C. Material accounting policies
A summary of the material accounting policies applied in the preparation of the financial statements are as given below. These
accounting policies have been applied consistently to all periods presented in the financial statements. It allows for an understanding
as to how material transactions, other events and conditions are reported. It also describes: (a) judgements, apart from those involving
estimations, that management makes in applying the policies that have the most significant effect on the amounts recognised in the
Financial Statements; and (b) estimations, including assumptions about the future, that management makes in applying the policies.
The Company has elected to utilize the option under Ind AS 101-'First time adoption of Indian Accounting Standards' by not applying
the provisions of Ind AS 16-'Property, plant and equipment' & Ind AS 38- 'Intangible assets' retrospectively and continue to use the
previous GAAP carrying amount as a deemed cost under Ind AS at the date of transition to Ind AS i.e. 1 April 2015. Therefore, the
carrying amount of property, plant and equipment and intangible assets as per the previous GAAP as at 1 April 2015, i.e. the Company's
date of transition to Ind AS, were maintained on transition to Ind AS.
1. Property, plant and equipment
1.1. Initial recognition and measurement
(a) An item of property, plant and equipment is recognized as an asset if and only if it is probable that future economic benefits
associated with the item will flow to the Company and the cost of the item can be measured reliably.
(b) Items of property, plant and equipment are initially recognized at cost. Subsequent measurement is done at cost less
accumulated depreciation/amortization and accumulated impairment losses.
(c) When parts of an item of property, plant and equipment that are significant in value and have different useful lives as compared
to the main asset, they are recognized separately.
(d) Deposits, payments/liabilities made provisionally towards compensation, rehabilitation and other expenses relatable to land
in possession are treated as cost of land.
(e) In the case of assets put to use, where final settlement of bills with contractors is yet to be effected, capitalization is done on
provisional basis subject to necessary adjustment in the year of final settlement.
(f) Assets and systems common to more than one generating unit are capitalized on the basis of engineering estimates/
assessments.
(g) Items of spare parts, stand-by equipment and servicing equipment which meet the definition of property, plant and equipment
are capitalized. Other spare parts are carried as inventory and recognized as expense in the statement of profit and loss on
consumption.
(h) The acquisition or construction of some items of property, plant and equipment although not directly increasing the future
economic benefits of any particular existing item of property, plant and equipment, may be necessary for the Company to
obtain future economic benefits from its other assets. Such items are recognized as property, plant and equipment.
(i) Excess of net sale proceed of items produced while bringing the asset to the location and condition necessary for it to be
capable of operating in the manner intended by management is deducted from the directly attributable cost considered as
part of an item of property, plant and equipment.
1.2. Subsequent costs
(a) Subsequent expenditure is recognized in the carrying amount of the asset when it is probable that future economic benefits
deriving from the cost incurred will flow to the enterprise and the cost of the item can be measured reliably.
(b) Expenditure on major inspection and overhauls of generating unit is capitalized, when it meets the asset recognition criteria.
Any remaining carrying amount of the cost of the previous inspection and overhaul is derecognized.
(c) The cost of replacing major part of an item of property, plant and equipment including expenditure incurred on renovation and
modernization, is recognized in the carrying amount of the item if it is probable that the future economic benefits embodied
within the part will flow to the Company and its cost can be measured reliably. The carrying amount of the replaced part is
derecognized regardless of whether the replaced part has been depreciated separately. If it is not practicable to determine
the carrying amount of the replaced part, the Company uses the cost of the replacement as an indication of what the cost
of replaced part was at the time it was acquired or constructed. The costs of the day-to-day servicing of property, plant and
equipment are recognized in the statement of profit and loss as and when incurred.
1.3. Decommissioning costs
The present value of the expected cost for the decommissioning of the asset after its use is included in the cost of the respective
asset if the recognition criteria for a provision are met.
1.4. De-recognition
Property, plant and equipment is de-recognized when no future economic benefits are expected from their use or upon their
disposal. Gains and losses on de-recognition of an item of property, plant and equipment are determined as the difference
between sale proceeds from disposal, if any, and the carrying amount of property, plant and equipment and are recognized in the
statement of profit and loss.
1.5. Depreciation/amortization
(a) Depreciation on the assets of the generation of electricity business, integrated coal mining and on the assets of Corporate
& other offices of the Company, covered under Part B of Schedule II of the Companies Act, 2013, is charged on straight¬
line method following the rates and methodology notified by the Central Electricity Regulatory Commission (CERC) Tariff
Regulations.
(b) Depreciation on the assets of the oil & gas exploration, power plants not governed by CERC Tariff Regulations, investment
properties and consultancy business is charged on straight-line method following the useful life specified in Schedule II of
the Companies Act, 2013 except for the assets referred below.
(c) Depreciation on the following assets is provided on their estimated useful lives, which are different from the useful lives as
prescribed under Schedule II to the Companies Act, 2013, ascertained on the basis of technical evaluation/ assessment:
(d) Major overhaul and inspection costs which have been capitalized are depreciated over the period until the next scheduled
outage or actual major inspection/overhaul, whichever is earlier.
(e) Capital spares are depreciated considering the useful life ranging between 2 to 40 years based on technical assessment.
(f) Right-of-use land and buildings relating to generation of electricity business governed by CERC Tariff Regulations are fully
amortized on straight line method over the lease period or life of the related plant whichever is lower following the rates and
methodology notified by the CERC Tariff Regulations.
(g) Right-of-use land and buildings relating to generation of electricity business which are not governed by CERC tariff Regulations
are fully amortized on straight line method over the lease period or life of the related plant whichever is lower.
(h) Right-of-use land and buildings relating to corporate, and other offices are fully amortized on straight line method over lease
period or twenty-five years whichever is lower following the rates and methodology notified by the CERC Tariff Regulations.
(i) Land acquired under Coal Bearing Areas (Acquisition & Development) Act, 1957 and Other right-of-use land acquired for
mining business are amortized on straight line method over the right of use period or balance life of the project whichever is
lower.
(j) In respect of integrated coal mines, the mines closure, site restoration and decommissioning obligations are amortized on
straight line method over the balance life of the mine on commercial declaration.
(k) Depreciation on additions to/deductions from property, plant and equipment during the year is charged on pro-rata basis
from/up to the month in which the asset is available for use/sale, disposal or earmarked for disposal.
(l) Where the cost of depreciable assets has undergone a change during the year due to increase/decrease in long-term
liabilities (recognized up to 31 March 2016) on account of exchange fluctuation and price adjustment change in duties or
similar factors, the unamortized balance of such asset is charged off prospectively over the remaining useful life determined
following the applicable accounting policies relating to depreciation/amortization.
(m) Where it is probable that future economic benefits deriving from the expenditure incurred will flow to the Company and the cost
of the item can be measured reliably, subsequent expenditure on a property, plant and equipment along-with its unamortized
depreciable amount is charged off prospectively over the revised useful life determined by technical assessment.
(n) The residual values, useful lives and method of depreciation of assets other than the assets of generation of electricity
business and integrated coal mines governed by CERC Tariff Regulations, are reviewed at each financial year end and
adjusted prospectively, wherever required.
(o) Depreciation of an asset ceases at the earlier of the date that the asset is classified as held for sale (or included in a disposal
group that is classified as held for sale) in accordance with Ind AS 105 and the date that the asset is derecognised.
(p) Refer policy no. C.16 in respect of depreciation/amortization of right-of-use assets other than land and buildings.
2. Capital work-in-progress
(a) Cost incurred for property, plant and equipment that are not ready for their intended use as on the reporting date, is classified
under capital work- in-progress.
(b) The cost of self-constructed assets includes the cost of materials & direct labour, any other costs directly attributable to bringing
the assets to the location and condition necessary for it to be capable of operating in the manner intended by management and
the borrowing costs attributable to the acquisition or construction of qualifying asset.
(c) Expenses directly attributable to construction of property, plant and equipment incurred till they are ready for their intended use
are identified and allocated on a systematic basis on the cost of related assets.
(d) Deposit works/cost plus contracts are accounted for on the basis of statements of account received from the contractors.
(e) Unsettled liabilities for price variation/exchange rate variation in case of contracts are accounted for on estimated basis as per
terms of the contracts.
(f) The Company periodically reviews its Capital work-in-progress and in case of abandoned works, provision for unserviceable cost
is provided for, as required, on the basis of the technical assessment. Further, provisions made are reviewed at regular intervals
and in case work has been subsequently taken up, then provision earlier provided for is written back to the extent the same is no
longer required.
(g) Net pre-commissioning income/expenditure is adjusted directly in the cost of related assets and systems.
3. Intangible assets and intangible assets under development
3.1. Initial recognition and measurement
Intangible assets that are acquired by the Company, which have finite useful lives, are recognized at cost. Subsequent measurement
is done at cost less accumulated amortization and accumulated impairment losses.
3.2. Subsequent costs
Subsequent expenditure is recognized as an increase in the carrying amount of the asset when it is probable that future economic
benefits deriving from the cost incurred will flow to the enterprise and the cost of the item can be measured reliably.
3.3. De-recognition
An intangible asset is derecognized when no future economic benefits are expected from their use or upon their disposal. Gain or loss
on de-recognition of an intangible asset is determined as the difference between the net disposal proceeds, if any, and the carrying
amount of intangible assets and are recognized in the statement of profit and loss.
3.4. Amortization
(a) Cost of software recognized as intangible asset, is amortized on straight-line method over a period of legal right to use or 3 years,
whichever is less.
(b) The amortization period and the amortization method of intangible assets with a finite useful life is reviewed at each financial year
end and adjusted prospectively, wherever required.
4. Regulatory deferral account balances
(a) Expense/income recognized in the statement of profit and loss to the extent recoverable from or payable to the beneficiaries in
subsequent periods as per CERC Tariff Regulations are recognized as 'Regulatory deferral account balances'.
(b) Regulatory deferral account balances are adjusted in the year in which the same become recoverable from or payable to the
beneficiaries.
(c) Regulatory deferral account balances are evaluated at each balance sheet date to ensure that the underlying activities meet the
recognition criteria and it is probable that future economic benefits associated with such balances will flow to the entity. If these
criteria are not met, the regulatory deferral account balances are derecognized.
(a) When proved reserves are determined and development of mines/project is sanctioned, exploration and evaluation assets are
transferred to 'Development of coal mines' under 'Capital work-in-progress'.
(b) Subsequent expenditure is capitalized only where it either enhances the economic benefits of the development/producing asset or
replaces part of the existing development/producing asset. Any remaining costs associated with the part replaced are expensed.
(c) The development expenditure capitalized is net of value of coal extracted during development phase.
(d) Date of commercial operation of integrated coal mines shall be determined on the occurring of earliest of following milestones as
provided in CERC tariff regulations:
1) The first date of the year succeeding the year in which 25% of the peak rated capacity as per the mining plan is achieved; or
2) The first date of the year succeeding the year in which the value of production exceeds the total expenditure in that year; or
3) The date of two years from the date of commencement of production;
The above is subject to commercial readiness to yield production on a sustainable basis (i.e. when the Company determines
that the mining property will provide sufficient and sustainable return relative to its perceived risks and therefore it is considered
probable that future economic benefits will flow to the Company).
(e) On the date of commercial operation, the assets under capital work-in-progress are classified as a component of property, plant
and equipment under 'Mining property'.
(f) Gains and losses on de-recognition of assets referred above, are determined as the difference between the net disposal proceeds,
if any, and the carrying amount of respective assets and are recognized in the statement of profit and loss.
5.1 Stripping activity expense/adjustment
(a) Expenditure incurred on removal of mine waste materials (overburden) necessary to extract the coal reserves is referred to as
stripping cost. The Company has to incur such expenses over the life of the mine as technically estimated.
(b) Cost of stripping is charged on technically evaluated average stripping ratio at each mine with due adjustment for stripping
activity asset and ratio-variance account after the mines are brought to revenue.
(c) Net of the balances of stripping activity asset and ratio variance at the Balance Sheet date is shown as 'Stripping activity
adjustment' under the head 'Non-current assets/Non-current provisions' as the case may be, and adjusted as provided in the
CERC Tariff Regulations
5.2 Mines closure, site restoration and decommissioning obligations
(a) The Company's obligations for land reclamation and decommissioning of structure consist of spending at mines in accordance
with the guidelines from Ministry of Coal, Government of India. The Company estimates its obligations for mine closure, site
restoration and decommissioning based on the detailed calculation and technical assessment of the amount and timing of
future cash spending for the required work and provided for as per approved mine closure plan. The estimate of expenses is
escalated for inflation and then discounted at a pre-tax discount rate that reflects current market assessment of the time value of
money and risk, such that the amount of provision reflects the present value of expenditure required to settle the obligation. The
Company recognizes a corresponding asset under property, plant and equipment as a separate item for the cost associated with
such obligation. Upon commercial declaration of mines, the mine closure, site restoration and decommissioning obligations are
amortized on straight line method over the balance life of the mine.
(b) The value of the obligation is progressively increased over time as the effect of discounting unwinds and the same is recognized
as finance costs.
(c) Further, a specific escrow account is maintained for this purpose as per approved mine closure plan. The progressive mine
closure expenses incurred on year to year basis,forming part of the total mine closure obligation, are initially recognized as
receivable from escrow account and thereafter adjusted with the obligation in the year in which the amount is withdrawn from
escrow account after concurrence of the certifying agency.
6. Investment Property
(a) Investment properties are properties held to earn rental or for capital appreciation or for both and are not intended to be used in
the operations of the Company. Investment properties are measured initially at its cost, including transaction costs. Investment
properties are subsequently measured at cost less accumulated depreciation and accumulated impairment losses, if any.
Subsequent expenditure is capitalized to the asset's carrying amount only when it is probable that future economic benefits
associated with the expenditure will flow to the Company and the cost of the item can be measured reliably. Investment properties
are depreciated / amortised considering the material accounting policy no.C.1.5 and C.16.1.
(b) A property shall be transferred to or from investment property when, and only when, there is change in use. A change in use
occurs when the property meets, or ceases to meet the definition of investment property and there is evidence of the change in
use.
(c) An investment property is derecognized upon disposal or when the investment property is permanently withdrawn from use and
no future economic benefits are expected from the disposal. Any gain or loss arising on de-recognition of the property (calculated
as the difference between the net disposal proceeds and the carrying amount of the asset) is included in profit or loss in the period
in which the property is derecognized.
7. Borrowing costs
(a) Borrowing costs consist of (a) interest expense calculated using the effective interest method as described in Ind AS 109 -
'Financial Instruments' (b) interest expense on lease liabilities recognized in accordance with Ind AS 116- 'Leases' and (c)
exchange differences arising from foreign currency borrowings to the extent that they are regarded as an adjustment to interest
costs.
(b) Borrowing costs that are directly attributable to the acquisition, construction/ exploration / development or erection of qualifying
assets are capitalized as part of cost of such asset until such time the assets are substantially ready for their intended use.
Qualifying assets are assets which necessarily take substantial period of time to get ready for their intended use or sale.
(c) When the Company borrows funds specifically for the purpose of obtaining a qualifying asset, the borrowing costs incurred
are capitalized. When Company borrows funds generally and uses them for the purpose of obtaining a qualifying asset, the
capitalization of the borrowing costs is computed based on the weighted average cost of all borrowings that are outstanding
during the period and used for the acquisition, construction/exploration or erection of the qualifying asset. However, borrowing
costs applicable to borrowings made specifically for the purpose of obtaining a qualifying asset, are excluded from this calculation,
until substantially all the activities necessary to prepare that asset for its intended use or sale are complete.
(d) Income earned on temporary investment made out of the borrowings pending utilization for expenditure on the qualifying assets
is deducted from the borrowing costs eligible for capitalization.
(e) Capitalization of borrowing costs ceases when substantially all the activities necessary to prepare the qualifying assets for their
intended useare complete.
(f) Other borrowing costs are recognized as an expense in the year in which they are incurred.
(g) The Company can incur borrowing costs during an extended period in which it suspends the activities necessary to prepare an
asset for its intended use or sale. Such costs are costs of holding partially completed assets and is not eligible for capitalisation.
However, the Company does not normally suspend capitalising borrowing costs during a period when it carries out substantial
technical and administrative work. The Company also does not suspend capitalising borrowing costs when a temporary delay is
a necessary part of the process of getting an asset ready for its intended use or sale.
8. Inventories
(a) Inventories are valued at the lower of cost and net realizable value. Cost is determined on weighted average basis.
(b) The diminution in the value of obsolete/ unserviceable/surplus stores and spares and non-moving unserviceable inventories is
ascertained on review and provided for.
(c) Transit and handling losses of coal as per Company's norms are included in cost of coal.
Government grants are recognized when there is reasonable assurance that they will be received and the Company will comply with the
conditions associated with the grant. Grants that compensate the Company for the cost of depreciable asset are recognized as income
in statement of profit and loss on a systematic basis over the period and in the proportion in which depreciation is charged. Grants that
compensate the Company for expenses incurred are recognized over the period in which the related costs are incurred and the same
is deducted from the related expenses.
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