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 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 de-recognised.
(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, basis 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 de-recognized 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
de-recognized.
5. Development expenditure on coal mines
(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 use are 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.
9. Government grants
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.
10. Fly ash utilization reserve fund
Proceeds from sale of ash/ash products along-with income on investment of surplus fund are transferred to 'Fly
ash utilization reserve fund'. The fund is utilized towards expenditure on development of infrastructure/facilities,
promotion & facilitation activities for use of fly ash.
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