and
assumptions that affect the reported amount of assets, liabilities,
revenue and expenses during the reporting period. Although such
estimates and assumptions are made on a reasonable and prudent basis
taking into account all available information, actual results could
differ from these estimates & assumptions and such differences are
recognized in the period in which the results are crystallized.
C. Grants-in-aid
1. Grants-in-aid received from the Central Government or other
authorities towards capital expenditure as well as consumers'
contribution to capital works are treated initially as capital reserve
and subsequently adjusted as income in the same proportion as the
depreciation written off on the assets acquired out of the grants.
2. Where the ownership of the assets acquired out of the grants vests
with the government, the grants are adjusted in the carrying cost of
such assets.
3. Grants from Government and other agencies towards revenue
expenditure are recognized over the period in which the related costs
are incurred and are deducted from the related expenses.
D. Fly ash utilisation reserve fund
Proceeds from sale of ash/ash products along-with income on investment
of such proceeds are transferred to 'Fly ash utilisation reserve fund'
in terms of provisions of gazette notification dated 3rd November 2009
issued by Ministry of Environment and Forests, Government of India. The
fund is utilized towards expenditure on development of
infrastructure/facilities, promotion & facilitation activities for use
of fly ash.
E. Fixed assets
1. Tangible assets are carried at historical cost less accumulated
depreciation/amortisation.
2. Expenditure on renovation and modernisation of tangible assets
resulting in increased life and/or efficiency of an existing asset is
added to the cost of related assets.
3. Intangible assets are stated at their cost of acquisition less
accumulated amortisation.
4. Capital expenditure on assets not owned by the Company relating to
generation of electricity business is reflected as a distinct item in
capital work-in-progress till the period of completion and thereafter
in the tangible assets. However, similar expenditure for community
development is charged off to revenue.
5. Deposits, payments/liabilities made provisionally towards
compensation, rehabilitation and other expenses relatable to land in
possession are treated as cost of land.
6. In the case of assets put to use, where final settlement of bills
with contractors is yet to be effected, capitalisation is done on
provisional basis subject to necessary adjustment in the year of final
settlement.
7. Assets and systems common to more than one generating unit are
capitalised on the basis of engineering estimates/assessments.
F. Capital work-in-progress
1. Administration and general overhead expenses attributable to
construction of fixed assets incurred till they are ready for their
intended use are identified and allocated on a systematic basis to the
cost of related assets.
2. Deposit works/cost plus contracts are accounted for on the basis of
statements of account received from the contractors.
3. Unsettled liabilities for price variation/exchange rate variation
in case of contracts are accounted for on estimated basis as per terms
of the contracts.
G. Oil and gas exploration costs
1. The Company follows 'Successful Efforts Method' for accounting of
oil & gas exploration activities.
2. Cost of surveys and prospecting activities conducted in search of
oil and gas is expensed off in the year in which it is incurred.
3. Acquisition and exploration costs are initially capitalized as
'Exploratory wells-in-progress' under Capital work-in-progress. Such
exploratory wells in progress are capitalised in the year in which the
producing property is created or written off in the year when
determined to be dry/abandoned.
H. Development of coal mines
Expenditure on exploration and development of new coal deposits is
capitalized as 'Development of coal mines' under capital work-
in-progress till the mines project is brought to revenue account.
I. Foreign currency transactions
1. Foreign currency transactions are initially recorded at the rates
of exchange ruling at the date of transaction.
2. At the balance sheet date, foreign currency monetary items are
reported using the closing rate. Non-monetary items denominated in
foreign currency are reported at the exchange rate ruling at the date
of transaction.
3. Exchange differences arising from settlement/translation of foreign
currency loans, deposits/liabilities relating to fixed assets/capital
work-in-progress in respect of transactions entered prior to
01.04.2004, are adjusted in the carrying cost of related assets. Such
exchange differences arising from settlement/translation of long term
foreign currency monetary items in respect of transactions entered on
or after 01.04.2004 are adjusted in the carrying cost of related
assets.
4. Other exchange differences are recognized as income or expense in
the period in which they arise.
5. Derivative contracts in the nature of forward contracts, options
and swaps are entered into to hedge the currency and interest rate risk
of foreign currency loans. Premium or discount arising at the inception
of forward exchange contracts is amortised as expense or income over
the life of the contracts. Exchange differences on such contracts,
which relate to long-term foreign currency monetary items referred to
in Policy I.3 are adjusted in the carrying cost of related assets.
Other derivative contracts are marked-to- market at the Balance Sheet
date and losses are recognised in the Statement of Profit and Loss.
Gains arising on such contracts are not recognised, until realised, on
grounds of prudence.
J. Borrowing costs
Borrowing costs attributable to the qualifying fixed assets during
construction/exploration, renovation and modernisation are capitalised.
Such borrowing costs are apportioned on the average balance of capital
work-in-progress for the year. Other borrowing costs are recognised as
an expense in the period in which they are incurred.
K. Investments
1. Current investments are valued at lower of cost and fair value
determined on an individual investment basis.
2. Long term investments are carried at cost. Provision is made for
diminution, other than temporary, in the value of such investments.
3. Premium paid on long term investments is amortised over the period
remaining to maturity.
L. Inventories
1. Inventories are valued at the lower of, cost determined on weighted
average basis and net realizable value.
2. The diminution in the value of obsolete, unserviceable and surplus
stores & spares is ascertained on review and provided for.
M. Income recognition
1. Sale of energy is accounted for based on tariff rates approved by
the Central Electricity Regulatory Commission (CERC) as modified by the
orders of Appellate Tribunal for Electricity to the extent applicable.
In case of power stations where the tariff rates are yet to be
approved, provisional rates are adopted.
2. Advance against depreciation considered as deferred revenue in
earlier years is included in sales, to the extent depreciation
recovered in tariff during the year is lower than the corresponding
depreciation charged.
3. Exchange differences on account of translation of foreign currency
borrowings recoverable from or payable to the beneficiaries in
subsequent periods as per CERC Tariff Regulations are accounted as
'Deferred foreign currency fluctuation asset/liability'. The increase
or decrease in depreciation for the year due to the accounting of such
exchange differences as per accounting policy no. I is adjusted in
depreciation.
4. Exchange differences arising from settlement/translation of
monetary items denominated in foreign currency (other than long term)
to the extent recoverable from or payable to the beneficiaries in
subsequent periods as per CERC Tariff Regulations are accounted as
'Deferred foreign currency fluctuation asset/liability' during
construction period and adjusted from the year in which the same
becomes recoverable/payable.
5. Premium, discount and exchange differences in respect of forward
exchange contracts and mark to market losses in respect of other
derivative contracts referred to in accounting policy no. I.5
recoverable from/payable to the beneficiaries as per CERC Tariff
Regulations, are recognised in sales.
6. The surcharge on late payment/overdue sundry debtors for sale of
energy is recognized when no significant uncertainty as to
measurability or collectability exists.
7. Interest/surcharge recoverable on advances to suppliers as well as
warranty claims/liquidated damages wherever there is uncertainty of
realisation/acceptance are not treated as accrued and are therefore,
accounted for on receipt/acceptance.
8. Income from consultancy services is accounted for on the basis of
actual progress/technical assessment of work executed, in line with the
terms of respective consultancy contracts. Claims for reimbursement of
expenditure are recognized as other income, as per the terms of
consultancy service contracts.
9. Scrap other than steel scrap is accounted for as and when sold.
10. Insurance claims for loss of profit are accounted for in the year
of acceptance. Other insurance claims are accounted for based on
certainty of realisation.
N. Expenditure
1. Depreciation/amortisation
1.1 Depreciation on the assets of the generation of electricity
business is charged on straight line method following the rates and
methodology notified by the CERC Tariff Regulations in accordance with
Schedule II of the Companies Act, 2013.
1.2 Depreciation on the assets of the coal mining, oil & gas
exploration and consultancy business, is charged on straight line
method following the useful life specified in Schedule II of the
Companies Act, 2013.
1.3 Depreciation on the following assets is provided on their estimated
useful life ascertained on technical evaluation:
1.4 Assets costing up toRs. 5,000/- are fully depreciated in the year
of acquisition.
1.5 Cost of software recognized as intangible asset, is amortised on
straight line method over a period of legal right to use or 3 years,
whichever is less. Other intangible assets are amortized on straight
line method over the period of legal right to use or life of the
related plant, whichever is less.
1.6 Depreciation on additions to/deductions from fixed assets during
the year is charged on pro-rata basis from/up to the month in which the
asset is available for use/disposed.
1.7 Where the cost of depreciable assets has undergone a change during
the year due to increase/decrease in long term liabilities on account
of exchange fluctuation, price adjustment, change in duties or similar
factors, the unamortised balance of such asset is charged off
prospectively over the remaining useful life determined following the
applicable accounting policies relating to depreciation/amortisation.
1.8 Where the life and/or efficiency of an asset is increased due to
renovation and modernization, the expenditure thereon along-with its
unamortized depreciable amount is charged off prospectively over the
revised useful life determined by technical assessment.
1.9 Machinery spares which can be used only in connection with an item
of plant and machinery and their use is expected to be irregular, are
capitalised and fully depreciated over the residual useful life of the
related plant and machinery.
1.10 Capital expenditure on assets not owned by the company referred in
policy E.4 is amortised over a period of 4 years from the month in
which the first unit of project concerned comes into commercial
operation and thereafter from the month in which the relevant asset
becomes available for use.
1.11 Leasehold land and buildings relating to generation of electricity
business are fully amortised over lease period or life of the related
plant whichever is lower following the rates and methodology notified
by CERC Tariff Regulations. Leasehold land acquired on perpetual lease
is not amortised.
1.12 Land acquired for mining business under Coal Bearing Areas
(Acquisition & Development) Act, 1957 is amortised on the basis of
balance useful life of the project. Other leasehold land acquired for
mining business is amortised over the lease period or balance life of
the project whichever is less.
2. Other expenditure
2.1 Expenses on ex-gratia payments under voluntary retirement scheme,
training & recruitment and research & development are charged to
revenue in the year incurred.
2.2 Preliminary expenses on account of new projects incurred prior to
approval of feasibility report/techno economic clearance are charged to
revenue.
2.3 Net pre-commissioning income/expenditure is adjusted directly in
the cost of related assets and systems.
2.4 Prepaid expenses and prior period expenses/income of items of Rs.
100,000/- and below are charged to natural heads of accounts.
2.5 Transit and handling losses of coal as per Company's norms are
included in cost of coal.
O. Employee benefits
Employee benefits, inter-alia include provident fund, pension,
gratuity, post retirement medical facilities, compensated absences,
long service award, economic rehabilitation scheme and other terminal
benefits.
1. Company's contributions paid/payable during the year to provident
fund and pension fund is recognised in the Statement of Profit and
Loss. The same is paid to funds administered through separate trusts.
2. Company's liability towards gratuity, leave benefits (including
compensated absences), post retirement medical facility and other
terminal benefits is determined by independent actuary, at year end
using the projected unit credit method. Past service costs are
recognised on a straight line basis over the average period until the
benefits become vested. Actuarial gains and losses are recognised
immediately in the Statement of Profit and Loss. Liability for gratuity
as per actuarial valuation is paid to a fund administered through a
separate trust.
3. Short term employee benefits are recognised as an expense at the
undiscounted amount in the Statement of Profit and Loss for the year in
which the related services are rendered.
P. Leases
1. Finance lease
1.1 Assets taken on finance lease are capitalized at fair value or net
present value of the minimum lease payments, whichever is less.
1.2 Depreciation on the assets taken on finance lease is charged at the
rate applicable to similar type of fixed assets as per accounting
policy no. N.1.1 or N.1.2. 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 less.
1.3 Lease payments are apportioned between the finance charges and
outstanding liability in respect of assets taken on lease.
2. Operating lease
Assets acquired on lease where a significant portion of the risk and
rewards of the ownership is retained by the lessor are classified as
operating leases. Lease rentals are charged to revenue.
Q. Impairment
The carrying amount of cash generating units is reviewed at each
Balance Sheet date where there is any indication of impairment based on
internal/external indicators. An impairment loss is recognised in the
Statement of Profit and Loss where the carrying amount exceeds the
recoverable amount of the cash generating units. The impairment loss is
reversed if there is change in the recoverable amount and such loss
either no longer exists or has decreased.
R. Provisions and contingent liabilities
A provision is recognised when the company has a present obligation as
a result of a past event and it is probable that an outflow of
resources will be required to settle the obligation and in respect of
which a reliable estimate can be made. Provisions are determined based
on management estimate required to settle the obligation at the balance
sheet date and are not discounted to present value. Contingent
liabilities are disclosed on the basis of judgment of the
management/independent experts. These are reviewed at each balance
sheet date and are adjusted to reflect the current management estimate.
S. Segment reporting
The accounting policies adopted for segment reporting are in line with
the accounting policies of the Company. Segment revenue, segment
expenses, segment assets and segment liabilities are identified to
segments on the basis of their relationship to the operating activities
of the segment. Revenue, expenses, assets and liabilities which relate
to the Company as a whole and not allocable to segments on reasonable
basis are included under unallocated
revenue/expenses/assets/liabilities.
T. Cash flow statement
Cash flow statement is prepared in accordance with the indirect method
prescribed in Accounting Standard (AS) 3 on 'Cash Flow Statements'.
U. Taxes on income
Current tax is determined on the basis of taxable income in accordance
with the provisions of the Income Tax Act, 1961. Deferred tax
liability/asset resulting from 'timing difference' between accounting
income and taxable income is accounted for considering the tax rate &
tax laws that have been enacted or substantively enacted as on the
reporting date. Deferred tax asset is recognized and carried forward
only to the extent that there is reasonable certainty that the asset
will be realized in future. Deferred tax assets are reviewed at each
reporting date for their realisability.
A. Basis of preparation
The financial statements are prepared on accrual basis of accounting
under historical cost convention in accordance with generally accepted
accounting principles in India, accounting standards notifi ed under
Companies (Accounting Standards) Rules, 2006, read with General
Circular 15/2013 dated 13th September 2013 of the Ministry of Corporate
Affairs, provisions of the Companies Act, 1956, the Companies Act, 2013
(to the extent notifi ed and applicable), and the provisions of the
Electricity Act, 2003 to the extent applicable.
B. Use of estimates
The preparation of financial statements requires estimates and
assumptions that affect the reported amount of assets, liabilities,
revenue and expenses during the reporting period. Although such
estimates and assumptions are made on a reasonable and prudent basis
taking into account all available information, actual results could
differ from these estimates & assumptions and such differences are
recognized in the period in which the results are crystallized.
C. Grants-in-aid
1. Grants-in-aid received from the Central Government or other
authorities towards capital expenditure as well as consumers
contribution to capital works are treated initially as capital reserve
and subsequently adjusted as income in the same proportion as the
depreciation written off on the assets acquired out of the grants.
2. Where the ownership of the assets acquired out of the grants vests
with the government, the grants are adjusted in the carrying cost of
such assets.
3. Grants from Government and other agencies towards revenue
expenditure are recognized over the period in which the related costs
are incurred and are deducted from the related expenses.
D. Fixed assets
1. Tangible assets are carried at historical cost less accumulated
depreciation/amortisation.
2. Expenditure on renovation and modernisation of tangible assets
resulting in increased life and/or effi ciency of an existing asset is
added to the cost of related assets.
3. Intangible assets are stated at their cost of acquisition less
accumulated amortisation.
4. Capital expenditure on assets not owned by the Company relating to
generation of electricity business is refl ected as a distinct item in
capital work-in-progress till the period of completion and thereafter
in the tangible assets. However, similar expenditure for community
development is charged off to revenue.
5. Deposits, payments/liabilities made provisionally towards
compensation, rehabilitation and other expenses relatable to land in
possession are treated as cost of land.
6. In the case of assets put to use, where final settlement of bills
with contractors is yet to be effected, capitalisation is done on
provisional basis subject to necessary adjustment in the year of final
settlement.
7. Assets and systems common to more than one generating unit are
capitalised on the basis of engineering estimates/assessments.
E. Capital work-in-progress
1. Administration and general overhead expenses attributable to
construction of fixed assets incurred till they are ready for their
intended use are identifi ed and allocated on a systematic basis to the
cost of related assets.
2. Deposit works/cost plus contracts are accounted for on the basis of
statements of account received from the contractors.
3. Unsettled liabilities for price variation/exchange rate variation
in case of contracts are accounted for on estimated basis as per terms
of the contracts.
F. Oil and gas exploration costs
1. The Company follows Successful Efforts Method for accounting of
oil & gas exploration activities.
2. Cost of surveys and prospecting activities conducted in search of
oil and gas is expensed off in the year in which it is incurred.
3. Acquisition and exploration costs are initially capitalized as
Exploratory wells-in-progress under Capital work-in-progress. Such
exploratory wells in progress are capitalised in the year in which the
producing property is created or written off in the year when
determined to be dry/abandoned.
G. Development of coal mines
Expenditure on exploration and development of new coal deposits is
capitalized as Development of coal mines under capital
work-in-progress till the mines project is brought to revenue account.
H. Foreign currency transactions
1. Foreign currency transactions are initially recorded at the rates
of exchange ruling at the date of transaction.
2. At the balance sheet date, foreign currency monetary items are
reported using the closing rate. Non-monetary items denominated in
foreign currency are reported at the exchange rate ruling at the date
of transaction.
3. Exchange differences arising from settlement/translation of foreign
currency loans, deposits/liabilities relating to fixed assets/capital
work- in-progress in respect of transactions entered prior to
01.04.2004, are adjusted in the carrying cost of related assets. Such
exchange differences arising from settlement/translation of long term
foreign currency monetary items in respect of transactions entered on
or after 01.04.2004 are adjusted in the carrying cost of related
assets.
4. Other exchange differences are recognized as income or expense in
the period in which they arise.
5. Derivative contracts in the nature of forward contracts, options
and swaps are entered into to hedge the currency and interest rate risk
of foreign currency loans. Premium or discount arising at the inception
of forward exchange contracts is amortised as expense or income over
the life of the contracts. Exchange differences on such contracts,
which relate to long-term foreign currency monetary items referred to
in Policy H.3 are adjusted in the carrying cost of related assets.
Other derivative contracts are marked-to-market at the Balance Sheet
date and losses are recognised in the Statement of profit and Loss.
Gains arising on such contracts are not recognised, until realised, on
grounds of prudence.
I. Borrowing costs
Borrowing costs attributable to the qualifying fixed assets during
construction/exploration, renovation and modernisation are capitalised.
Such borrowing costs are apportioned on the average balance of capital
work-in-progress for the year. Other borrowing costs are recognised as
an expense in the period in which they are incurred.
J. Investments
1. Current investments are valued at lower of cost and fair value
determined on an individual investment basis.
2. Long term investments are carried at cost. Provision is made for
diminution, other than temporary, in the value of such investments.
3. Premium paid on long term investments is amortised over the period
remaining to maturity. K. Inventories
1. Inventories are valued at the lower of, cost determined on weighted
average basis and net realizable value.
2. The diminution in the value of obsolete, unserviceable and surplus
stores and spares is ascertained on review and provided for. L.
Income recognition
1. Sale of energy is accounted for based on tariff rates approved by
the Central Electricity Regulatory Commission (CERC) as modifi ed by
the orders of Appellate Tribunal for Electricity to the extent
applicable. In case of power stations where the tariff rates are yet to
be approved, provisional rates are adopted.
2. Advance against depreciation considered as deferred revenue in
earlier years is included in sales, to the extent depreciation
recovered in tariff during the year is lower than the corresponding
depreciation charged.
3. Exchange differences on account of translation of foreign currency
borrowings recoverable from or payable to the beneficiaries in
subsequent periods as per CERC Tariff Regulations are accounted as
Deferred foreign currency fl uctuation asset/liability. The increase
or decrease in depreciation for the year due to the accounting of such
exchange differences as per accounting policy no. H is adjusted in
depreciation.
4. Exchange differences arising from settlement/translation of
monetary items denominated in foreign currency (other than long term)
to the extent recoverable from or payable to the beneficiaries in
subsequent periods as per CERC Tariff Regulations are accounted as
Deferred foreign currency fl uctuation asset/liability during
construction period and adjusted from the year in which the same
becomes recoverable/ payable.
5. Premium, discount and exchange differences in respect of forward
exchange contracts and mark to market losses in respect of other
derivative contracts referred to in accounting policy no. H.5
recoverable from/payable to the beneficiaries as per CERC Tariff
Regulations, are recognised in sales.
6. The surcharge on late payment/overdue sundry debtors for sale of
energy is recognized when no significant uncertainty as to
measurability or collectability exists.
7. Interest/surcharge recoverable on advances to suppliers as well as
warranty claims/liquidated damages wherever there is uncertainty of
realisation/acceptance are not treated as accrued and are therefore,
accounted for on receipt/acceptance.
8. Income from consultancy services is accounted for on the basis of
actual progress/technical assessment of work executed, in line with the
terms of respective consultancy contracts. Claims for reimbursement of
expenditure are recognized as other income, as per the terms of
consultancy service contracts.
9. Scrap other than steel scrap is accounted for as and when sold.
10. Insurance claims for loss of profit are accounted for in the year
of acceptance. Other insurance claims are accounted for based on
certainty of realisation.
M. Expenditure
a) Depreciation/amortisation
1. Depreciation on the assets of the generation of electricity
business is charged on straight line method following the rates and
methodology notifi ed by the CERC Tariff Regulations, 2009 in
accordance with Section 616 (c) of the Companies Act, 1956.
2. Depreciation on the assets of the coal mining, oil & gas
exploration and consultancy business, is charged on straight line
method following the rates specifi ed in Schedule XIV of the Companies
Act, 1956.
4. Depreciation on additions to/deductions from fixed assets during
the year is charged on pro-rata basis from/up to the month in which the
asset is available for use/disposed.
5. Assets costing up to Rs. 5000/- are fully depreciated in the year of
acquisition.
6. Cost of software recognized as intangible asset, is amortised on
straight line method over a period of legal right to use or 3 years,
whichever is less. Other intangible assets are amortized on straight
line method over the period of legal right to use or life of the
related plant, whichever is less.
7. Where the cost of depreciable assets has undergone a change during
the year due to increase/decrease in long term liabilities on account
of exchange fl uctuation, price adjustment, change in duties or similar
factors, the unamortised balance of such asset is charged off
prospectively over the remaining useful life determined following the
applicable accounting policies relating to depreciation/amortisation.
8. Where the life and/or effi ciency of an asset is increased due to
renovation and modernization, the expenditure thereon along-with its
unamortized depreciable amount is charged off prospectively over the
revised useful life determined by technical assessment.
9. Machinery spares which can be used only in connection with an item
of plant and machinery and their use is expected to be irregular, are
capitalised and fully depreciated over the residual useful life of the
related plant and machinery.
10. Capital expenditure on assets not owned by the company referred in
policy D.4 is amortised over a period of 4 years from the month in
which the first unit of project concerned comes into commercial
operation and thereafter from the month in which the relevant asset
becomes available for use.
11. Leasehold land and buildings relating to generation of electricity
business are fully amortised over lease period or life of the related
plant whichever is lower following the rates and methodology notifi ed
by CERC Tariff Regulations, 2009. Leasehold land acquired on perpetual
lease is not amortised.
12. Land acquired for mining business under Coal Bearing Areas
(Acquisition & Development) Act, 1957 is amortised on the basis of
balance useful life of the project. Other leasehold land acquired for
mining business is amortised over the lease period or balance life of
the project whichever is less.
b) Other expenditure
13. Expenses on ex-gratia payments under voluntary retirement scheme,
training & recruitment and research & development are charged to
revenue in the year incurred.
14. Preliminary expenses on account of new projects incurred prior to
approval of feasibility report/techno economic clearance are charged to
revenue.
15. Net pre-commissioning income/expenditure is adjusted directly in
the cost of related assets and systems.
16. Prepaid expenses and prior period expenses/income of items of Rs.
100,000/- and below are charged to natural heads of accounts.
17. Transit and handling losses of coal as per Companys norms are
included in cost of coal.
N. Employee benefits
Employee benefits consist of provident fund, pension, gratuity, post
retirement medical facilities, compensated absences, long service
award, economic rehabilitation scheme and other terminal benefits.
1. Companys contributions paid/payable during the year to provident
fund and pension fund is recognised in the statement of profit and
loss. The same is paid to funds administered through separate trusts.
2. Companys liability towards gratuity, leave benefits (including
compensated absences), post retirement medical facility and other
terminal benefits is determined by independent actuary, at year end
using the projected unit credit method. Past service costs are
recognised on a straight line basis over the average period until the
benefits become vested. Actuarial gains and losses are recognised
immediately in the statement of profit and loss. Liability for
gratuity as per actuarial valuation is paid to a fund administered
through a separate trust.
3. Short term employee benefits are recognised as an expense at the
undiscounted amount in the statement of profit and loss for the year
in which the related services are rendered.
O. Leases
1. Finance lease
1.1 Assets taken on fi nance lease are capitalized at fair value or net
present value of the minimum lease payments, whichever is less.
1.2 Depreciation on the assets taken on fi nance lease is charged at
the rate applicable to similar type of fixed assets as per accounting
policy no. M.a.1 or M.a.2. 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 less.
1.3 Lease payments are apportioned between the fi nance charges and
outstanding liability in respect of assets taken on lease.
2. Operating lease
Assets acquired on lease where a significant portion of the risk and
rewards of the ownership is retained by the lessor are classifi ed as
operating leases. Lease rentals are charged to revenue.
P. Impairment
The carrying amount of cash generating units is reviewed at each
balance sheet date where there is any indication of impairment based on
internal/ external indicators. An impairment loss is recognised in the
statement of profit and loss where the carrying amount exceeds the
recoverable amount of the cash generating units. The impairment loss is
reversed if there is change in the recoverable amount and such loss
either no longer exists or has decreased.
Q. Provisions and contingent liabilities
A provision is recognised when the company has a present obligation as
a result of a past event and it is probable that an outfl ow of
resources will be required to settle the obligation and in respect of
which a reliable estimate can be made. Provisions are determined based
on management estimate required to settle the obligation at the balance
sheet date and are not discounted to present value. Contingent
liabilities are disclosed on the basis of judgment of the
management/independent experts. These are reviewed at each balance
sheet date and are adjusted to refl ect the current management
estimate.
R. Cash fl ow statement
Cash fl ow statement is prepared in accordance with the indirect method
prescribed in Accounting Standard (AS) 3 on Cash Flow Statements.
S. Taxes on income
Current tax is determined on the basis of taxable income in accordance
with the provisions of the Income Tax Act, 1961. Deferred tax
liability/ asset resulting from timing difference between accounting
income and taxable income is accounted for considering the tax rate &
tax laws that have been enacted or substantively enacted as on the
reporting date. Deferred tax asset is recognized and carried forward
only to the extent that there is reasonable certainty that the asset
will be realized in future. Deferred tax assets are reviewed at each
reporting date for their realisability.
A. Basis of preparation
The financial statements are prepared on accrual basis of accounting
under historical cost convention in accordance with generally accepted
accounting principles in India, the relevant provisions ofthe Companies
Act, 1956 including accounting standards notified there underand the
provisions of the Electricity Act, 2003 to the extent applicable.
B. Use of estimates
The preparation of financial statements requires estimates and
assumptions that affect the reported amount of assets, liabilities,
revenue and expenses during the reporting period. Although such
estimates and assumptions are made on a reasonable and prudent basis
taking into account all available information, actual results could
differ from these estimates & assumptions and such differences are
recognized in the period in which the results are crystallized.
C. Grants-in-aid
1. Grants-in-aid received from the Central Government or other
authorities towards capital expenditure as well as consumers
contribution to capital works are treated initially as capital reserve
and subsequently adjusted as income in the same proportion as the
depreciation written off on the assets acquired out of the grants.
2. Where the ownership of the assets acquired out of the grants vests
with the government, the grants are adjusted in the carrying cost of
such assets.
3. Grants from Government and other agencies towards revenue
expenditure are recognized over the period in which the related costs
are incurred and are deducted from the related expenses.
D. Fixed assets
1. Tangible assets are carried at historical cost less accumulated
depreciation/amortisation.
2. Expenditure on renovation and modernisation of tangible assets
resulting in increased life and/or efficiency of an existing asset is
added to the cost of related assets.
3. Intangible assets are stated at their cost of acquisition less
accumulated amortisation.
4. Capital expenditure on assets not owned by the Company relating to
generation of electricity business is reflected as a distinct item in
capital work-in-progress till the period of completion and thereafter
in the tangible assets.
5. Deposits, payments/liabilities made provisionally towards
compensation, rehabilitation and other expenses relatable to land in
possession are treated as cost of land.
6. In the case of assets put to use, where final settlement of bills
with contractors is yet to be effected, capitalisation is done on
provisional basis subject to necessary adjustment in the year of final
settlement.
7. Assets and systems common to more than one generating unit are
capitalised on the basis of engineering estimates/assessments.
E. Capital work-in-progress
1. Administration and general overhead expenses attributable to
construction of fixed assets incurred till they are ready for their
intended use are identified and allocated on a systematic basis to the
cost of related assets.
2. Deposit works/cost plus contracts are accounted for on the basis of
statements of account received from the contractors.
3. Unsettled liability for price variation/exchange rate variation in
case of contracts are accounted for on estimated basis as per terms of
the contracts.
F. Oil and gas exploration costs
1. The Company follows Successful Efforts Method for accounting
ofoil& gas exploration activities.
2. Cost of surveys and prospecting activities conducted in search of
oil and gas is expensed off in the year in which these are incurred.
3. Acquisition and exploration costs are initially capitalized as
Exploratory wells-in-progress under Capital work-in-progress. Such
exploratory wells in progress are capitalised in the year in which the
producing property is created or is written off in the year when
determined to be dry/abandoned.
4. All wells under Exploratory Wells-in-Progress which are more than
two years old from the date of completion of drilling are charged to
statement of profit and loss, except those wells which have proven
reserves and the development of the fields in which the wells are
located has been planned.
G. Development of coal mines
Expenditure on exploration and development of new coal deposits is
capitalized as Development of coal mines under capital
work-in-progress till the mines project is brought to revenue account.
H. Foreign currency transactions
1. Foreign currency transactions are initially recorded at the rates
of exchange ruling at the date of transaction.
2. At the balance sheet date, foreign currency monetary items are
reported using the closing rate. Non-monetary items denominated in
foreign currency are reported at the exchange rate ruling at the date
oftransaction.
3. Exchange differences arising from settlement/translation of foreign
currency loans, deposits/liabilities relating to fixed assets/capital
work- in-progress in respect of transactions entered prior to
01.04.2004, are adjusted in the carrying cost of related assets. Such
exchange differences arising from settlement/translation of long term
foreign currency monetary items in respect of transactions entered on
or after 01.04.2004 are adjusted in the carrying cost of related
assets.
4. Other exchange differences are recognized as income or expense in
the period in which they arise.
I. Borrowing costs
Borrowing costs attributable to the fixed assets during
construction/exploration, renovation and modernisation are capitalised.
Such borrowing costs are apportioned on the average balance of capital
work-in-progress for the year. Other borrowing costs are recognised as
an expense in the period in which they are incurred.
J. Investments
1. Current investments arevalued at lowerofcost and fair value
determined on an individual investment basis.
2. Long term investments are carried at cost. Provision is made for
diminution, other than temporary, in the value of such investments.
3. Premium paid on long term investments is amortised over the period
remaining to maturity.
K. Inventories
1. Inventories are valued at the lower of, cost determined on weighted
average basis, and net realizable value.
2. The diminution in the value of obsolete, unserviceable and surplus
stores and spares is ascertained on review and provided for.
L. Income recognition
1. Sale of energy is accounted for based on tariff rates approved by
the Central Electricity Regulatory Commission (CERC) as modified by the
orders of Appellate Tribunal for Electricity to the extent applicable.
In case of power stations where the tariff rates are yet to be
approved, provisional rates are adopted.
2. Advance against depreciation considered as deferred revenue in
earlieryears is included in sales, to the extent depreciation recovered
in tariff during the year is lower than the corresponding depreciation
charged.
3. Exchange differences on account of translation of foreign currency
borrowings recoverable from or payable to the beneficiaries in
subsequent periods as per CERC Tariff Regulations are accounted as
Deferred foreign currency fluctuation asset/liability. The increase
or decrease in depreciation for the year due to the accounting of such
exchange differences as per accounting policy no. H is adjusted in
depreciation.
4. Exchange differences arising from settlement/translation of
monetary items denominated in foreign currency (other than long term)
to the extent recoverable from or payable to the beneficiaries in
subsequent periods as per CERC Tariff Regulations are accounted as
Deferred foreign currency fluctuation asset/liability during
construction period and adjusted from the year in which the same
becomes recoverable/ payable.
5. The surcharge on late payment/overdue sundry debtors for sale of
energy is recognized when no significant uncertainty as to
measurability or collectability exists.
6. Interest/surcharge recoverable on advances to suppliers as well as
warranty claims/liquidated damages wherever there is uncertainty of
realisation/acceptance are not treated as accrued and are therefore,
accounted for on receipt/acceptance.
7. Income from consultancy services is accounted for on the basis of
actual progress/technical assessment ofwork executed, in line with the
terms of respective consultancy contracts. Claims for reimbursement of
expenditure are recognized as other income, as per the terms of
consultancy service contracts.
8. Scrap otherthan steel scrap is accounted for as and when sold.
9. Insurance claims for loss of profit are accounted for in the year
of acceptance. Other insurance claims are accounted for based on
certainty of realisation.
M. Expenditure
a) Depreciation/amortisation
1. Depreciation on the assets of the generation of electricity
business is charged on straight line method following the rates and
methodology notified bythe CERC Tariff Regulations, 2009 in
accordancewith Section 616(c) ofthe CompaniesAct, 1956.
2. Depreciation on the assets of the coal mining, oil & gas
exploration and consultancy business, is charged on straight line
method following the rates specified in Schedule XIV of the Companies
Act, 1956.
3. Depreciation on the following assets is provided based on their
estimated useful life:
a) Kutcha Roads 2 years
b) Enablingworks
- residential buildings including their internal electrification.
15years
- non-residential buildings including their internal electrification,
water supply, sewerage & drainage works, railway sidings, aerodromes,
helipads and airstrips.
5 years
c) Personal computers & laptops including peripherals 5years
d) Photo copiers and fax machines 5years
e) Water coolers and refrigerators 12years
4. Depreciation on additions to/deductions from fixed assets during
the year is charged on pro-rata basis from/up to the month in which the
asset is available for use/disposal.
5. Assets costing up to Rs. 5000/- are fully depreciated in the year
of acquisition.
6. Cost of software recognized as intangible asset, is amortised on
straight line method over a period of legal right to use or 3 years,
whichever is less. Other intangible assets are amortized on straight
line method over the period of legal right to use or life of the
related plant, whichever is less.
7. Where the cost of depreciable assets has undergone a change during
the year due to increase/decrease in long term liabilities on account
of exchange fluctuation, price adjustment, change in duties or similar
factors, the unamortised balance of such asset is charged off
prospectively over the remaining useful life determined following the
applicable accounting policies relating to depreciation/amortisation.
8. Where the life and/or efficiency of an asset is increased due to
renovation and modernization, the expenditure thereon along-with its
unamortized depreciable amount is charged off prospectively over the
revised useful life determined by technical assessment.
9. Machinery spares which can be used only in connection with an item
of plant and machinery and their use is expected to be irregular, are
capitalised and fully depreciated over the residual useful life of the
related plant and machinery.
10. Capital expenditure on assets not owned by the company referred in
policy D.4 is amortised over a period of 4 years from the month in
which the first unit of project concerned comes into commercial
operation and thereafter from the month in which the relevant asset
becomes available for use. However, similar expenditure for community
development is charged off to revenue.
11. Leasehold land and buildings relating to generation of electricity
business are fully amortised over 25 years or lease period whichever is
lower following the rates and methodology notified by CERC Tariff
Regulations, 2009. Leasehold land acquired on perpetual lease is not
amortised.
12. Land acquired for mining business under Coal Bearing Areas
(Acquisition & Development) Act, 1957 is amortised on the basis of
balance useful life of the project. Other leasehold land acquired for
mining business is amortised over the lease period or balance life of
the project whichever is less.
b) Other expenditure
13. Expenses on ex-gratia payments under voluntary retirement scheme,
training & recruitment and research & development are charged to
revenue in the year incurred.
14. Preliminary expenses on account of new projects incurred prior to
approval of feasibility report/techno economic clearance are charged to
revenue.
15. Net pre-commissioning income/expenditure is adjusted directly in
the cost of related assets and systems.
16. Prepaid expenses and prior period expenses/income of items ofRs.
100,000/- and below are charged to natural heads of accounts.
17. Transit and handling losses ofcoal as perCompanys norms are
included in costofcoal.
N. Employee benefits
1. Defined contribution plan
Companys contributions paid/payable during the year to provident fund
is recognised in the statement of profit and loss. The same is paid to
a fund administered through a separate trust.
2. Defined benefit plan
Companys liability towards gratuity, leave benefits (including
compensated absences), post retirement medical facility and other
terminal benefits are determined by independent actuary, at year end
using the projected unit credit method. Past service costs are
recognised on a straight line basis over the average period until the
benefits become vested. Actuarial gains and losses are recognised
immediately in the statementof profit and loss. Liability forgratuity
as per actuarial valuation is paid to a fund administered through a
separatetrust.
3. Short term employee benefits
These are recognised as an expense at the undiscounted amount in the
statement of profit and loss for the year in which the related services
are rendered.
O. Leases
1. Finance lease
1.1 Assets taken on finance lease are capitalized atfair value or net
present value of the minimum lease payments,whichever is less.
1.2 Depreciation on the assets taken on finance lease is charged at the
rate applicable to similar type of fixed assets as per accounting
policy no. M.a.1 or M.a.2. 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 less.
1.3 Lease payments are apportioned between the finance charges and
outstanding liability in respect of assets taken on lease.
2. Operating lease
Assets acquired on lease where a significant portion of the risk and
rewards of the ownership are retained by the lessor are classified as
operating leases. Lease rentals are charged to revenue.
P. Impairment
The carrying amount of cash generating units is reviewed at each
balance sheet date where there is any indication of impairment based on
internal/ external indicators. An impairment loss is recognised in the
statement of profit and loss where the carrying amount exceeds the
recoverable amount ofthe cash generating units. An impairment loss is
reversed if there is change in the recoverable amount and such loss
either no longer exists or has decreased.
Q. Provisions and contingent liabilities
A provision is recognised when the company has a present obligation as
a result of a past event and it is probable that an outflow of
resources will be required to settle the obligation and in respect
ofwhich a reliable estimate can be made. Provisions are determined
based on management estimate required to settle the obligation at the
balance sheet date and are not discounted to present value. Contingent
liabilities are disclosed on the basis of judgment of the
management/independent experts. These are reviewed at each balance
sheet date and are adjusted to reflect the current management estimate.
R. Cash flow statement
Cash flow statement is prepared in accordance with the indirect method
prescribed in Accounting Standard (AS) 3 on Cash Flow Statements.
A. Basis of preparation
The financial statements are prepared on accrual basis of accounting
under historical cost convention in accordance with generally accepted
accounting principles in India, the relevant provisions of the
Companies Act, 1956 including accounting standards notified there
under and the provisions of the Electricity Act, 2003 to the extent
applicable.
B. Use of estimates
The preparation of financial statements requires estimates and
assumptions that affect the reported amount of assets, liabilities,
revenue and expenses during the reporting period. Although such
estimates and assumptions are made on a reasonable and prudent basis
taking into account all available information, actual results could
differ from these estimates & assumptions and such differences are
recognized in the period in which the results are crystallized.
C. Grants-in-aid
1. Grants-in-aid received from the Central Government or other
authorities towards capital expenditure as well as consumers
contribution to capital works are treated initially as capital reserve
and subsequently adjusted as income in the same proportion as the
depreciation written off on the assets acquired out of the grants.
2. Where the ownership of the assets acquired out of the grants vests
with the government, the grants are adjusted in the carrying cost of
such assets.
3. Grants from Government and other agencies towards revenue
expenditure are recognized over the period in which the related costs
are incurred and are deducted from the related expenses.
D. Fixed assets
1. Tangible assets are carried at historical cost less accumulated
depreciation/amortisation.
2. Expenditure on renovation and modernisation of tangible assets
resulting in increased life and/or efficiency of an existing asset is
added to the cost of related assets.
3. Intangible assets are stated at their cost of acquisition less
accumulated amortisation.
4. Capital expenditure on assets not owned by the Company relating to
generation of electricity business is refl ected as a distinct item in
capital work-in-progress till the period of completion and thereafter
in the tangible assets.
5. Deposits, payments/liabilities made provisionally towards
compensation, rehabilitation and other expenses relatable to land in
possession are treated as cost of land.
6. In the case of assets put to use, where final settlement of bills
with contractors is yet to be effected, capitalisation is done on
provisional basis subject to necessary adjustment in the year of final
settlement.
7. Assets and systems common to more than one generating unit are
capitalised on the basis of engineering estimates/assessments.
E. Capital work-in-progress
1. In respect of supply-cum-erection contracts, the value of supplies
received at site and accepted is treated as capital work-in-progress.
2. Administration and general overhead expenses attributable to
construction of fixed assets incurred till they are ready for their
intended use are identified and allocated on a systematic basis to the
cost of related assets.
3. Deposit works/cost plus contracts are accounted for on the basis of
statements of account received from the contractors.
4. Unsettled liability for price variation/exchange rate variation in
case of contracts are accounted for on estimated basis as per terms of
the contracts.
F. Oil and gas exploration costs
1. The Company follows Successful Efforts Method for accounting of
oil & gas exploration activities.
2. Cost of surveys and prospecting activities conducted in search of
oil and gas is expensed off in the year in which these are incurred.
3. Acquisition and exploration costs are initially capitalized as
Exploratory wells-in-progress under Capital work-in-progress. Such
exploratory wells in progress are capitalised in the year in which the
producing property is created or is written off in the year when
determined to be dry/abandoned.
4. All wells under Exploratory Wells-in-Progress which are more than
two years old from the date of completion of drilling are charged to
statement of profit and loss, except those wells which have proven
reserves and the development of the fields in which the wells are
located has been planned.
G. Development of coal mines
Expenditure on exploration and development of new coal deposits is
capitalized as Development of coal mines under capital
work-in-progress till the mines project is brought to revenue account.
H. Foreign currency transactions
1. Foreign currency transactions are initially recorded at the rates
of exchange ruling at the date of transaction.
2. At the balance sheet date, foreign currency monetary items are
reported using the closing rate. Non-monetary items denominated in
foreign currency are reported at the exchange rate ruling at the date
of transaction.
3. Exchange differences (loss), arising from translation of foreign
currency loans relating to fixed assets/capital work-in-progress to
the extent regarded as an adjustment to interest cost are treated as
borrowing cost.
4. Exchange differences arising from settlement/translation of foreign
currency loans (other than regarded as borrowing cost),
deposits/liabilities relating to fixed assets/capital work-in-progress
in respect of transactions entered prior to 01.04.2004, are adjusted in
the carrying cost of related assets. Such exchange differences arising
from settlement/translation of long term foreign currency monetary
items in respect of transactions entered on or after 01.04.2004 are
adjusted in the carrying cost of related assets.
5. Other exchange differences are recognized as income or expense in
the period in which they arise.
I. Borrowing costs
Borrowing costs attributable to the fixed assets during
construction/exploration, renovation and modernisation are capitalised.
Such borrowing costs are apportioned on the average balance of capital
work-in-progress for the year. Other borrowing costs are recognised as
an expense in the period in which they are incurred.
J. Investments
1. Current investments are valued at lower of cost and fair value
determined on an individual investment basis.
2. Long term investments are carried at cost. Provision is made for
diminution, other than temporary, in the value of such investments.
3. Premium paid on long term investments is amortised over the period
remaining to maturity.
K. Inventories
1. Inventories are valued at the lower of, cost determined on weighted
average basis, and net realizable value.
2. The diminution in the value of obsolete, unserviceable and surplus
stores and spares is ascertained on review and provided for.
L. Income recognition
1. Sale of energy is accounted for based on tariff rates approved by
the Central Electricity Regulatory Commission (CERC) as modifi ed by
the orders of Appellate Tribunal for Electricity to the extent
applicable. In case of power stations where the tariff rates are yet to
be approved, provisional rates are adopted.
2. Advance against depreciation considered as deferred revenue in
earlier years is included in sales, to the extent depreciation
recovered in tariff during the year is lower than the corresponding
depreciation charged.
3. Exchange differences on account of translation of foreign currency
borrowings recoverable from or payable to the benefi ciaries in
subsequent periods as per CERC Tariff Regulations are accounted as
Deferred foreign currency fl uctuation asset/liability. The increase
or decrease in depreciation or interest and finance charges for the
year due to the accounting of such exchange differences as per
accounting policy no. H is adjusted in depreciation or sales, as the
case may be.
4. Exchange differences arising from settlement/translation of
monetary items denominated in foreign currency (other than long term)
to the extent recoverable from or payable to the benefi ciaries in
subsequent periods as per CERC Tariff Regulations are accounted as
Deferred foreign currency fl uctuation asset/liability during
construction period and adjusted from the year in which the same
becomes recoverable/ payable.
5. The surcharge on late payment/overdue sundry debtors for sale of
energy is recognized when no significant uncertainty as to
measurability or collectability exists.
6. Interest/surcharge recoverable on advances to suppliers as well as
warranty claims/liquidated damages wherever there is uncertainty of
realisation/acceptance are not treated as accrued and are therefore
accounted for on receipt/acceptance.
7. Income from consultancy services is accounted for on the basis of
actual progress/technical assessment of work executed, in line with the
terms of respective consultancy contracts. Claims for reimbursement of
expenditure are recognized as other income, as per the terms of
consultancy service contracts.
8. Scrap other than steel scrap is accounted for as and when sold.
9. Insurance claims for loss of profit are accounted for in the year
of acceptance. Other insurance claims are accounted for based on
certainty of realisation.
M. Expenditure
1. Depreciation on the assets of the generation of electricity
business is charged on straight line method following the rates and
methodology notified by the CERC Tariff Regulations, 2009 in
accordance with Section 616 (c) of the Companies Act, 1956.
2. Depreciation on the assets of the coal mining, oil & gas
exploration and consultancy business, is charged on straight line
method following the rates specifi ed in Schedule XIV of the Companies
Act, 1956.
3. Depreciation on the following assets is provided based on their
estimated useful life:
4. Depreciation on additions to/deductions from fixed assets during
the year is charged on pro-rata basis from/up to the month in which the
asset is available for use/disposal.
5. Assets costing up to Rs. 5000/- are fully depreciated in the year of
acquisition.
6. Cost of software recognized as intangible asset, is amortised on
straight line method over a period of legal right to use or 3 years,
whichever is less. Other intangible assets are amortized on straight
line method over the period of legal right to use following the rates
and methodology notified by CERC Tariff Regulations, 2009.
7. Where the cost of depreciable assets has undergone a change during
the year due to increase/decrease in long term liabilities on account
of exchange fl uctuation, price adjustment, change in duties or similar
factors, the unamortised balance of such asset is charged off
prospectively at the rates and methodology notified by CERC Tariff
Regulations, 2009/ revised useful life determined based on rates
specifi ed in Schedule XIV of the Companies Act, 1956.
8. Where the life and/or efficiency of an asset is increased due to
renovation and modernization, the expenditure thereon along-with its
unamortized depreciable amount is charged off prospectively over the
revised useful life determined by technical assessment.
9. Machinery spares which can be used only in connection with an item
of plant and machinery and their use is expected to be irregular, are
capitalised and fully depreciated over the residual useful life of the
related plant and machinery.
10. Capital expenditure on assets not owned by the company is
amortised over a period of 4 years from the month in which the first
unit of project concerned comes into commercial operation and
thereafter from the month in which the relevant asset becomes available
for use. However, similar expenditure for community development is
charged off to revenue.
11. Leasehold land and buildings relating to generation of electricity
business are fully amortised over 25 years or lease period whichever is
lower following the rates and methodology notified by CERC Tariff
Regulations, 2009. Leasehold land acquired on perpetual lease is not
amortised.
12. Land acquired for mining business under Coal Bearing Areas
(Acquisition & Development) Act, 1957 is amortised on the basis of
balance useful life of the project. Other leasehold land acquired for
mining business is amortised over the lease period or balance life of
the project whichever is less.
13. Expenses on ex-gratia payments under voluntary retirement scheme,
training & recruitment and research & development are charged to
revenue in the year incurred.
14. Preliminary expenses on account of new projects incurred prior to
approval of feasibility report/techno economic clearance are charged to
revenue.
15. Net pre-commissioning income/expenditure is adjusted directly in
the cost of related assets and systems.
16. Prepaid expenses and prior period expenses/income of items of Rs.
100,000/- and below are charged to natural heads of accounts.
17. Carpet coal is charged off to coal consumption. However, during
pre-commissioning period, carpet coal is retained in inventories and
charged off to consumption in the first year of commercial operation.
Transit and handling losses of coal as per norms are included in cost
of coal.
N. Employee benefits
1. Defi ned contribution plan
Companys contributions paid/payable during the year to provident fund
is recognised in the statement of profit and loss. The same is paid to
a fund administered through a separate trust.
2. Defi ned benefit plan
Companys liability towards gratuity, leave benefits (including
compensated absences), post retirement medical facility and other
terminal benefits are determined by independent actuary, at year end
using the projected unit credit method. Past service costs are
recognised on a straight line basis over the average period until the
benefits become vested. Actuarial gains and losses are recognised
immediately in the statement of profit and loss. Liability for
gratuity as per actuarial valuation is paid to a fund administered
through a separate trust.
3. Short term employee benefits
These are recognised as an expense at the undiscounted amount in the
statement of profit and loss for the year in which the related
services are rendered.
O. Leases
1. Finance lease
1.1 Assets taken on finance lease are capitalized at fair value or net
present value of the minimum lease payments, whichever is less.
1.2 Depreciation on the assets taken on finance lease is charged at
the rate applicable to similar type of fixed assets as per accounting
policy no. M.1 or M.2. 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 less.
1.3 Lease payments are apportioned between the finance charges and
outstanding liability in respect of assets taken on lease.
2. Operating lease
Assets acquired on lease where a significant portion of the risk and
rewards of the ownership are retained by the lessor are classified as
operating leases. Lease rentals are charged to revenue.
P. Impairment
The carrying amount of cash generating units is reviewed at each
balance sheet date where there is any indication of impairment based on
internal/ external indicators. An impairment loss is recognised in the
statement of profit and loss where the carrying amount exceeds the
recoverable amount of the cash generating units. An impairment loss is
reversed if there is change in the recoverable amount and such loss
either no longer exists or has decreased.
Q. Provisions and contingent liabilities
A provision is recognised when the company has a present obligation as
a result of a past event and it is probable that an outfl ow of
resources will be required to settle the obligation and in respect of
which a reliable estimate can be made. Provisions are determined based
on management estimate required to settle the obligation at the balance
sheet date and are not discounted to present value. Contingent
liabilities are disclosed on the basis of judgment of the
management/independent experts. These are reviewed at each balance
sheet date and are adjusted to refl ect the current management
estimate.
R. Cash flow statement
Cash fl ow statement is prepared in accordance with the indirect method
prescribed in Accounting Standard (AS) 3 on Cash Flow Statements.
1. BASIS OF PREPARATION
The financial statements are prepared on accrual basis of accounting
under historical cost convention in accordance with generally accepted
accounting principles in India and the relevant provisions of the
Companies Act, 1956 including accounting standards notified there
under.
2. USE OF ESTIMATES
The preparation of financial statements requires estimates and
assumptions that affect the reported amount of assets, liabilities,
revenue and expenses during the reporting period. Although such
estimates and assumptions are made on a reasonable and prudent basis
taking into account all available information, actual results could
differ from these estimates & assumptions and such differences are
recognized in the period in which the results are crystallized.
3. GRANTS-IN-AID
3.1 Grants-in-aid received from the Central Government or other
authorities towards capital expenditure as well as consumers'
contribution to capital works are treated initially as capital reserve
and subsequently adjusted as income in the same proportion as the
depreciation written off on the assets acquired out of the grants.
3.2 Where the ownership of the assets acquired out of the grants vests
with the government, the grants are adjusted in the carrying cost of
such assets.
3.3 Grants from Government and other agencies towards revenue
expenditure are recognized over the period in which the related costs
are incurred and are deducted from the related expenses.
4. FIXED ASSETS
4.1 Fixed Assets are carried at historical cost less accumulated
depreciation/amortisation.
4.2 Expenditure on renovation and modernisation of fixed assets
resulting in increased life and/or efficiency of an existing asset is
added to the cost of related assets.
4.3 Intangible assets are stated at their cost of acquisition less
accumulated amortisation.
4.4 Capital expenditure on assets not owned by the Company is reflected
as a distinct item in Capital Work-in- Progress till the period of
completion and thereafter in the Fixed Assets.
4.5 Deposits, payments/liabilities made provisionally towards
compensation, rehabilitation and other expenses relatable to land in
possession are treated as cost of land.
4.6 In the case of assets put to use, where f ina I settlement of bi I
Is with contractors is yet to be effected, ca pita I isation is done on
provisional basis subject to necessary adjustment in the year of final
settlement.
4.7 Assets and systems common to more than one generating unit are
capitalised on the basis of engineering estimates/assessments.
5. CAPITAL WORK-IN-PROGRESS
5.1 In respect of supply-cum-erection contracts, the value of supplies
received at site and accepted is treated as Capital Work-in-Progress.
5.2 Administration and general overhead expenses attributable to
construction of fixed assets incurred til I they are ready for their
intended use are identified and allocated on a systematic basis to the
cost of related assets.
5.3 Deposit works/cost plus contracts are accounted for on the basis of
statements of account received from the contractors.
5.4 Unsettled liability for price variation/exchange rate variation in
case of contracts are accounted for on estimated basis as per terms of
the contracts.
6. OIL AND GAS EXPLORATION COSTS
6.1 The Company follows 'Successful Efforts Method' for accounting of
oil & gas exploration activities.
6.2 Cost of surveys and prospecting activities conducted in search of
oil and gas are expensed off in the year in which these are incurred.
6.3 Acquisition and exploration costs are initially capitalized as
'Exploratory Wells-in-Progress' under Capital Work-in-Progress.
7. DEVELOPMENT OF COAL MINES
Expenditure on exploration of new coal deposits is capitalized as
'Development of coal mines' under Capital Work- in-Progress till the
mines project is brought to revenue account.
8. FOREIGN CURRENCY TRANSACTIONS
8.1 Foreign currency transactions are initially recorded at the rates
of exchange ruling at the date of transaction.
8.2 At the balance sheet date, foreign currency monetary items are
reported using the closing rate. Non-monetary items denominated in
foreign currency are reported at the exchange rate ruling at the date
of transaction.
8.3 Exchange differences (loss), arising from translation of foreign
currency loans relating to fixed assets/capital work-in-progress to the
extent regarded as an adjustment to interest cost are treated as
borrowing cost.
8.4 Exchange differences arising from settlement / translation of
foreign currency loans (other than regarded as borrowing cost),
deposits/ liabilities relating to fixed assets/capital work-in-progress
in respect of transactions entered prior to 01.04.2004, are adjusted in
the carrying cost of related assets. Such exchange differences arising
from settlement / translation of long term foreign currency monetary
items in respect of transactions entered on or after 01.04.2004 are
adjusted in the carrying cost of related assets.
8.5 Other exchange differences are recognized as income or expense in
the period in which they arise.
9. BORROWING COSTS
Borrowing costs attributable to the fixed assets during
construction/exploration, renovation and modernisation are capitalised.
Such borrowing costs are apportioned on the average balance of capital
work-in-progress for the year. Other borrowing costs are recognised as
an expense in the period in which they are incurred.
10. INVESTMENTS
10.1 Current investments are valued at lower of cost and fair value
determined on an individual investment basis.
10.2 Long term investments are carried at cost. Provision is made for
diminution, other than temporary, in the value of such investments.
10.3 Premium paid on long term investments is amortised over the period
remaining to maturity.
11. INVENTORIES
11.1 Inventories are valued at the lower of, cost determined on
weighted average basis, and net realizable value.
11.2 The diminution in the value of obsolete, unserviceable and surplus
stores and spares is ascertained on review and provided for.
12. PROFIT AND LOSS ACCOUNT
12.1 INCOME RECOGNITION
12.1.1 Sale of energy is accounted for based on tariff rates approved
by the Central Electricity Regulatory Commission (CERC) as modified by
the orders of Appellate Tribunal for Electricity to the extent
applicable. In case of power stations where the tariff rates are yet to
be approved, provisional rates are adopted.
12.1.2 Advance against depreciation considered as deferred revenue in
earlier years is included in sales, to the extent depreciation
recovered in tariff during theyear is lower than the corresponding
depreciation charged.
12.1.3 Exchange differences on account of translation of foreign
currency borrowings recoverable from or payable to the beneficiaries in
subsequent periods as per CERC Tariff Regulations are accounted as
'Deferred Foreign Currency Fluctuation Asset/Liability'. The increase
or decrease in depreciation or interest and finance charges for the
year due to the accounting of such exchange differences as per
accounting policy no. 8 is adjusted in sales.
12.1.4 Exchange differences arising from settlement/translation of
monetary items denominated in foreign currency (other than long term)
to the extent recoverable from or payable to the beneficiaries in
subsequent periods as per CERC Tariff Regulations are accounted as
'Deferred Foreign Currency Fluctuation Asset/Liability' during
construction period and adjusted in the year in which the same becomes
recoverable/payable.
12.1.5 The surcharge on late payment/overdue sundry debtors for sale of
energy is recognized when no significant uncertainty as to
measurability or collectability exists.
12.1.6 Interest/surcharge recoverable on advances to suppliers as well
as warranty claims/liquidated damages wherever there is uncertainty of
realisation/acceptance are not treated as accrued and are therefore
accounted for on receipt/acceptance.
12.1.7 Income from consultancy services is accounted for on the basis
of actual progress/technical assessment of work executed, in line with
the terms of respective consultancy contracts. Claims for reimbursement
of expenditure are recognized as other income, as per the terms of
consultancy service contracts.
12.1.8 Scrap other than steel scrap is accounted for as and when sold.
12.1.9 Insurance claims for loss of profit are accounted for in the
year of acceptance. Other insurance claims are accounted for based on
certainty of realisation.
12.2 EXPENDITURE
12.2.1 Depreciation on the assets of the generation of electricity
business is charged on straight line method following the rates and
methodology notified by the CERC Tariff Regulations, 2009.
12.2.2 Depreciation on the assets of the coal mining, oil & gas
exploration and consultancy business, is charged on straight line
method following the rates specified in Schedule XIV of the Companies
Act, 1956.
12.2.4 Depreciation on additions to/deductions from fixed assets during
the year is charged on pro-rata basis from/up to the month in which the
asset is available for use/disposal.
12.2.5 Assets costing up toRs. 5000/- are fully depreciated in the year
of acquisition.
12.2.6 Cost of software recognized as intangible asset, is amortised on
straight line method over a period of legal right to use or 3 years,
whichever is less. Other intangible assets are amortized on straight
line method over the period of legal right to use following the rates
and methodology notified by CERC Tariff Regulations, 2009.
12.2.7 Where the cost of depreciable assets has undergone a change
during the year due to increase/ decrease in long term liabilities on
account of exchange fluctuation, price adjustment, change in duties or
similar factors, the unamortised balance of such asset is charged off
prospectively at the rates and methodology notified by CERC Tariff
Regulations, 2009/ revised useful life determined based on rates
specified in Schedule XIV of the Companies Act, 1956.
12.2.8 Where the life and/or efficiency of an asset is increased due to
renovation and modernization, the expenditure thereon along-with its
unamortized depreciable amount is charged off prospectively over the
revised useful life determined by technical assessment.
12.2.9 Machinery spares which can be used only in connection with an
item of plant and machinery and their use is expected to be irregular,
are capitalised and fully depreciated over the residual useful life of
the related plant and machinery at the rates and methodology notified
by CERC Tariff Regulations, 2009 for such items of plant and machinery.
12.2.10 Capital expenditure on assets not owned by the company is
amortised over a period of 4 years from the month in which the first
unit of project concerned comes into commercial operation and
thereafter from the month in which the relevant asset becomes available
for use. However, similar expenditure for community development is
charged off to revenue.
12.2.11 Leasehold land and buildings are fully amortised over 25 years
or lease period whichever is less following the rates and methodology
notified by CERC Tariff Regulations, 2009. Leasehold land acquired on
perpetual lease is not amortised.
12.2.12 Land acquired under Coal Bearing Areas (Acquisition &
Development) Act, 1957 is amortised on the basis of lease period or
balance useful life of the respective project whichever is less.
12.2.13 Expenses on ex-gratia payments under voluntary retirement
scheme, training & recruitment and research and development are charged
to revenue in the year incurred.
12.2.14 Preliminary expenses on account of new projects incurred prior
to approval of feasibility report/ techno economic clearance are
charged to revenue.
12.2.15 Actuarial gains/losses in respect of 'Employee Benefit Plans'
are recognised in the statement of Profit & Loss Account.
12.2.16 Net pre-commissioning income/expenditure is adjusted directly
in the cost of related assets and systems.
12.2.17 Prepaid expenses and prior period expenses/income of items of
Rs.100,000/- and below are charged to natural heads of accounts.
12.2.18 Carpet coal is charged off to coal consumption. However, during
pre-commissioning period, carpet coal is retained in inventories and
charged off to consumption in the first yearof commercial operation.
Transit and handling losses of coal as per norms are included in cost
of coal.
13. LEASES
13.1 FINANCE LEASE
13.1.1 Assets taken on finance lease are capitalized at fair value or
net present value of the minimum lease payments, whichever is less.
13.1.2 Depreciation on the assets taken on finance lease is charged at
the rate applicable to similar type of fixed assets as per accounting
policy no. 12.2.1 or 12.2.2. 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 less.
13.1.3 Lease payments are apportioned between the finance charges and
outstanding liability in respect of assets taken on lease.
13.2 OPERATING LEASE
Assets acquired on lease where a significant portion of the risk and
rewards of the ownership are retained by the lessor are classified as
operating leases. Lease rentals are charged to revenue.
14. PROVISIONS AND CONTINGENT LIABILITIES
A provision is recognised when the company has a present obligation as
a result of a past event and it is probable that an outflow of
resources will be required to settle the obligation and in respect of
which a reliable estimate can be made. Provisions are determined based
on management estimate required to settle the obligation at the balance
sheet date and are not discounted to present value. Contingent
liabilities are disclosed on the basis of judgment of the
management/independent experts. These are reviewed at each balance
sheet date and are adjusted to reflect the current management estimate.
15. CASH FLOW STATEMENT
Cash flow statement is prepared in accordance with the indirect method
prescribed in Accounting Standard (AS) 3 on 'Cash Flow Statements'.
1. BASIS OF PREPARATION
The financial statements are prepared on accrual basis of accounting
under historical cost convention in accordance with generally accepted
accounting principles in India and the relevant provisions of the
Companies Act, 1956 including accounting standards notifi ed there
under.
2. USE OF ESTIMATES
The preparation of financial statements requires estimates and
assumptions that affect the reported amount of assets, liabilities,
revenue and expenses during the reporting period. Although such
estimates and assumptions are made on a reasonable and prudent basis
taking into account all available information, actual results could
differ from these estimates & assumptions and such differences are
recognized in the period in which the results are crystallized.
3. GRANTS-IN-AID
3.1 Grants-in-aid received from the Central Government or other
authorities towards capital expenditure as well as consumers
contribution to capital works are treated initially as capital reserve
and subsequently adjusted as income in the same proportion as the
depreciation written off on the assets acquired out of the grants.
3.2 Where the ownership of the assets acquired out of the grants vests
with the government, the grants are adjusted in the carrying cost of
such assets.
3.3 Grants from Government and other agencies towards revenue
expenditure are recognized over the period in which the related costs
are incurred and are deducted from the related expenses.
4. FIXED ASSETS
4.1 Fixed Assets are carried at historical cost less accumulated
depreciation.
4.2 Expenditure on renovation and modernisation of fixed assets
resulting in increased life and/or effi ciency of an existing asset is
added to the cost of related assets.
4.3 Intangible assets are stated at their cost of acquisition less
accumulated amortisation.
4.4 Capital expenditure on assets not owned by the Company is refl
ected as a distinct item in Capital Work-in- Progress till the period
of completion and thereafter in the Fixed Assets.
4.5 Deposits, payments/liabilities made provisionally towards
compensation, rehabilitation and other expenses relatable to land in
possession are treated as cost of land.
4.6 In the case of assets put to use, where final settlement of bills
with contractors is yet to be effected, capitalisation is done on
provisional basis subject to necessary adjustment in the year of final
settlement.
4.7 Assets and systems common to more than one generating unit are
capitalised on the basis of engineering estimates/assessments.
5. CAPITAL WORK-IN-PROGRESS
5.1 In respect of supply-cum-erection contracts, the value of supplies
received at site and accepted is treated as Capital Work-in-Progress.
5.2 Administration and general overhead expenses attributable to
construction of fixed assets incurred till they are ready for their
intended use are identifi ed and allocated on a systematic basis to the
cost of related assets.
5.3 Deposit works/cost plus contracts are accounted for on the basis of
statements of account received from the contractors.
5.4 Unsettled liability for price variation/exchange rate variation in
case of contracts are accounted for on estimated basis as per terms of
the contracts.
6. OIL AND GAS EXPLORATION COSTS
6.1 The Company follows Successful Efforts Method for accounting of
oil & gas exploration activities.
6.2 Cost of surveys and prospecting activities conducted in search of
oil and gas are expensed off in the year in which these are incurred.
6.3 Acquisition and exploration costs are initially capitalized as
Exploratory Wells-in-Progress under Capital Work- in-Progress.
7. DEVELOPMENT OF COAL MINES
Expenditure on exploration of new coal deposits is capitalized as
Development of coal mines under Capital Work- in-Progress till the
mines project is brought to revenue account.
8. FOREIGN CURRENCY TRANSACTIONS
8.1 Foreign currency transactions are initially recorded at the rates
of exchange ruling at the date of transaction.
8.2 At the balance sheet date, foreign currency monetary items are
reported using the closing rate. Non-monetary items denominated in
foreign currency are reported at the exchange rate ruling at the date
of transaction.
8.3 Exchange differences (loss), arising from translation of foreign
currency loans relating to fixed assets/capital work-in-progress to
the extent regarded as an adjustment to interest cost are treated as
borrowing cost.
8.4 Exchange differences arising from settlement / translation of
foreign currency loans (other than regarded as borrowing cost),
deposits / liabilities relating to fixed assets / capital
work-in-progress in respect of transactions entered prior to
01.04.2004, are adjusted in the carrying cost of related assets. Such
exchange differences arising from settlement / translation of long term
foreign currency monetary items in respect of transactions entered on
or after 01.04.2004 are adjusted in the carrying cost of related
assets.
8.5 Other exchange differences are recognized as income or expense in
the period in which they arise.
9. BORROWING COSTS
Borrowing costs attributable to the fixed assets during
construction/renovation and modernisation are capitalised. Such
borrowing costs are apportioned on the average balance of capital
work-in-progress for the year. Other borrowing costs are recognised as
an expense in the period in which they are incurred.
10. INVESTMENTS
10.1 Current investments are valued at lower of cost and fair value
determined on an individual investment basis.
10.2 Long term investments are carried at cost. Provision is made for
diminution, other than temporary, in the value of such investments.
10.3 Premium paid on long term investments is amortised over the period
remaining to maturity.
11. INVENTORIES
11.1 Inventories are valued at the lower of cost, determined on
weighted average basis, and net realizable value.
11.2 The diminution in the value of obsolete, unserviceable and surplus
stores and spares is ascertained on review and provided for.
12. PROFIT AND LOSS ACCOUNT 12.1 INCOME RECOGNITION
12.1.1 Sale of energy is accounted for based on tariff rates approved
by the Central Electricity Regulatory Commission (CERC) as modifi ed by
the orders of Appellate Tribunal for Electricity to the extent
applicable. In case of power stations where the tariff rates are yet to
be approved, provisional rates are adopted.
12.1.2 Advance against depreciation considered as deferred revenue in
earlier years is included in sales, to the extent depreciation
recovered in tariff during the year is lower than the corresponding
depreciation charged.
12.1.3 Exchange differences on account of translation of foreign
currency borrowings recoverable from or payable to the benefi ciaries
in subsequent periods as per CERC Tariff Regulations are accounted as
Deferred Foreign Currency Fluctuation Asset/Liability. The increase
or decrease in depreciation or interest and fi nance charges for the
year due to the accounting of such exchange differences as per
accounting policy no. 8 is adjusted in sales.
12.1.4 Exchange differences arising from settlement / translation of
monetary items denominated in foreign currency (other than long term)
to the extent recoverable from or payable to the benefi ciaries in
subsequent periods as per CERC Tariff Regulations are accounted as
Deferred Foreign Currency Fluctuation Asset/Liability during
construction period and adjusted in the year in which the same becomes
recoverable/payable.
12.1.5 The surcharge on late payment/overdue sundry debtors for sale of
energy is recognized when no signifi cant uncertainty as to
measurability or collectability exists.
12.1.6 Interest/surcharge recoverable on advances to suppliers as well
as warranty claims/liquidated damages wherever there is uncertainty of
realisation/acceptance are not treated as accrued and are therefore
accounted for on receipt/acceptance.
12.1.7 Income from consultancy services is accounted for on the basis
of actual progress/technical assessment of work executed, in line with
the terms of respective consultancy contracts. Claims for reimbursement
of expenditure are recognized as other income, as per the terms of
consultancy service contracts.
12.1.8 Scrap other than steel scrap is accounted for as and when sold.
12.1.9 Insurance claims for loss of Profit are accounted for in the
year of acceptance. Other insurance claims are accounted for based on
certainty of realisation.
12.2 EXPENDITURE
12.2.2 Depreciation on additions to/deductions from fixed assets
during the year is charged on pro-rata basis from/up to the month in
which the asset is available for use/disposal.
12.2.3 Assets costing up to Rs.5000/- are fully depreciated in the year
of acquisition.
12.2.4 Cost of software recognized as intangible asset, is amortised on
straight line method over a period of legal right to use or 3 years,
whichever is earlier. Intangible assets - Others are amortized on
straight line method over the period of legal right to use.
12.2.5 Where the cost of depreciable assets has undergone a change
during the year due to increase/ decrease in long term liabilities on
account of exchange fl uctuation, price adjustment, change in duties or
similar factors, the unamortised balance of such asset is charged
prospectively over the residual life.
12.2.6 Where the life and/or effi ciency of an asset is increased due
to renovation and modernization, the expenditure thereon along-with its
unamortized depreciable amount is charged prospectively over the
revised useful life determined by technical assessment.
12.2.7 Machinery spares which can be used only in connection with an
item of plant and machinery and their use is expected to be irregular,
are capitalised and fully depreciated over the residual useful life of
the related plant and machinery.
12.2.8 Capital expenditure on assets not owned by the company is
amortised over a period of 4 years from the year in which the fi rst
unit of project concerned comes into commercial operation and
thereafter from the year in which the relevant asset becomes available
for use. However, such expenditure for community development in case of
stations under operation is charged off to revenue.
12.2.9 Leasehold lands other than acquired on perpetual leases are
amortised over the lease period. Leasehold buildings are amortised
over the lease period or 30 years, whichever is lower. Leasehold land
and buildings, whose lease periods are yet to be finalised, are
amortised over a period of 30 years.
12.2.10 Expenses on ex-gratia payments under voluntary retirement
scheme, training & recruitment and research and development are charged
to revenue in the year incurred.
12.2.11 Preliminary expenses on account of new projects incurred prior
to approval of feasibility report/ techno economic clearance are
charged to revenue.
12.2.12 Actuarial gains/losses in respect of Employee Benefi t Plans
are recognised in the statement of Profit & Loss Account.
12.2.13 Net pre-commissioning income/expenditure is adjusted directly
in the cost of related assets and systems.
12.2.14 Prepaid expenses and prior period expenses/income of items of
Rs.100,000/- and below are charged to natural heads of accounts.
12.2.15 Carpet coal is charged off to coal consumption. However, during
pre-commissioning period, carpet coal is retained in inventories and
charged off to consumption in the fi rst year of commercial operation.
Transit and handling losses of coal as per norms are included in cost
of coal.
13. FINANCE LEASES
13.1 Assets taken on lease are capitalized at fair value or net present
value of the minimum lease payments, whichever is lower.
13.2 Depreciation on the assets taken on lease is charged at the rate
applicable to similar type of fixed assets as per accounting policy
no. 12.2.1. 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.
13.3 Lease payments are apportioned between the fi nance charges and
outstanding liability in respect of assets taken on lease.
14. PROVISIONS AND CONTINGENT LIABILITIES
A provision is recognised when the company has a present obligation as
a result of a past event and it is probable that an outfl ow of
resources will be required to settle the obligation and in respect of
which a reliable estimate can be made. Provisions are determined based
on management estimate required to settle the obligation at the balance
sheet date and are not discounted to present value. Contingent
liabilities are disclosed on the basis of judgment of the
management/independent experts. These are reviewed at each balance
sheet date and are adjusted to refl ect the current management
estimate.
15. CASH FLOW STATEMENT
Cash fl ow statement is prepared in accordance with the indirect method
prescribed in Accounting Standard (AS) 3 on Cash Flow Statements.
1. GRANTS-IN-AID
- Grants-in-aid received from the Central Government or other
authorities towards capital expenditure as well as consumers
contribution to capital works are treated initially as Capital reserve
and subsequently adjusted as income in the same proportion as the
depreciation written off on the assets acquired out of the grants.
Where the ownership of the assets acquired out of the grants vests with
the government, the grants are adjusted in the carrying cost of such
assets.
2. FIXED ASSETS
2.1 Fixed Assets are shown at historical cost.
2.2 Capital expenditure on Assets not owned by the Company is reflected
as a distinct item in Capital Work-in-Progress till the period of
completion and thereafter in the Fixed Assets.
2.3 Deposits, payments/liabilities made provisionally towards
compensation, rehabilitation and other expenses relatable to land in
possession are treated as cost of land.
2.4 In the case of commissioned assets, where final settlement of bills
with contractors is yet to be effected, capitalisation is done on
provisional basis subject to necessary adjustment in the year of final
settlement.
2.5 Assets and systems common to more than one generating unit are
capitalised on the basis of engineering estimates/assessments.
3. CAPITAL WORK-IN-PROGRESS
3.1 In respect of supply-cum-erection contracts, the value of supplies
received at site and accepted is treated as Capital Work-in-Progress.
3.2 Incidental Expenditure during Construction (net) including
corporate office expenses (allocated to the projects pro-rata to the
annual capital expenditure) for the year, is apportioned to Capital
Work-in-Progress on the basis of accretions thereto. Interest during
Construction is apportioned on the average balance of Capital
Work-in-Progress for the year.
3.3 Deposit work/cost plus contracts are accounted for on the basis of
statements of account received from the contractors.
3.4 Claims for price variation/exchange rate variation in case of
contracts are accounted for on acceptance.
4. FOREIGN CURRENCY TRANSACTIONS
4.1 TRANSLATION OF FINANCIAL STATEMENTS IN FOREIGN CURRENCIES
4.1.1 Items of income and expenditure except depreciation are
translated at average rate for the year. Depreciation is converted at
the rates adopted for the corresponding fixed assets.
4.1.2 Current assets and liabilities are translated at the closing
rates, and fixed assets are translated at the rates in force when the
transaction took place.
4.1.3 All translation differences are recognised as income/expense
during the year in which they arise.
4.2 OTHER FOREIGN CURRENCY TRANSACTIONS
4.2.1 Foreign currency transactions are initially recorded at the rates
of exchange ruling at the date of transaction
4.2.2 Foreign Currency loans/deposits/liabilities are reported with
reference to the rates of exchange ruling at tie year-end and the
difference resulting from such translation as well as due to
payment/discharge of liabilities in foreign currency related to Fixed
Assets/Capital Work-in-Progress is adjusted in their carrying cost and
that related to current assets is recognised as revenue/expenditure
during the year.
5. INVENTORIES
5.1 Inventories, other than scrap, are valued at cost, on weighted
average basis.
5.2 Steel scrap is valued at realisable value.
5.3 Value of scrap other than steel scrap is accounted for in the
accounts as and when sold.
6. PROFIT AND LOSS ACCOUNT 6.1 INCOME RECOGNITION
a) Sale of energy is accounted for based on tariff rates
notified/approved by the Government of India/ Central Electricity
Regulatory Commission. In case of power stations where tariffs are yet
to be notified/ revised/agreed with beneficiaries, provisional rates
are adopted.
b) The incentives/disincentives are accounted for based on tariff
notifications issued by the Government of India under Electricity
(Supply) Act, 1948 or agreements with the beneficiaries. In cases where
the same have not been notified, incentives/disincentives are accounted
for on provisional basis.
c) The surcharge on late/non-payment of dues by sundry debtors for sale
of energy is not treated accrued due to uncertainty of its realisation
and is, therefore, accounted for on receipt.
d) Interest/surcharge recoverable on advances to suppliers as well as
warranty claims/liquidated damages are not treated accrued due to
uncertainty of realisation/acceptance and are therefore accounted for
on receipt/acceptances.
e) Income from Consultancy service is accounted for on the basis of
actual progress/technical assessment of work executed.
6.2 EXPENDITURE
a) Depreciation is charged on straight line method as per rates
prescribed under the Electricity (Supply) Act, 1948 as notified from
time to time. In respect of assets, where rate has not been laid down
under the aforesaid Act, depreciation is provided on straight line
method at the rates corresponding to the rates laid down under the
Income Tax Act, 1961.
b) Depreciation on fixed assets is provided from the year following mat
in which the assets become available for use.
c) Items of Plant and machinery with written down value of Rs. 5,000/-
or less at the beginning of the year are fully depreciated.
d) Where the cost of depreciable assets has undergone a change during
the year due to increase/decrease in long term liabilities on account
of exchange fluctuation, price adjustment, change in duties or similar
factors, the unamortized balance of such asset is depreciated
prospectively over the residual life determined on the basis of the
rate of depreciation.
e) Capital expenditure referred to in Para 2.2 is amortised over a
period of 4 years, from the year following the year in which the first
unit of the project comes into commercial operation and thereafter from
the year following the year in which the relevant asset has been
completed and becomes available for use. However, such expenditure for
community development in case of units fully under operation is charged
off to revenue.
f) Leasehold buildings are amortised over the lease period or 30 years
whichever is lower. Leasehold land and buildings, whose lease period is
yet to be finalised, are amortised over a period of 30 years.
g) Expenses on training, recruitment and research and development are
charged to revenue in the year of incurrence.
h) Expenses common to operation and construction activities are
allocated to Profit and Loss Account and Incidental Expenditure during
Construction in proportion of sales to annual capital outlay in the
case of Corporate Office and sales to accretion to Capital
Work-in-Progress in the case of projects.
i) Net pre-commissioning income/expenditure is adjusted directly in the
cost of related assets and systems.
j) Prepaid expenses and prior period expenses/income of items of Rs.
100,000/- and below are charged to natural heads of accounts.
k) Windage and handling loss of coal along with normal loss due to
carpeting of coal is charged off to coal consumption. Loss of coal on
carpeting during pre- commissioning period is, however, retained in
stock of coal account and is charged off to consumption in the year of
operation of the unit.
7 RETIREMENT BENEFITS
a) The liability for retirement benefits of employees in respect of
Provident Fund and Gratuity (ascertained annually on actuarial
valuation) are accrued and funded separately.
b) The liabilities for leave encashment and post retirement medical
benefits to employees are accounted for on accrual basis based on
actuarial valuation.
8. INVESTMENTS
Investments are intended for long term and are carried at cost.