3. Summary of Material accounting policies
3.1 Statement of compliance
The Standalone Financial statements of the
Company have been prepared in accordance with
Indian Accounting Standards (Ind AS) notified under
section 133 of the Companies Act, 2013 read with the
Companies (Indian Accounting Standards) Rules,
2015, as amended.
3.2 Historical cost convention
The Standalone Financial Statements have been
prepared on a historical cost convention & on an
accrual basis, except for certain items that are
measured at fair value as required by relevant Ind AS:
• Financial assets & financial liabilities measured
initially at fair value (refer accounting policy on
financial Instruments);
• Defined benefit & other long-term
employee benefits.
3.3 Current vs Non-Current Classification
Any asset or liability is classified as current if it
satisfies any of the following conditions:
a. The asset/liability is expected to be realised/
settled in the Company’s normal operating cycle;
b. The asset is intended for sale or consumption;
c. The asset/liability is held primarily for the
purpose of trading;
d. The asset/liability is expected to be realised/
settled within twelve months after the
reporting period.
e. The asset is Cash or cash equivalent unless
restricted from being exchanged or used to
settle a liability for at least twelve months after
the reporting period;
f. In case of liability, the Company does not have
unconditional right to defer the Settlement of
the liability for at least twelve months after the
reporting period.
All other assets and liabilities are classified
as non-current.
Deferred tax assets and liabilities are classified as
non-current assets and liabilities respectively.
For the purpose of current/non-current classification
of assets and liabilities, the Company has
ascertained its normal operating cycle as twelve
months. This is based on the nature of services and
time between acquisition of assets for processing
and their realisation in cash and cash equivalents
3.4 Use of estimates and Judgements
The preparation of Standalone Financial Statements
in conformity with Ind AS requires the use of certain
critical accounting estimates. It also requires
management to exercise its judgement in the
process of applying the Company’s accounting
policies. The management believes that the
estimates used in preparation of the financial
statements are prudent and reasonable the
areas involving a higher degree of judgement or
complexity, or area where assumptions & estimates
are significant to these Standalone Financial
Statements are disclosed below.
The preparation of Standalone Financial
Statements in conformity with the Accounting
Standards generally accepted in India requires, the
management to make estimates & assumptions
that affect the reported amounts of assets &
liabilities & disclosure of contingent liabilities as at
the date of the Standalone Financial Statements
& reported amounts of revenues & expenses for
the year. Actual results could differ from these
estimates. Any revision to accounting estimates is
recognised prospectively in current & future periods.
When preparing the Standalone Financial
Statements, management undertakes a number
of judgments, estimates & assumptions about the
recognition & measurement of assets, liabilities,
income & expenses. In the process of applying
the Company’s accounting policies, the following
judgments have been made apart from those
involving estimations, which have the most
significant effect on the amounts recognised in the
financial information. Judgements are based on the
information available at the date of balance sheet.
(i) Taxes: Significant judgments are involved in
determining the provision for income taxes,
including amount expected to be paid/
recovered for uncertain tax positions. Significant
management judgement is also required to
determine the amount of deferred tax assets
that can be recognised, based upon the likely
timing and the level of future taxable profits
including estimates of temporary differences
reversing on account of available benefits from
the Income Tax Act, 1961.
(ii) Property, plant & equipment and Intangibles
: Property, plant & equipment represent a
significant proportion of the asset base of the
Company. The charge in respect of periodic
depreciation is derived after determining an
estimate of an asset’s expected useful life &
the expected residual value at the end of its life.
Management reviews the residual values, useful
lives & methods of depreciation of property, plant
& equipment at each reporting period end & any
revision to these is recognised prospectively in
current & future periods. The lives are based
on historical experience with similar assets as
well as anticipation of future events, which may
impact their life, such as changes in technology.
(iii) Employee Benefits - Gratuity: The cost of the
defined benefit gratuity plan and the present
value of the gratuity obligation are determined
using actuarial valuations. An actuarial valuation
involves making various assumptions that may
differ from actual developments in the future.
These include the determination of the discount
rate, future salary increases, attrition and
mortality rates. Due to the complexities involved
in the valuation and its long-term nature, a
defined benefit obligation is highly sensitive to
changes in these assumptions. All assumptions
are reviewed at each reporting date.
(iv) Impairment of Financial Asset: The impairment
provisions for trade receivables are made
considering simplified approach based on
assumptions about risk of default and expected
loss rates. The Company uses judgement in
making these assumptions and selecting the
inputs to the impairment calculation based on
the company’s past history and other factors
like financial position of the counter-parties,
market information and other relevant factors
at the end of each reporting period. In case of
other financial assets, the Company applies
general approach for recognition of impairment
losses wherein the Company uses judgement
in considering the probability of default upon
initial recognition and whether there has been a
significant increase in credit risk on an ongoing
basis throughout each reporting period.
(v) Recognition & measurement of unbilled gas sales
revenues: In case of customers where meter
reading dates for billing is not matching with
reporting date, the gas sales between last meter
reading date & reporting date has been accrued
by the company based on past average sales.
(vi) Recognition & measurement of other
provisions: The recognition & measurement of
other provisions are based on the assessment
of the probability of an outflow of resources &
on past experience & circumstances known at
the balance sheet date. The actual outflow of
resources at a future date may therefore vary
from the figure so provided & included as liability.
(vii) Provision for Inventory including Capital
Inventory: The Company has a defined policy
for provision of slow and non-moving inventory
based on the ageing of inventory. The Company
reviews the policy at regular intervals.
(viii) Fair value measurement of financial instruments:
In estimating the fair value of financial assets
and financial liabilities, the Company uses
market observable data to the extent available.
Where such Level 1 inputs are not available, the
Company establishes appropriate valuation
techniques and inputs to the model. The inputs
to these models are taken from observable
markets where possible, but where this is not
feasible, a degree of judgment is required in
establishing fair values. Judgments include
considerations of inputs such as liquidity risk,
credit risk and volatility. Changes in assumptions
about these factors could affect the reported
fair value of financial instruments.
3.5 Property, Plant & Equipment
(i) Freehold land is carried at historical cost.
(ii) Property, Plant and Equipment other than land
are stated at cost of acquisition / construction
less accumulated depreciation and impairment
losses, if any.
The Company capitalises to project assets all
the cost directly attributable & ascertainable,
to completing the project which includes
freight, duties & taxes (to the extent credit is not
available) ,other incidental expenses relating to
acquisition and installation and pre-operative
expenses. These costs include expenditure of
pipelines, plant & machinery, cost of laying
of pipeline, cost of survey, commissioning &
testing charge, detailed engineering & interest
on borrowings attributable to acquisition of
such assets. The gas distribution networks are
treated as commissioned when supply of gas
commences to the customer(s).
Subsequent expenditure related to an item
of property, plant and Equipment is added to
its book value only if it increases the future
economic benefits from the existing asset
beyond its previously assessed standard of
performance. All other expenses incurred
towards normal repairs and maintenance of
the existing property, plant and Equipment
(including cost of replacing parts) are charged
to profit and loss for the period during which
such expenses are incurred.
Interest on borrowings attributable to the
acquisition / construction of Property,
Plant and Equipment for the period of
construction is added to the cost of Property,
Plant and Equipment.
Assets installed at customer premises, including
meters & regulators where applicable, are
recognised as property plant & equipment if
they meet the definition provided under Ind AS
16 subject to materiality as determined by the
management & followed consistently.
(iii) Capital Work in Progress includes expenditure
incurred on assets, which are yet to be
commissioned & capital inventory, which
comprises stock of capital items/construction
materials at respective city gas network.
All the directly identifiable & ascertainable
expenditure, incidental & related to construction
incurred during the period of construction on a
project, till it is commissioned, is kept as Capital
work in progress (CWIP) & after commissioning
the same is transferred / allocated to the
respective “Property, Plant and Equipment”.
Further, advances paid towards the acquisition
of property, plant & equipment outstanding at
each balance sheet date are classified as capital
advances under other non- current assets.
(iv) Depreciation is provided as follow:
• Depreciation is charged on a pro-rata
basis on the straight line method (‘SLM’) as
prescribed in Schedule II to the Companies
Act, 2013 which are in line with their estimated
useful life , except for the following assets
where depreciation is charged on pro-rata
basis over the estimated useful life of the
assets based on technical advice taking
into account the nature of the asset, the
estimated usage of the asset, the operating
conditions of the asset, past history of
replacement, anticipated technological
changes, manufacturers warranties and
maintenance support etc.
• The management believes that these
useful lives are realistic & reflect fair
approximation of the period over
which the assets are likely to be
used. The useful lives are reviewed by
the management at each financial
year end & revised, if appropriate. In
case of a revision, the unamortised
depreciable amount (remaining net
value of assets) is charged over the
revised remaining useful life.
• For the purpose of calculating the
depreciation, residual value for
Tangible assets has been considered
as 5% of the value of asset concerned.
• Depreciation on items of property, plant &
equipment acquired / disposed-off during
the year is provided on pro-rata basis with
reference to the date of addition / disposal.
• Depreciation on additions to Property, Plant
and Equipment made during the period
having cost ofH 5000 or less is provided @
100% on pro rata basis with reference to
the date of addition.
• Gains & losses on disposals are
determined by comparing proceeds with
carrying amount. These are included in
the statement of profit & loss under Other
Expenses/Income.
• The carrying amount of assets, including
those assets that are not yet available
for use, are reviewed at each balance
sheet date to determine whether there is
any indication of impairment. If any such
indication exists, recoverable amount of
asset is determined. An impairment loss is
recognised in the statement of profit and
loss whenever the carrying amount of an
asset exceeds its recoverable amount.
An impairment loss is reversed only to
the extent that the carrying amount of
asset does not exceed the net book value
that would have been determined if no
impairment loss had been recognised.
(Cross Reference Note Impairment)
(v) Intangible Assets:
Intangible Assets includes amount paid towards
obtaining Right of Way (ROW) permissions
for laying the gas pipeline network & cost
of developing software for internal use. The
Company capitalises software as Intangible
Asset where it is expected to provide future
enduring economic benefits. Cost associated
with maintaining software programmes are
recognised as expenses as & when incurred.
Useful life of the Right of Way (row) charges is
considered as the period for which such charges
are paid. In cases where the tenure of payment
is not specified by the authorities, the useful life
of such ROW charges is considered as 10 years.
Any item of intangible assets is derecognised
upon disposal or when no future economic
benefits are expected from its use or disposal.
Any gain or loss arising on de-recognition
of the intangible asset (calculated as the
difference between the net disposal proceeds
& the carrying amount of the intangible asset)
is charged to revenue in the income statement
when the intangible asset is derecognised.
3.6 Foreign currency transactions
Foreign currency transactions are recorded at
the exchange rates prevailing at the date of such
transactions. Monetary assets & liabilities as at
the Balance Sheet date are translated at the rates
of exchange prevailing at the date of the Balance
Sheet. Gain/Loss arising on account of differences
in foreign exchange rates on settlement/translation
of monetary assets & liabilities are recognised in the
Statement of Profit & Loss, unless they are considered
as an adjustment to borrowing costs, in which case
they are capitalised along with the borrowing cost.
3.7 Revenue recognition
Revenue is recognised upon transfer of control of
promised products or services to customers in an
amount that reflects the consideration which the
company expects to receive in exchange for those
products or services. Revenue is measured based
on the transaction price, which is the consideration,
adjusted for discounts and other incentives, if any, as per
contracts with the customers. Revenue also excludes
taxes collected from customers in its capacity as agent.
Sale of Natural Gas is recognized on supply of gas
to customers by metered/assessed measurements
as no significant uncertainty exists regarding
the measurability or collectability of the sale
consideration. Sales are billed bi-monthly for
domestic customers, monthly/fortnightly for
commercial & non-commercial customers &
fortnightly for industrial customers as the timing of the
transfer of risks & rewards varies depending on the
individual terms of the sales agreement. Revenue on
sale of Compressed Natural Gas (CNG) is recognized
on sale of gas to consumers from retail outlets.
Delayed payment charges are recognized on
reasonable certainty to expect ultimate collection
or otherwise based on actual collection whichever is
earlier. Connection and fitting income is recognized
based on satisfaction of performance obligation.
The amount recognised as revenue is stated
inclusive of excise duty & exclusive of Sales Tax /
Value Added Tax (VAT), Goods & Service Tax And is
net of trade discounts or quantity discounts.
The amounts collected towards connection charges
from certain domestic customers are “Non¬
Refundable Charges”. Accordingly, the same are
recognized as revenue as an when the Company
receives the amount from such customers.
The amounts collected from certain domestic
customers which includes amount “refundable” in
nature. Accordingly, the same are recognized as a
liability under the head “Deposit from Customers” in
the balance sheet.
Interest income is reported on an accrual basis
using the effective interest method.
Dividends Income from investment is recognised at
the time the right to receive payment is established.
3.8 Borrowing Costs
(i) The Company is capitalising borrowing costs
that are directly attributable to the acquisition
or construction of qualifying asset up to the
date of commissioning. Qualifying assets are
assets that necessarily take a substantial
period of time (i.e. twelve months or more) to
get ready for their intended use or sale.
Transaction cost in respect of long-term
borrowings are amortised over the tenure of
respective loan.
(ii) Other borrowing costs are recognised as
an expense in the year in which they are
incurred, if any.
3.9 Impairment of Property, Plant & Equipment &
Intangible Assets and Investment in Associates
The Company, at each balance sheet date, assesses
whether there is any indication of impairment of any
asset &/ or cash generating unit. If such indication
exists, assets are impaired by comparing carrying
amount of each asset &/ or cash generating unit
to the recoverable amount being higher of the net
selling price or value in use. Value in use is determined
from the present value of the estimated future cash
flows from the continuing use of the assets.
3.10 Inventories
Inventory of Gas (including gas inventory in pipeline
& CNG cascades) is valued at lower of cost & net
realizable value. Cost is determined on weighted
average cost method. Where Cost of inventories
includes all other costs incurred in bringing the
inventories to their present location and condition
and Net Realisable Value is the estimated selling price
in the ordinary course of business, less estimated
cost of completion and estimated cost necessary to
make the sale. Necessary adjustment for shortage /
excess stock is given based on the available evidence
and past experience of the company.
Stores, spares & consumables and other inventory
items (viz. CNG Kits, etc) are valued at lower of cost
& net realizable value. Cost is determined on moving
weighted average basis.
3.11 Cash & Cash Equivalents
Cash and cash equivalents in the balance sheet
comprise cash at banks and short-term deposits
with an original maturity of three months or less,
which are subject to an insignificant risk of changes
in value. For the purpose of the statement of cash
flows, cash equivalents include short-term deposits
with an original maturity of three months or less
from the date of acquisition.
3.12 Accounting for Income Taxes
Income tax expenses comprises current tax
(i.e. amount of tax for the period determined in
accordance with the Income Tax Law) & deferred
tax charge or credit (reflecting the tax effects of
timing differences between accounting income
& taxable income for the period). Income tax
expenses are recognised in statement of profit or
loss except tax expenses related to items recognised
directly in reserves (including statement of other
comprehensive income) which are recognised with
the underlying items.
(i) The Income Tax expense or credit for the period
is the tax payable on the current period's taxable
income based on the applicable income tax
rate for each jurisdiction adjusted by changes
in deferred tax assets & liabilities attributable to
temporary differences & to unused tax losses.
The Current Income Tax charge is calculated
on the basis of the tax laws enacted or
substantively enacted at the end of the reporting
period i.e. as per the provisions of the Income
Tax Act, 1961, as amended from time to time.
Management periodically evaluates positions
taken in tax returns with respect to situations
in which applicable tax regulation is subject to
interpretation. It establishes provisions where
appropriate on the basis of amounts expected
to be paid to the tax authorities.
Advance Taxes & provisions for current income
taxes are presented in the balance sheet after off¬
setting advance tax paid & income tax provision
arising in the same tax jurisdiction for relevant tax
paying units & where the Company is able to &
intends to settle the asset & liability on a net basis.
(ii) Deferred Tax is provided in full on temporary
difference arising between the tax bases of the
assets & liabilities & their carrying amounts in
Standalone Financial Statements at the reporting
date. Deferred tax are recognised in respect
of deductible temporary differences being the
difference between taxable income & accounting
income that originate in one period & are capable
of reversal in one or more subsequent periods,
the carry forward of unused tax losses & the carry
forward of unused tax credits.
Deferred Income Tax is determined using
tax rates (& laws) that have been enacted
or substantially enacted by the end of the
reporting period & are expected to apply when
the related deferred income tax asset is realised
or the deferred income tax liability is settled.
Deferred Tax Assets are recognised for all
deductible temporary differences & unused tax
losses only if it is probable that future taxable
amounts will be available to utilise those
temporary differences & losses.
Deferred Tax Assets & Liabilities are offset
when there is a legally enforceable right to
offset current tax assets & liabilities & when
the deferred tax balances relate to the same
taxation authority. Current tax assets & tax
liabilities are offset where the Company has
a legally enforceable right to offset & intends
either to settle on a net basis, or to realise the
asset & settle the liability simultaneously.
Current & Deferred Tax is recognised in profit or
loss, except to the extent that it relates to items
recognised in other comprehensive income
or directly in equity. In this case, the tax is also
recognised in other comprehensive income or
directly in equity, respectively.
Any tax credit available including Minimum
Alternative Tax (mat) under the provision of the
Income Tax Act, 1961 is recognised as deferred
tax to the extent that it is probable that future
taxable profit will be available against which
the unused tax credits can be utilised. The
said asset is created by way of credit to the
statement of profit & loss & shown under the
head deferred tax asset.
The carrying amount of deferred tax assets is
reviewed at each reporting date & reduced
to the extent that it is no longer probable that
sufficient taxable profit will be available to
allow all or part of the deferred tax asset to
be utilised. Unrecognised deferred tax assets
are re-assessed at each reporting date & are
recognised to the extent that it has become
probable that future taxable profits will allow
the deferred tax asset to be recovered.
3.13 Leases
The Company as a lessee
The Company’s lease asset classes primarily
consist of leases for land and buildings. The
Company assesses whether a contract contains a
lease, at inception of a initial application date i.e. 1
April 2019. A contract is, or contains, a lease if the
contract conveys the right to control the use of an
identified asset for a period of time in exchange
for consideration. To assess whether a contract
conveys the right to control the use of an identified
asset, the Company assesses whether: (i) the
contract involves the use of an identified asset (ii)
the Company has substantially all of the economic
benefits from use of the asset through the period
of the lease and (iii) the Company has the right to
direct the use of the asset.
At the date of initial application of the lease, the
Company recognizes a right-of-use (rou) asset
and a corresponding lease liability for all lease
arrangements in which it is a lessee, except for
leases with a term of 12 months or less (short-term
leases) and low value leases. For these short-term
and low-value leases, the Company recognizes the
lease payments as an operating expense on actual
payment basis as and when incurred.
Certain lease arrangements includes the options to
extend or terminate the lease before the end of the
lease term. ROU assets and lease liabilities includes
these options when it is reasonably certain that they
will be exercised.
The ROU assets are initially recognized that is equal
to lease liabilities on the initial application date, that
is arrived based on incremental borrowing rate on
the initial application date. They are subsequently
measured at cost less accumulated depreciation
and impairment losses.
ROU assets are depreciated from the initial
application date on a straight-line basis over
the shorter of the lease term and useful life of
the underlying asset. ROU assets are evaluated
for recoverability whenever events or changes
in circumstances indicate that their carrying
amounts may not be recoverable. For the purpose
of impairment testing, the recoverable amount (i.e.
the higher of the fair value less cost to sell and the
value-in-use) is determined on an individual asset
basis unless the asset does not generate cash flows
that are largely independent of those from other
assets. In such cases, the recoverable amount is
determined for the Cash Generating Unit (cgu) to
which the asset belongs.
The lease liability is initially measured at amortized
cost at the present value of the future lease
payments on the date of initial application. The lease
payments are discounted using the incremental
borrowing rate. Lease liabilities are remeasured with
a corresponding adjustment to the related ROU asset
if the Company changes its assessment of whether
it will exercise an extension or a termination option.
Lease liability and ROU assets have been separately
presented in the Balance Sheet and lease payments
have been classified as financing cash flows.
The Company as a lessor
Leases for which the Company is a lessor is classified
as a finance or operating lease. Whenever the terms
of the lease transfer substantially all the risks and
rewards of ownership to the lessee, the contract is
classified as a finance lease. All other leases are
classified as operating leases. When the Company
is an intermediate lessor, it accounts for its interests
in the head lease and the sublease Consolidated.
The sublease is classified as a finance or operating
lease by reference to the ROU asset arising from the
head lease. For operating leases, rental income is
recognized on a straight line basis over the term of
the relevant lease.
3.14 Employee Benefits
Liabilities for wages & salaries, including leave
encashment that are expected to be settled wholly
within 12 months after the end of the period in
which the employees render the related service are
recognised in respect of employees' services up
to the end of the reporting & are measured at the
amounts expected to be paid when the liabilities
are settled. The liabilities are presented as current
employee benefit obligations in the balance sheet.
(i) Defined Contribution Plan:
Contribution towards provident fund for
eligible employees are accrued in accordance
with applicable statutes & deposited with
the regulatory provident fund authorities
(Government administered provident fund
scheme). The Company does not carry any other
obligation apart from the monthly contribution.
The Company’s contribution is recognised
as an expense in the Statement of Profit &
Loss during the period in which the employee
renders the related service.
(ii) Defined Benefit Plan:
Gratuity liability is a defined benefit obligation
and is computed at the end of each financial
year on the basis of an actuarial valuation
by an actuary appointed for the purpose as
per projected unit credit method. The present
value of the defined benefit obligation is
determined by discounting the estimated
future cash outflows by reference to market
yields at the end of the reporting period on the
government bonds.
The Liability or asset recognised in the balance
sheet in respect of defined benefit gratuity
plan is the present value of the defined benefit
plan obligation at the end of the reporting
period less the fair value of the plan assets.
The Liabilities with regard to the Gratuity
Plan are determined by actuarial valuation,
performed by an independent actuary, at
each balance sheet date using the projected
unit credit method. The present value of the
defined benefit obligation denominated in
H is determined by discounting the estimated
future cash outflows by reference to the market
yields at the reporting period on government
bonds that have terms approximating to the
terms of the related obligation.
The net interest cost in calculated by applying
the discounting rate to the net balance of
the defined benefit obligation & the fair value
of plan assets. Such costs are included in
employee benefit expenses in the statement of
Profit & Loss. Re-measurements gains or losses
arising from experience adjustments & changes
in actuarial assumptions are recognised
immediately in the period in which they occur
directly in “other comprehensive income” & are
included in retained earnings in the statement
of changes in equity & in the balance sheet. Re¬
measurements are not reclassified to profit or
loss in subsequent periods.
The Company recognises the following
changes in the net defined benefit obligation
as an expense in the statement of profit & loss:
• Service costs comprising current service
costs, past-service costs, gains & losses on
curtailments & non-routine settlements;
• Net interest expense or income.
(iii) Long Term Employee Benefits:
The liability in respect of accrued leave benefits
which are expected to be availed or encashed
beyond 12 months from the end of the year, is
treated as long term employee benefits.
The Company’s liability is actuarially determined
by qualified actuary at balance sheet date by
using the Projected Unit Credit method.
Actuarial losses/ gains are recognized in the
Statement of Other Comprehensive Income in
the year in which they arise.
3.15 Segment Reporting
Operating segments are reported in a manner
consistent with the internal reporting provided to
the chief operating decision maker. The Company
operates in a single segment of natural gas business
and relevant disclosure requirements as per Ind AS
108 “Operating Segments” have been disclosed by
the Company under note no 41.
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