II. MATERIAL ACCOUNTING POLICIES
1. Basis of preparation and statement of compliance
1.1 The financial statements have been prepared on accrual basis
and in accordance with the applicable Indian Accounting
Standards (Ind AS) prescribed under Section 133 of the
Companies Act, 2013 ("the Act”) read with the Companies (Indian
Accounting Standards) Rules and other relevant provisions of
the Act and Rules thereunder, as amended from time to time.
1.2 The financial statements have been prepared on a historical
cost basis, except for the following assets and liabilities
which have been measured at fair value:
- Derivative financial instruments,
- Certain financial assets and liabilities measured at
fair value (refer serial no. 16 of accounting policies
regarding financial instruments) and
- Plan assets related to employee benefits (refer serial no.
12 of accounting policies regarding employee benefits)
1.3 The financial statements are presented in Indian Rupees (?)
which is Company's presentation and functional currency
and all values are rounded to the nearest Crores (up to two
decimals) except when otherwise indicated.
2. Property, Plant and Equipment (PPE) and
Intangible Assets
2.1 Property, Plant and Equipment (PPE)
2.1.1 Property, Plant and Equipment (PPE) are stated in the
Balance Sheet at cost, less any accumulated depreciation
and accumulated impairment losses (if any), except
freehold land which are carried at historical cost.
2.1.2 Technical know-how / license fee relating to plants/
facilities and specific software that are integral part of
the related hardware are capitalized as part of cost of the
underlying asset.
2.1.3 Spare Parts are capitalized when they meet the definition
of PPE, i.e., when the Company intends to use these for a
period exceeding 12 months.
2.1.4 Environment responsibility related obligations directly
attributable to projects is recognized as project cost on
the basis of progress of project or on actual incurrence,
whichever is higher.
2.1.5 On transition to Ind AS, the Company has elected to continue
with the carrying value of all of its PPE recognized as at April
1, 2015 measured as per the previous GAAP and use that
carrying value as the deemed cost of the PPE.
2.2 Capital Work in Progress (CWIP)
2.2.1 Expenditure incurred on assets under construction
(including a project) is carried at cost under CWIP.
2.2.2 Construction Period Expenses
Revenue expenses exclusively attributable to projects
incurred during construction period are capitalized.
Borrowing cost incurred during construction period on loans
specifically borrowed and utilized for projects is capitalized on
quarterly basis up to the date of capitalization.
Borrowing cost, if any, incurred on General Borrowings used
for projects is capitalized at the weighted average cost of all
borrowings other than those mentioned above. The amount of
such borrowings is determined on quarterly basis after setting
off the amount of internal accruals.
2.2.3 Capital Stores
Capital Stores are valued at weighted average cost.
Specific provision is made for likely diminution in value,
wherever required.
2.3 Intangible Assets & Amortisation
2.3.1 Technical know-how / license fee relating to production
process and process design are recognized as Intangible
Assets and amortised on a straight-line basis over the life of
the underlying plant/ facility.
2.3.2 Expenditure incurred in research phase is charged to
revenue and that in development phase, unless it is of
capital nature, is also charged to revenue.
2.3.3 Cost incurred on computer software/licenses purchased/
developed resulting in future economic benefits, other
than specific software that are integral part of the
related hardware, are capitalized as Intangible Asset and
amortised over a period of three years beginning from the
month in which such software/ licenses are capitalized.
However, where such computer software/ license is
under development or is not yet ready for its intended use,
accumulated cost incurred on such items are accounted as
"Intangible Assets Under Development”.
2.3.4 Right of ways with indefinite useful lives as per Petroleum
and Minerals Pipelines Act, 1962, are not amortised but
tested for impairment annually at the cash-generating unit
level. The assessment of indefinite life is reviewed annually
to determine whether the indefinite life continues to be
supportable. If not, the change in useful life from indefinite
to finite is made on a prospective basis.
2.3.5 Intangible Assets acquired are measured on initial
recognition at cost. The cost of Intangible Assets acquired
in a business combination is based on its fair value at the
date of acquisition. Following initial recognition, Intangible
Assets are carried at cost less any accumulated amortisation
and accumulated impairment losses. In case of internally
generated intangibles, development cost is recognized as
an asset when all the recognition criteria are met.
2.3.6 Intangible Assets are amortised over the useful life on
straight line basis and assessed for impairment whenever
there is an indication that the Intangible Asset may be
impaired. The amortisation period and the amortisation
method for an Intangible Asset are reviewed at the end
of each reporting period. Changes in the expected useful
life or the expected pattern of consumption of future
economic benefits embodied in the asset are considered to
modify the amortisation period or method, as appropriate,
and are treated as changes in accounting estimates. The
amortisation expense on intangible assets is recognized in
the Statement of Profit and Loss unless such expenditure
forms part of carrying value of another asset.
2.3.7 On transition to Ind AS, the Company has elected to
continue with the carrying value of all of its Intangible
Assets recognized as at April 1, 2015 measured as per the
previous GAAP and use that carrying value as the deemed
cost of the Intangible Assets.
2.3.8 Amortisation is charged pro-rata on monthly basis on
assets, from/upto the month of capitalization/ sale, disposal
or classified to Asset held for disposal.
2.4 Depreciation
2.4.1 Cost of PPE (net of residual value) excluding freehold land
is depreciated on straight-line method as per the useful life
prescribed in Schedule II to the Act except in case of the
following assets:
a. Useful life based on technical assessment
n 15 years for Plant and Equipment relating
to Retail Outlets (other than storage tanks
and related equipment), LPG cylinders and
pressure regulators
n 10 years for Dispensing Unit
n 25 years for solar power plant
n Certain assets of R&D Centre (15-25 years)
n Certain assets of CGD business, (Compressor /
Booster Compressor and Dispenser - 10 years,
Cascade - 20 years)
n Moulds used for the manufacturing of the
packaging material for Lubricants- 5 years
n In other cases, like Spare Parts etc. (2-30 years)
b. In case of specific agreements e.g., enabling assets
etc., useful life as per agreement or Schedule II to the
Act, whichever is lower.
c. In case of immovable assets constructed on leasehold
land, useful life as per Schedule-II to the Act or lease
period of land (considering renewable / likely renewable
period over and above the contractual lease period
considered for the leases), whichever is lower, and
d. In case where useful life is mandated as per the other
relevant statute or any of the regulation.
The Company depreciates components of the main asset
that are significant in value and have different useful lives
as compared to the main asset separately. The Company
depreciates spares over the life of the spare from the date it
is available for use.
2.4.2 Depreciation is charged pro-rata on monthly basis on assets,
from/up to the month of capitalization/ sale, disposal or
classified to Asset held for disposal.
2.4.3 Residual value is determined considering past experience
and generally the same is between 0 to 5% of cost
of assets except:
a. In case of Steel LPG cylinder and pressure regulator,
residual value is considered at 25% and in case of fibre
composite LPG cylinder, residual value is considered
at 10% based on estimated realisable value
b. In case of catalyst with noble metal content,
residual value is considered based on the cost of
metal content and
c. In few cases residual value is considered based on
transfer value agreed in respective agreement.
2.4.4 PPE, other than LPG Cylinders and Pressure Regulators,
costing upto ?5,000/- per item are depreciated fully in
the year of capitalization. Further, spares, components
like catalyst excluding noble metal content and major
overhaul/ inspection are also depreciated fully over their
respective useful life.
2.4.5 The residual values, useful lives and methods of depreciation
of PPE are reviewed at each financial year end and adjusted
prospectively, if appropriate.
3. Leases
The Company assesses at contract inception whether
a contract is, or contains, a lease. That is, if the contract
conveys the right to control the use of an identified asset for
a period of time in exchange for consideration.
3.1 Leases as Lessee (Assets taken on lease)
The Company applies a single recognition and measurement
approach for all leases, except for short-term leases and
leases of low-value assets. The Company recognizes lease
liabilities to make lease payments and right-of-use assets
representing the right to use the underlying assets.
3.1.1 Lease Liabilities
At the commencement date of the lease, the Company
recognizes lease liabilities measured at the present value
of lease payments to be made over the contractual lease
term, for which enforceable rights is available. In calculating
the present value of lease payments, the Company uses the
incremental borrowing rate at the lease commencement
date, if the interest rate implicit in the lease is not readily
determinable. After the commencement date, the amount
of lease liabilities is increased to reflect the accretion of
interest and reduced for the lease payments made.
3.1.2 Right-of-use Assets
The Company recognizes right-of-use (ROU) assets at the
commencement date of the lease (i.e., the date the underlying
asset is available for use). Right-of-use assets are measured
at cost, less any accumulated depreciation and impairment
losses, and adjusted for any remeasurement of lease
liabilities. Perpetual Right of use (ROU) assets related to land
are not depreciated but tested for Impairment loss, if any.
3.1.3 Short-term leases and leases of low-value assets
The Company applies the short-term lease recognition
exemption to its short-term leases of Property, Plant and
Equipment (i.e., those leases that have a lease term of
12 months or less from the commencement date and do
not contain a purchase option). It also applies the lease of
low-value assets recognition exemption to leases that are
considered of low value and is not intended for sublease.
Lease payments on short-term leases and leases of low-value
assets are recognized as expense on a straight-line basis
over the lease term or another systematic basis if that basis
is more representative of the pattern of the lessee's benefit.
3.2 Leases as Lessor (assets given on lease)
3.2.1 When the Company acts as lessor, it determines at the
commencement of the lease whether it is a finance lease
or an operating lease. Rental income from operating lease
is recognized on a straight-line basis over the term of the
relevant lease except where another systematic basis
is more representative of the time pattern of the benefit
derived from the asset given on lease.
All assets given on finance lease are shown as receivables
at an amount equal to net investment in the lease. Principal
component of the lease receipts is adjusted against
outstanding receivables and interest income is accounted
by applying the interest rate implicit in the lease to the
net investment.
3.2.2 When the Company is an intermediate lessor it accounts for
its interests in the head lease and the sub-lease separately.
It assesses the lease classification of a sub-lease with
reference to the ROU asset arising from the head lease, not
with reference to the underlying asset. If a head lease is a
short-term lease to which the Company applies the short¬
term lease exemption described above, then it classifies the
sub-lease as an operating lease.
4. Impairment Of Non-Financial Assets (Also Refer
Para 14 For Impairment Of E&P Assets)
The Company assesses, at each reporting date, whether
there is an indication that an asset may be impaired. If any
indication exists, or when annual impairment testing for
an asset is required, the Company estimates the asset's
recoverable amount. An asset's recoverable amount is the
higher of an asset's or cash-generating unit's (CGU) fair
value less cost of disposal and its value in use. Impairment
loss is recognized when the carrying amount of an asset
exceeds recoverable amount.
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.
In determining fair value less cost of disposal, recent market
transactions are taken into account. If no such transactions
can be identified, an appropriate valuation model is used.
These calculations are corroborated by valuation multiples,
quoted share prices for publicly traded companies or other
available fair value indicators.
The Company bases its impairment calculation on detailed
budgets and forecast calculations, which are prepared
separately for each of the Company's CGUs to which the
individual assets are allocated. These budgets and forecast
calculations generally cover a period of 15 years. For longer
periods, a long-term growth rate is calculated and applied to
project future cash flows after the fifteenth year. To estimate
cash flow projections beyond periods covered by the most
recent budgets/forecasts, the Company extrapolates cash
flow projections in the budget using a steady or declining
growth rate for subsequent years, unless an increasing rate
can be justified.
5. Borrowing Costs
Borrowing costs that are attributable to the acquisition
or construction of the qualifying asset are capitalized as
part of the cost of such asset. Capitalization of borrowing
costs is suspended when active development activity on
the qualifying assets is interrupted other than on temporary
basis and charged to the Statement of Profit and Loss
during such extended periods. All other borrowing costs are
recognized in the Statement of Profit and Loss in the period
in which the same are incurred.
6. Foreign Currency Transactions
6.1 Transactions in foreign currency are initially recorded at
spot exchange rates prevailing on the date of transactions.
6.2 Monetary items denominated in foreign currencies (such as
cash, receivables, payables etc.) outstanding at the end of
reporting period, are translated at exchange rates prevailing
on that date.
6.3 Non-monetary items denominated in foreign currency,
(such as PPE, intangible assets, equity investments, capital/
revenue advances other than expected to be settled in cash
etc.) are recorded at the exchange rate prevailing on the date
of the transaction, other than those measured at fair value.
Non-monetary items measured at fair value in a foreign
currency are translated using the exchange rates at the date
when the fair value is determined. The gain or loss arising on
translation of non-monetary items measured at fair value is
treated in line with the recognition of the gain or loss on the
change in fair value of the item (i.e., translation differences
on items whose fair value gain or loss is recognized in Other
Comprehensive Income (OCI) or the Statement of Profit and
Loss are also recognized in OCI or the Statement of Profit
and Loss, respectively).
6.4 Any gains or losses arising due to differences in exchange
rates at the time of translation or settlement are accounted
for in the Statement of Profit and Loss either under the head
foreign exchange fluctuation or interest cost to the extent
regarded as an adjustment to borrowing costs as the case
may be, except those relating to loans mentioned below.
Exchange differences on long-term foreign currency loans
obtained or re-financed on or before March 31,2016 relating
to acquisition of depreciable assets are adjusted to the
carrying cost of the assets and depreciated over the balance
life of the assets.
7. Inventories
7.1 Raw Materials & Work in Progress
7.1.1 Raw materials including crude oil are valued at cost
determined on weighted average basis or net realisable
value, whichever is lower. Work in Progress is valued at raw
materials cost-plus processing cost as applicable or net
realisable value, whichever is lower. Crude oil in Transit is
valued at cost or net realisable value, whichever is lower.
7.1.2 Initial cost of inventories includes the transfer of gains and
losses on qualifying cash flow hedges, recognized in OCI, in
respect of the purchases of raw materials.
7.2 Finished Products and Stock in Trade
7.2.1 Finished Products and Stock in Trade, other than lubricants,
are valued at cost determined on 'First in First Out' basis
or net realisable value, whichever is lower. Cost of Finished
Products internally produced is determined based on raw
materials cost and processing cost.
7.2.2 Lubricants are valued at cost on weighted average basis or
net realisable value, whichever is lower. Cost of lubricants
internally produced is determined based on cost of inputs
and processing cost.
7.2.3 Imported products in transit are valued at cost or net
realisable value whichever is lower.
7.3 Stores and Spares
7.3.1 Stores and Spares (including Chemicals, packing Containers
i.e. empty barrels, tins etc.) are valued at weighted average
cost. Specific provision is made in respect of identified
obsolete stores & spares and chemicals for likely diminution
in value. Further, a provision @ 5% of cost is also made on
the balance stores and spares (excluding barrels, tins, stores
in transit, chemicals/catalysts, crude oil, and own products)
towards likely diminution in the value.
7.3.2 Stores and Spares in transit are valued at cost.
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