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Accounting Policies of Ortel Communications Ltd. Company

Mar 31, 2015

1.1 Basis of Preparation

These financial statements have been prepared in accordance with the Generally Accepted Accounting Principles in India, under the historical cost convention, on accrual basis. As per Rule 7 of The Companies(Accounts) Rules, 2014, the standards of accounting as specified under the Companies Act,1956 shall be deemed to be the accounting standards until accounting standards are specified by the Central Government under Section 133 of the Companies Act,2013. Consequently, these financial statements have been prepared to comply in all material aspects with the accounting standards notified under Section 211(3C) of the Companies Act,1956 [Companies (Accounting Standards) Rules,2006 ] and the relevant provisions of the Companies Act,2013.

Operating Cycle

All assets and liabilities have been classified as current or non- current as per the Company's operating cycle and other criteria set out in Schedule III of the Companies Act, 2013. The Company has ascertained its operating cycle as twelve months for the purpose of current/non-current classification of assets and liabilities.

1.2 Use of Estimates

The preparation of financial statements requires the management to make estimates and assumptions, which are considered to arrive at the reported amounts of assets and liabilities and disclosure of contingent liabilities as on the date of the financial statements and the reported income and expenses during the reporting year. Although these estimates are based upon the management's best knowledge of current events and actions, actual results could differ from these estimates. The difference between the actual results and the estimates are recognized in the periods in which the results are known / materialized. Any revision to the accounting estimates is recognized prospectively in the current and future years.

1.3 Fixed Assets, Depreciation / Amortisation and Impairment

i) Fixed Assets

Tangible Assets are carried at acquisition cost, net of accumulated depreciation and accumulated impairment losses, if any. Cost comprises of the purchase price and any directly attributable cost of bringing the asset to its working condition for its intended use. Own developed assets are capitalized at cost including an appropriate share of directly attributable overheads. Subsequent expenditures related to an item of fixed asset are added to its book value only if they increase the future benefits from the existing asset beyond its previously assessed standard of performance. Items of fixed assets that have been retired from active use and are held for disposal are stated at the lower of their net book value and net realizable value and are shown separately in the financial statements. Any expected loss is recognized immediately in the Statement of Profit and Loss. Borrowing costs relating to acquisition of fixed assets, which take substantial period of time to get ready for their intended use, are also capitalised to the extent they relate to the period till such assets are ready to put to use.

Intangible assets are stated at acquisition cost, net of accumulated amortisation and accumulated impairment losses, if any. Cost comprises of the purchase price and any directly attributable expenditure on making the asset ready for its intended use. Intangible assets comprises of amounts relating to Computer Software, Goodwill and Non Compete Fee, are recognised only if they are separately identifiable and the company expects to receive future economic benefits arising out of them. The amortisation period and amortisation method are reviewed at least at each financial year end. If the expected useful life of the asset is significantly different from the previous estimate, the amortisation period is changed accordingly.

(ii) Depreciation and Amortisation

a) Depreciation on tangible assets other than Freehold and Leasehold Land, including assets acquired under finance lease, is provided over the estimated useful life of assets, in accordance with Schedule II to the Companies Act, 2013. The residual value of assets is considered at 5%. For the year ended 31 March 2014, depreciation was provided in accordance with Schedule XIV to the Companies Act, 1956.

For the purpose of estimating the useful life of tangible assets as required under Schedule II , the Company has broadly divided the tangible assets in two categories viz., (a) assets which are specific to its industry and (b) assets which are general in nature.

For the assets which are specific to its industry, the Company has estimated the useful life of such assets based on it's past experience in this regard, which has been duly supported by independent technical advice. For assets which are general in nature, the Company has adopted the useful life as specified in Schedule II to the Companies Act, 2013.

Accordingly, the useful lives of tangible assets of the Company which are different from the useful lives as specified by Schedule II are as given below :

Asset Description(as per Estimated useful Estimated useful Note No.11) life duty Life as per supported Schedule by Technical II(Years) Advice(Years)

Cable Backbone Network 21 13,18

Cable Network- Drop 12,21 13,18

Cable Network- ILL & IFL 21 13,18

Maintenance Equipments 21 15

Head End Equipments 21 13

Broadband NOC Equipments 21 13

Depreciation / Amortisation on assets purchased / sold during the reporting year is recognised on a pro-rata basis. Leasehold Land is amortised over the period of lease.

b) Intangible assets are amortised on a straight line basis over their expected useful life as follows:

a) Non compete fees is amortised over the period of agreement with the Local Cable Operators ("LCOs"), in equal installments.

b) Computer software and Goodwill are amortised over a period of five years.

iii) Impairment

The carrying amount of assets is reviewed at each Balance Sheet date to determine if there is any indication of impairment, based on internal / external factors. An impairment loss is recognised wherever the carrying amount of an asset exceeds its recoverable amount.

After impairment, depreciation is provided on the revised carrying amount of the asset over its remaining useful life.

A previously recognised impairment loss is increased or reversed depending on changes in circumstances. However, the carrying value after reversal is not increased beyond the carrying value that would have prevailed by charging usual depreciation, if there was no impairment.

1.4 Inventories

Inventories comprising of Stores and Spares are stated at lower of cost and net realisable value. The Company follows first-in, first-out (FIFO) basis for valuation of inventory.

Cost comprises of expenditure incurred in the normal course of business in bringing such inventories to their location and condition. Obsolete, slow moving and defective inventories are identified at the time of physical verification and where necessary, provision is made for such inventories. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and the estimated costs necessary to make the sale.

1.5 Borrowing Costs

Borrowing costs relating to the acquisition / construction of qualifying assets are capitalised until the time all substantial activities necessary to prepare the qualifying assets for their intended use are complete. A qualifying asset is one that necessarily takes a substantial period of time to get ready for its intended use.

All other costs related to borrowings are recognised as expense in the year in which they are incurred.

1.6 Leases

Where the Company is lessee :

Finance Lease

(i) Assets acquired under leases where all the risks and rewards of ownership have been substantially transferred in favour of the Company are classified as finance leases. Such Leases are capitalised at the inception of the lease at lower of the fair value or the present value of the minimum lease payments and a liability is created for an equivalent amount. Each lease rental paid is allocated between the liability and the interest cost, so as to obtain a constant periodic rate of interest on the outstanding liability for each period.

Operating lease

(ii) Assets acquired under leases where a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Operating lease rentals are charged to the Statement of Profit and Loss on accrual basis.

Where the Company is lessor:

Operating lease

Leases in which the Company does not transfer substantially all the risks and rewards of ownership of the asset are classified as operating leases. Assets subject to operating leases are included in Fixed Assets. Lease income on an operating lease is recognised in the Statement of Profit and Loss on accrual basis. Costs, including depreciation are recognised in the Statement of Profit and Loss. Initial direct costs such as legal costs, brokerage costs, etc are recognised immediately in the Statement of Profit and Loss.

1.7 Investments

Investments which are readily realisable and intended to be held for not more than one year from the date on which such investments are made are classified as current investments in accordance with Accounting Standard 13 on 'Accounting for Investments'. All other investments are classified as non-current investments.

Current investments are carried at lower of cost and fair value.

Non-current investments are carried at cost. However, provision for diminution in value, other than temporary in nature, is made to recognise a decline, for each investment individually.

1.8 Foreign Currency Transactions and Translations

The reporting currency of the Company is the Indian Rupee (Rs.).

i) Initial Recognition

Foreign currency transactions are recorded in the reporting currency by applying to the foreign currency amount the prevailing exchange rate between the reporting currency and the foreign currency, as on the date of the transaction.

ii) Conversion

As at the reporting date, foreign currency monetary items are reported using the year end rate. Non-monetary items which are carried in terms of historical cost denominated in a foreign currency are reported using the exchange rate at the date of the transaction. Non-monetary items which are carried at fair value or other similar valuation denominated in a foreign currency are reported using the exchange rates prevailing at the date when the values were determined.

iii) Exchange Differences

Exchange differences arising on the settlement or reporting of monetary items, at rates different from those at which they were initially recorded during the year or reported in previous financial statements and / or on conversion of monetary items, are recognised as income or expense in the year in which they arise.

1.9 Revenue Recognition

a) Revenue is recognised to the extent it is probable that the economic benefits will flow to the Company, it can be reliably measured and it is reasonable to expect ultimate collection.

b) Service revenue comprises subscription fees, channel carriage fees, use of infrastructure facilities and other services. Income from services is recognised upon completion of services as per the terms of contracts with the customers. Period based services are accrued and recognised prorata over the contractual period.

c) Connection fees is recognised as revenue in the month of activation of service.

1.10 Other Income

Income is recognised in the Statement of Profit and Loss on an accrual basis.

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

Insurance Claims: It is not practicable to estimate the amount at which an Insurance Claim will be settled. Hence, Insurance Claims are recognised as income on settlement with the insurers.

1.11 Provision for Doubtful Receivables

In case of retail trade receivables, the entire amount which is outstanding for more than six months is provided for in the Statement of Profit & Loss.

For other receivables, provision is made based on management's assessment of each receivable separately.

1.12 Bad Debts

In case of retail customers, the entire outstanding dues as on the date of disconnection of service for any reason is written off as Bad Debts.

For other receivables, amount is written off based on management's assessment of each receivable separately.

1.13 Employee Benefits

Post Employment Benefits:

(i) Provident Fund

This is a defined contribution plan. Contributions to the recognised Provident Fund maintained by the Regional Provident Fund Commissioner are charged to the Statement of Profit and Loss on accrual basis. The Company has no further obligations for future provident fund benefits other than its contributions.

(ii) Gratuity

This is a defined benefit plan covering eligible employees in accordance with the Payment of Gratuity Act, 1972. The Gratuity Plan provides a lump sum payment to vested employees at retirement, death, incapacitation or termination of employment, of an amount based on the respective employee's salary and the tenure of employment. The Company's scheme is administered by Life Insurance Corporation of India (LICI). The liability is determined based on year end actuarial valuation using projected unit credit method. Actuarial gains/losses are recognized immediately in the Statement of Profit and Loss as income or expense. The fair value of the plan assets is reduced from the gross obligation under the defined benefit plan, to recognise the obligation on net basis. Past Service Costs, to the extent its benefits already vested, is recognised immediately in the Statement of Profit and Loss.

(iii) Leave Encashment

Accumulated compensated absences, which are expected to be available or encashed beyond 12 months from the end of the year are treated as other long term employee benefits. The Company's liability is actuarially determined (using the Projected Unit Credit method) at the end of each year. Actuarial losses / gains are recognised in the Statement of Profit and Loss in the year in which they arise.

(iv) Superannuation fund

The Company operates a superannuation scheme for its eligible employees with LICI towards which the Company contributes upto a maximum of 15% of the employees' current salary, which is charged to the Statement of Profit and Loss. The above benefit is in the nature of a defined contribution plan.

1.14 Employee Stock Option Expenses

Measurement and disclosure is done in accordance with the relevant guidelines and regulations issued by Securities and Exchange Board of India in this respect and the Guidance Note on Accounting for Employee Share-based Payments issued by the Institute of Chartered Accountants of India (ICAI). The Company measures compensation cost relating to employee stock options using the intrinsic value method. The deferred employee stock compensation is charged to Statement of Profit and Loss on straight line basis over the vesting period of the option.

1.15 Taxes on Income

Tax expense comprises of current tax [(net of Minimum Alternate Tax (MAT) credit entitlement)] and deferred tax. Current tax is the amount of tax payable on the taxable income for the year, determined in accordance with the provisions of the Income Tax Act, 1961.

Deferred tax reflects the impact of timing differences between taxable income and accounting income for the current reporting year and reversal of timing differences of earlier years.

Deferred tax is measured based on the tax rates and the tax laws enacted or substantively enacted at the Balance Sheet date. Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current tax liabilities. The deferred tax assets and deferred tax liabilities relate to the taxes on income levied by the same governing taxation laws. Deferred tax assets are recognised only to the extent that there is reasonable certainty that sufficient future taxable income will be available against which such deferred tax assets can be realised. In situations where the company has unabsorbed depreciation or carry forward tax losses, all deferred tax assets are recognised only if there is virtual certainty supported by convincing evidence that they can be realised against future taxable profits.

At each Balance Sheet date, the Company re-assesses unrecognised deferred tax assets. It recognises unrecognised deferred tax assets to the extent that it has become reasonably certain or virtually certain, as the case may be, that sufficient future taxable income will be available against which such deferred tax assets can be realised.

MAT credit is recognised as an asset only when and to the extent there is convincing evidence that the company will pay normal income tax during the specified period. In the year in which the MAT credit becomes eligible to be recognised as an asset in accordance with the recommendations contained in the guidance note issued by The Institute of Chartered Accountants of India, the said asset is created by way of a credit to the Statement of Profit and Loss and shown as MAT Credit Entitlement. The Company reviews the same at each Balance Sheet date and writes down the carrying amount of MAT Credit Entitlement to the extent there is no longer convincing evidence to the effect that the Company will pay normal income tax during the specified period.

1.16 Segment Reporting

The accounting policies adopted for segment reporting are in conformity with the accounting policies adopted for the Company. There is no inter-segment revenue. Revenue and expenses have been identified to segments on the basis of their relationship to the operating activities of the segment. Revenue and expenses, which relate to the Company as a whole and are not allocable to segments on a reasonable basis, have been included under 'Unallocated expenses net of income'.

1.17 Programming Cost

Programming Cost represents amount paid / payable to Broadcasters to telecast their respective channels.

1.18 Provision, Contingent Liabilities and Contingent Assets

A provision is recognised when the company has a present obligation as a result of past event and it is probable that an outflow of resources will be required to settle the obligation, in respect of which a reliable estimate can be made. Provisions are not discounted to their present value and are determined based on best estimate required to settle the obligation at the Balance Sheet date. These are reviewed at each Balance the notes to financial statements. Contingent Assets are neither recognised nor disclosed in the financial statements.

1.19 Earnings Per Share (EPS)

Basic EPS is calculated by dividing the net profit or loss for the period attributable to equity shareholders by the weighted average number of equity shares outstanding during the period.

For the purpose of calculating diluted EPS, the net profit or loss for the period attributable to equity shareholders and the weighted average number of shares outstanding during the period are adjusted for the effects of all dilutive potential equity shares.

1.20 Prior Period, Exceptional and Extra Ordinary Items

Prior Period, Exceptional and Extra Ordinary items having material impact on the financial affairs of the Company are disclosed separately.

 
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