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 of the date of 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 of 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 of ' 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 and 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 comprise 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. April 1, 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 include 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
INR 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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