1.3 Summary of Material Accounting Policy
Information:
i. Foreign currency transactions and balances
Transactions in foreign currency are recorded/
translated into the respective functional
currencies using the exchange rates prevailing
at the dates of the respective transactions.
At the end of each reporting period, monetary
items denominated in foreign currencies are
re-translated at the rates prevailing at the end of
reporting period.
Foreign exchange gains and losses resulting
from the settlement of such transactions and
from the translation at the exchange rates
prevailing at reporting date of monetary assets
and liabilities denominated in foreign currencies
are recognized in the statement of profit and
loss and reported within foreign exchange
gains/ (losses).
Non-monetary assets and liabilities denominated
in a foreign currency and measured at historical
cost are translated at the exchange rate
prevalent at the date of transaction.
ii. Fair Value Measurement
The Company measures financial instruments,
such as, derivatives at fair value at each balance
sheet date. Fair value is the price that would be
received to sell an asset or paid to transfer a
liability in an orderly transaction between market
participants at the measurement date.
Assets that are held for collection of contractual
cash flows and for selling the financial assets,
where the assets' cash flows represent solely
payments of principal and interest, are measured
at fair value through other comprehensive
income (FVOCI). On derecognition of the asset,
cumulative gain or loss previously recognised in
OCI is reclassified from the equity to profit and
loss. Interest income from these financial assets
is included in finance income using the effective
interest rate method.
Assets that do not meet the criteria for
amortised cost or FVOCI are measured at fair
value through profit or loss. Interest income
and net gain or loss on a debt instrument
that is subsequently measured at FVPL are
recognised in statement of profit and loss and
presented within other income in the period in
which it arises.
iii. Financial instruments
All financial instruments are recognized
initially at fair value. Transaction costs that are
attributable to the acquisition of the financial
asset (other than financial assets recorded at
fair value through profit or loss) are included in
the fair value of the financial assets. Purchase
or sales of financial assets that require delivery
of assets within a time frame established by
regulation or convention in the market place
(regular way trade) are recognized on trade
date. While, loans and borrowings and payable
are recognized net of directly attributable
transactions costs.
Trade Payables, Trade receivables and Other
payable, receivables will be offset since the
entity gets right, intends to settle on a net basis
at reporting date/year end date.
For the purpose of subsequent measurement,
financial instruments of the Company are classified
in the following categories: non-derivative financial
assets comprising amortized cost; non derivative
financial liabilities at amortized cost.
The classification of financial instruments
depends on the objective of the business model
for which it is held. Management determines
the classification of its financial instruments at
initial recognition.
Financial instrument is derecognized only
when the company has transferred its right to
receive/extinguish its obligation to pay cash flow
from such financial instruments. The company
has transferred substantially all the risks and
rewards of the asset (or) the company has
neither transferred nor retained substantially
all the risks and rewards of the asset, but has
transferred control of the asset. The difference
between the carrying amount and the amount of
consideration received/receivable is recognised
in the Statement of Profit and Loss.
The Company determines classification
of financial assets and liabilities on initial
recognition. After initial recognition, no
reclassification is made for financial assets
which are equity instruments and financial
liabilities. For financial assets which are debt
instruments, reclassification is made only if there
is a change in the business model for managing
those assets. Changes to the business model
are expected to be infrequent. The Company's
senior management determines change in the
business model as a result of external or internal
changes which are significant to the Company's
operations. Such changes are evident to
external parties. A change in the business model
occurs when the Company either begins or
ceases to perform an activity that is significant
to its operations. If the Company reclassifies
financial assets, it applies the reclassification
prospectively from the reclassification date
which is the first day of the immediately next
reporting year following the change in business
model. The Company does not restate any
previously recognised gains, losses (including
impairment gains or losses) or interest.
a) Non-derivative financial assets
Financial assets at amortized cost
A financial asset shall be measured at
amortized cost if both of the following
conditions are met:
• the financial asset is held within a
business model whose objective is to
hold financial assets in order to collect
contractual cash flows and
• the contractual terms of the financial
asset give rise on specified dates to
cash flows that are solely payments of
principal and interest on the principal
amount outstanding.
They are presented as current assets,
except for those maturing later than 12
months after the reporting date which are
presented as non-current assets. Financial
assets are measured initially at fair value
plus transaction costs and subsequently
carried at amortized cost using the effective
interest method, less any impairment loss.
Amortized cost is represented by security
deposits, cash and cash equivalents,
employee and other advances and eligible
current and non-current assets.
Cash and cash equivalents comprise cash
on hand, in banks and short-term demand
deposits with banks with original maturity
period of 3 month or less which can be
withdrawn at any time without prior notice
or penalty on the principal.
b) Non-derivative financial liabilities
Financial liabilities at amortized cost
Financial liabilities at amortized cost
represented by trade and other payables
are initially recognized at fair value, and
subsequently carried at amortized cost
using the effective interest method.
iv. Property plant and equipment:
a) Recognition and measurement: Property,
plant and equipment is measured at
cost less accumulated depreciation and
impairment losses, if any. Cost of an item of
property, plant and equipment comprises
its purchase price, including import duties
and non-refundable purchase taxes, after
deducting trade discounts and rebates and
any directly attributable cost of bringing the
item to its working condition for its intended
use. The Company had elected to apply
the optional exemption to use the previous
GAAP value as deemed cost at 1 April 2015,
the date of transition.
In the case of commissioned assets, where
final settlement of bills with contractor/
supplier is yet to be effected, capitalisation
is done on provisional basis subject to
necessary adjustments in the year of
final settlement.
Spare parts, stand by equipment and
service equipment meeting the definition of
PPE and having value of more than Rs. 20
lakhs in each case, are capitalized as and
when available for use.
Depreciation: Company depreciates
property, plant and equipment over the
estimated useful life of the assets as
prescribed in Schedule II of the Companies
Act 2013 on a straight-line basis.
Depreciation is charged on pro-rata basis
on additions / disposals of assets during the
year. Wherever the useful life is determined
by technical assessment for certain assets,
such assets are depreciated as per their
assessed life. The useful Life estimated by
the technical assessment is as under:
Assets acquired under finance lease and
leasehold improvements are amortized
over the lower of estimated useful life and
related term. Depreciation methods, useful
lives and residual values are reviewed at
each reporting date.
When parts of an item of property, plant
and equipment have different useful lives,
they are accounted for as separate items
(major components) of property, plant
and equipment. Subsequent expenditure
relating to property, plant and equipment
is capitalized only when it is probable
that future economic benefits associated
with these will flow to the Company and
the cost of the item can be measured
reliably. Repairs and maintenance costs are
recognized in the statement of profit and
loss when incurred.
An item of property, plant and equipment
and any significant part is derecognised
upon disposal or when no future
economic benefits are expected from
its use or disposal. The cost and related
accumulated depreciation are eliminated
from the financial statements upon sale or
disposition or write-off of the asset and the
resultant gains or losses are recognized in
the statement of profit and loss.
Depreciation on property, plant and
equipment is calculated on a straight-line
basis using the rates arrived at based on
the useful lives and residual values of all its
property, plant and equipment estimated
by the management. The management
believes that depreciation rates currently
used fairly reflect its estimate of the useful
lives and residual values of property,
plant and equipment, though these rates
in certain cases are different from lives
prescribed under Schedule II of the
Companies Act, 2013.
Fixed Assets costing Rs. 5,000 or less are
fully depreciated in the year of purchase.
b) Capital Work-in-Progress:
Assets in the course of construction are
included under capital work in progress
and are carried at cost less any recognized
impairment loss. Such capital work in
progress, on completion, is transferred
to the appropriate category of property,
plant and equipment.
Expenses for assessment of new
potential projects incurred till investment
decisions are charged to revenue.
Expenditure incurred for projects after
investment decisions are accounted
for under capital work in progress and
capitalized subsequently.
Any costs directly attributable to
acquisition/ construction of property,
plant and equipment till it is brought to the
location and condition necessary for it to
be capable of operating in the manner as
intended by the management form part of
capital work-in-progress.
c) Treatment of Expenditure Incurred on
Assets not owned by the Company:
"Expenditure incurred on any facility, the
ownership of which is not vested with the
company, but the incurrence of which is
essential in bringing an asset/project of
NMDC Steel Limited to the location and
condition necessary to be capable of
operating in the manner intended by the
management, shall be capitalized as a part
of the overall cost of the said asset/project.
Else the same shall be charged to revenue.”
v. Intangible assets:
Intangible assets are stated at cost less
accumulated amortization and impairment.
Intangible assets are amortized over their
respective estimated useful lives on a
straight-line basis, from the date that they are
available for use. The estimated useful life of
an identifiable intangible asset is based on
a number of factors including the effects of
obsolescence, demand, competition and other
economic factors (such as the stability of the
industry and known technological advances)
and the level of maintenance expenditures
required to obtain the expected future cash
flows from the asset. Amortisation method
and Useful life are reviewed at each financial
year end and are accounted for as change in
accounting estimates in accordance with Ind AS
8 "Accounting Policies, Changes in Accounting
Estimates and Errors, for the changes, if any.
vi. Inventory
a) Raw materials, Stores and spares (including
loose tools and implements), work in
process and finished products are valued
at lower of cost and net realizable value
of the respective units. Cost includes cost
of purchase and other costs incurred in
bringing the inventories to their present
location and condition.
b) Spares which do not meet the recognition
criteria as Property, Plant and Equipment
are recorded as inventories.
c) The basis of determining the cost is
d) Production related Iron Scraps are valued
at cost of production of Hot metal or Net
Realisable Value whichever is lower.
e) Production related steel scraps are valued
at cost of production of Liquid Steel or Net
Realisable Value/equivalent purchase cost
of steel scrap whichever is lower.
f) Other By-products, Residue products and
other scraps are valued at estimated net
realisable value.
g) In case of identified Obsolete/Surplus/Non-
moving items necessary provision is made
and charged to revenue.
vii. Impairment
a) Financial assets
In accordance with Ind AS 109, the
Company applies expected credit loss (ECL)
model for measurement and recognition of
impairment loss.
The Company follows 'simplified approach'
for recognition of impairment loss allowance
on trade receivables.
The application of simplified approach
does not require the Company to track
changes in credit risk. Rather, it recognises
impairment loss allowance based on lifetime
ECLs at each reporting date, right from its
initial recognition.
For recognition of impairment loss on other
financial assets and risk exposure, the
Company determines that whether there
has been a significant increase in the credit
risk since initial recognition. If credit risk
has not increased significantly, 12-month
ECL is used to provide for impairment
loss. However, if credit risk has increased
significantly, lifetime ECL is used. If in
subsequent period, credit quality of the
instrument improves such that there is no
longer a significant increase in credit risk
since initial recognition, then the entity
reverts to recognising impairment loss
allowance based on 12-month ECL.
Lifetime ECLs are the expected credit
losses resulting from all possible default
events over the expected life of a financial
instrument. The 12-month ECL is a portion
of the lifetime ECL which results from
default events that are possible within 12
months after the reporting date.
ECL is the difference between all
contractual cash flows that are due to
the Company in accordance with the
contract and all the cash flows that the
entity expects to receive (i.e. all shortfalls),
discounted at the original EIR. When
estimating the cash flows, an entity is
required to consider:
i) All contractual terms of the financial
instrument (including prepayment,
extension etc.) over the expected life
of the financial instrument. However,
in rare cases when the expected
life of the financial instrument
cannot be estimated reliably, then
the entity is required to use the
remaining contractual term of the
financial instrument.
ii) Cash flows from the sale of collateral
held or other credit enhancements that
are integral to the contractual terms.
As a practical expedient, the Company
uses a provision matrix to determine
impairment loss allowance on portfolio of
its trade receivables. The provision matrix
is based on its historically observed default
rates over the expected life of the trade
receivables and is adjusted for forward¬
looking estimates. At every reporting date,
the historical observed default rates are
updated and changes in the forward¬
looking estimates are analysed.
ECL impairment loss allowance (or
reversal) recognised during the period
is recognised as income/expense in the
statement of profit and loss. The balance
sheet presentation for various financial
instruments is described below:
Financial assets measured at amortised
cost, contractual revenue receivable: ECL
is presented as an allowance, i.e. as an
integral part of the measurement of those
assets in the balance sheet. The allowance
reduces the net carrying amount. Until the
asset meets write off criteria, the Company
does not reduce impairment allowance from
the gross carrying amount.
b) Non-financial assets
The Company assesses at each reporting
date whether there is any objective
evidence that a non-financial asset or a
group of non-financial assets is impaired.
If any such indication exists, the Company
estimates the amount of impairment loss.
An impairment loss is calculated as the
difference between an asset's carrying
amount and recoverable amount. Losses
are recognised in profit or loss and
reflected in an allowance account. When
the Company considers that there are no
realistic prospects of recovery of the asset,
the relevant amounts are written off. If the
amount of impairment loss subsequently
decreases and the decrease can be related
objectively to an event occurring after
the impairment was recognised, then the
previously recognised impairment loss is
reversed through profit or loss.
The recoverable amount of an asset or
cash-generating unit (as defined below)
is the greater of its value in use and its
fair value less costs to sell. In assessing
value in use, the estimated future cash
flows are discounted to their present value
using a pre-tax discount rate that reflects
current market assessments of the time
value of money and the risks specific to
the asset. For the purpose of impairment
testing, assets are grouped together into
the smallest group of assets that generates
cash inflows from continuing use that are
largely independent of the cash inflows of
other assets or groups of assets (the "cash¬
generating unit”).
viii. Employee benefits
a) Payments under Employees' Family Benefit
Scheme:
Under the Employees' family benefit
scheme, monthly payments are made till
the normal date of retirement to the family
members of those employees who are
discharged from service due to medical
reasons or death, on deposit of the amount
envisaged in the scheme and liability for the
payments are accounted for on the basis
of actuarial valuation and the amount is
administered by a separate Trust.
b) Gratuity & Provident fund:
Gratuity payable to eligible employees is
administered by a separate Trust. Payments
to the trust towards contributions and
other demands are made on the basis of
actuarial valuation.
The company's contribution to the provident
fund is remitted to a separate trust based
on a fixed percentage of the eligible
employees' salary. Further, the company
makes good the shortfall, if any, between
the return from investments of trust and
the notified rate of interest on actuarial
valuation basis.
c) Pension Fund
Defined contributions to Employees'
Contributory Pension Scheme are made on
accrual basis at a rate as approved from
time to time to a fund which is administered
by a separate Trust
d) Accrued Leave Salary:
Liability towards Accrued Leave Salary, as
at the end of the year is recognized on the
basis of actuarial valuation and the amount
is administered by a separate trust.
e) Other Benefits:
Liability towards Long Service Award,
Settlement Allowance and Post-Retirement
Medical Facilities to employees as at
the end of the year is recognized on
the basis of actuarial valuation. Such
amounts towards Settlement Allowance
and Post-Retirement Medical Benefits are
administered by a separate trust.
Actuarial gains or losses are recognized in
other comprehensive income. Further, the
profit or loss does not include an expected
return on plan assets. Instead, net interest
recognized in profit or loss is calculated by
applying the discount rate used to measure
the defined benefit obligation to the net
defined benefit liability or asset. The actual
return on the plan assets above or below
the discount rate is recognized as part of
re-measurement of net defined liability or
asset through other comprehensive income.
Re-measurements comprising actuarial
gains or losses and return on plan assets
(excluding amounts included in net
interest on the net defined benefit liability)
are not reclassified to profit or loss in
subsequent periods.
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