NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
2.1 Basis of preparation of Financial Statements
These Financial Statements of the Company have been
prepared in accordance with Indian Accounting Standards
(Ind AS) notified under the Companies (Indian Accounting
Standards) Rules, 2015 as amended thereafter. For all
periods up to and including the year ended March 31, 2024,
the Company prepared its Financial Statements in
accordance with the accounting standards notified under
the section 133 of the Companies Act 2013, read together
with paragraph 7 of the Companies (Accounts) Rules,
2014 (Indian GAAP).
The Financial Statements have been prepared on a
historical cost basis, except for the following assets and
liabilities which have been measured at fair value:
A. Derivative financial instruments;
B. Certain financial assets and liabilities measured
at fair value (refer accounting policy regarding
financial instruments).
In addition, the carrying values of recognized assets
and liabilities designated as hedged items in fair value
hedges that would otherwise be carried at amortized
cost are adjusted to record changes in the fair values
attributable to the risks that are being hedged in effective
hedge relationships.
2.2 Current versus non-current classification
The Company presents assets and liabilities in the balance
sheet based on current/ non-current classification.
An asset is treated as current when it is:
A. Expected to be realised or intended to be sold or
consumed in normal operating cycle
B. Held primarily for the purpose of trading
C. Expected to be realised within twelve months after
the reporting period, or
D. Cash or cash equivalents unless restricted from
being exchanged or used to settle a liability for at
least twelve months after the reporting period
All other assets are classified as non-current.
A liability is current when:
A. It is expected to be settled in normal operating cycle
B. It is held primarily for the purpose of trading
C. It is due to be settled within twelve months after the
reporting period, or
D. There is no unconditional right to defer the settlement
of the liability for at least twelve months after the
reporting period
The Company classifies all other liabilities as non-current.
Deferred tax assets and liabilities are classified as
non-current assets and liabilities.
The operating cycle is the time between the acquisition
of assets for processing and their realisation in cash and
cash equivalents. The Company has identified twelve
months as its operating cycle.
2.3 Foreign currencies transactions and translation
Transactions in foreign currencies are recorded at the
exchange rate prevailing on the date of transaction.
Monetary assets and liabilities denominated in foreign
currencies are translated at the functional currency
closing rates of exchange at the reporting date.
Exchange differences arising on settlement or translation
of monetary items are recognised in Statement of Profit
and Loss except to the extent of exchange differences
which are regarded as an adjustment to interest costs on
foreign currency borrowings that are directly attributable
to the acquisition or construction of qualifying assets,
are capitalized as cost of assets. Additionally, exchange
gains or losses on foreign currency borrowings taken
prior to April 1, 2017 which are related to the acquisition
or construction of qualifying assets are adjusted in the
carrying cost of such assets.
Non-monetary items that are measured in terms of
historical cost in a foreign currency are recorded using
the exchange rates at the date of the transaction.
Non-monetary items measured at fair value in a foreign
currency are translated using the exchange rates at the
date when the fair value was measured. The gain or loss
arising on translation of non-monetary items measured
at fair value is treated in line with the recognition of the
gain or loss on the change in fair value of the item (i.e.,
translation differences on items whose fair value gain or
loss is recognised in OCI or Statement of Profit and Loss
are also recognised in OCI or Statement of Profit and
Loss, respectively).
2.4 Fair value measurement
The Company measures financial instruments at fair
value on initial recognition.
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.
The fair value measurement is based on the presumption
that the transaction to sell the asset or transfer the
liability takes place either:
A. In the principal market for the asset or liability, or
B. In the absence of a principal market, in the most
advantageous market for the asset or liability
The principal or the most advantageous market must be
accessible by the Company.
The fair value of an asset or a liability is measured
using the assumptions that market participants would
use when pricing the asset or liability, assuming that
market participants act in their economic best interest.
A fair value measurement of a non-financial asset takes
into account a market participant's ability to generate
economic benefits by using the asset in its highest and
best use or by selling it to another market participant
that would use the asset in its highest and best use.
The Company uses valuation techniques that are
appropriate in the circumstances and for which sufficient
data are available to measure fair value, maximising the
use of relevant observable inputs and minimising the use
of unobservable inputs.
All assets and liabilities for which fair value is measured
or disclosed in the Financial Statements are categorised
within the fair value hierarchy, described as follows, based
on the lowest level input that is significant to the fair value
measurement as a whole:
Level 1 - Quoted (unadjusted) market prices in active
markets for identical assets or liabilities
Level 2 - Valuation techniques for which the lowest
level input that is significant to the fair value
measurement is directly or indirectly observable
Level 3- Valuation techniques for which the lowest
level input that is significant to the fair value
measurement is unobservable
For assets and liabilities that are recognised in the
Financial Statements on a recurring basis, the Company
determines whether transfers have occurred between
levels in the hierarchy by re-assessing categorisation
(based on the lowest level input that is significant to the
fair value measurement as a whole) at the end of each
reporting period.
External valuers are involved for valuation of significant
assets, such as properties and unquoted financial assets.
Involvement of external valuers is decided upon annually
by the management. Selection criteria include market
knowledge, reputation, independence and whether
professional standards are maintained. The management
decides, after discussions with the Company's external
valuers, which valuation techniques and inputs to
use for each case.
For the purpose of fair value disclosures, the Company
has determined classes of assets and liabilities on the
basis of the nature, characteristics and risks of the asset
or liability and the level of the fair value hierarchy as
explained above.
2.5 Revenue recognition
Revenue is recognized to the extent that it is probable
that the economic benefits will flow to the company
and the revenue can be reliably measured. The following
specific recognition criteria must also be met before
revenue is recognized:
Sale of goods
Revenue from sale of goods is recognized when all the
significant risks and rewards of ownership of the goods
have been passed to the buyer, usually on delivery of the
goods. Revenue from sale of goods is measured at the fair
value of the consideration received or receivable, taking
into account contractually defined terms of payment
and excluding taxes or duties collected on behalf of
the government.
Income from services
Revenue in respect of contracts for services is recognized
on completion of services.
Interest
Interest income is recognized on a time proportion basis
taking into account the amount outstanding and the
applicable interest rate. Interest income is included under
the head "other income" in the statement of profit and loss.
Dividend
Dividend income is recognized when the company's right
to receive dividend is established by the reporting date.
Government grants
Grants from the government are recognized at fair value
where there is a reasonable assurance that the grant
will be received and the Company will comply with all
attached conditions.
Government grants relating to income are deferred and
recognized in the profit or loss over the period necessary
to match them with the costs they are intended to
compensate and presented within other income.
Government grants relating to the purchase of property,
plant and equipment are included in non-current liabilities
as deferred income and are credited to profit and loss on
a straight line basis over the expected lives of the related
assets and presented within other income.
The benefit of a government loan at a below market rate
of interest is treated as a government grant, measured as
the difference between proceeds received and the fair
value of the loan based on prevailing market interest rates.
2.6 Property, plant and equipment
Since there is no change in the functional currency, the
Company has elected to continue with the carrying value
for all of its property, plant and equipment as recognised
in its Indian GAAP Financial Statements as deemed cost
at the transition date, viz., April 1, 2016.
Property, plant and equipment are stated at cost
of acquisition or construction net of accumulated
depreciation and impairment loss (if any).
Internally manufactured property, plant and equipment
are capitalised at cost, including non-cenvatable excise
duty, wherever applicable. All significant costs relating
to the acquisition and installation of property, plant and
equipment are capitalised. Such cost includes the cost of
replacing part of the property, plant and equipment and
borrowing costs for long-term construction projects if
the recognition criteria are met.
When significant parts of plant and equipment are
required to be replaced at intervals, the Company
depreciates them separately based on their specific useful
lives. Likewise, when a major inspection is performed,
its cost is recognised in the carrying amount of the
plant and equipment as a replacement if the recognition
criteria are satisfied. All other repair and maintenance
costs are recognised in statement of profit and loss as
incurred. The present value of the expected cost for the
decommissioning of an asset after its use is included in
the cost of the respective asset if the recognition criteria
for a provision are met.
Subsequent costs are included in the asset's carrying
amount or recognised as a separate asset, as appropriate,
only when 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. The carrying
amount of the replaced part is derecognised.
The identified components are depreciated over their
useful lives, the remaining asset is depreciated over the
life of the principal asset. Depreciation on the identified
components has been provided for on straight line method
at the rates prescribed and in the manner specified in
Schedule II to the Companies Act, 2013. Depreciation on
additions is provided on Pro-rata basis for the period for
which the Assets are put to use. Assets costing ' 5,000/-
or less are fully depreciated in the year of purchase.
Freehold land is carried at cost.
The residual values, useful lives and methods of
depreciation of property, plant and equipment are
reviewed at each financial year end and adjusted
prospectively, if appropriate.
2.7 Intangible assets
Intangible assets acquired separately are measured on
initial recognition at cost. Following initial recognition,
intangible assets are carried at cost less accumulated
amortization and accumulated impairment losses, if
any. Internally generated intangible assets, excluding
capitalized development costs, are not capitalized and
expenditure is reflected in the statement of profit and
loss in the year in which the expenditure is incurred.
The amortization period and the amortization method
are reviewed at least at each financial year end. If the
expected useful life of the asset is significantly different
from previous estimates, the amortization period is
changed accordingly.
The summary of amortization policy applied to the
Company's intangible assets is as below:
2.8 Borrowing costs
Borrowing costs directly attributable to the acquisition,
construction of qualifying asset that necessarily takes
a substantial period of time to get ready for its intended
use are capitalized as part of the cost of the respective
asset. All other borrowing costs are charged to Profit
and Loss accounts.
2.9 Leases
Company in its capacity as lessee
Finance leases, which effectively transfer to the company
substantially all the risks and benefits incidental to
ownership of the leased item, are capitalized at the
inception of the lease term at the lower of the fair value of
the leased property and present value of minimum lease
payments. Lease payments are apportioned between the
finance charges and reduction of the lease liability so as
to achieve a constant rate of interest on the remaining
balance of the liability. Finance charges are recognized
as finance costs in the statement of profit and loss.
Lease management fees, legal charges and other initial
direct costs of lease are capitalized.
2.10 Inventories
Raw materials, components, stores and spares are
valued at lower of cost and net realizable value.
However, materials and other items held for use in
the production of inventories are not written down
below cost if the finished products in which they will be
incorporated are expected to be sold at or above cost.
Cost of raw materials, components and stores and spares
is determined on First-in First-Out basis.
Finished Goods are valued at lower of cost and net
realizable value. Cost includes direct materials and
labour and a proportion of manufacturing overheads
based on normal operating capacity. Cost of Finished
Goods includes excise duty and is determined on First-in
First-Out basis.
2.11 Impairment of non-financial assets
The Company assesses at each reporting date as to
whether there is any indication that any property, plant
and equipment and intangible assets or group of assets,
called cash generating units (CGU) may be impaired.
If any such indication exists the recoverable amount of
an asset or CGU is estimated to determine the extent of
impairment, if any. When it is not possible to estimate the
recoverable amount of an individual asset, the Company
estimates the recoverable amount of the CGU to which
the asset belongs.
An impairment loss is recognised in the Statement of
Profit and Loss to the extent, asset's carrying amount
exceeds its recoverable amount. The recoverable amount
is higher of an asset's fair value less cost of disposal and
value in use. Value in use is based on the estimated future
cash flows, discounted to their present value using pre-tax
discount rate that reflects current market assessments
of the time value of money and risk specific to the assets.
The impairment loss recognised in prior accounting
period is reversed if there has been a change in the
estimate of recoverable amount.
2.12 Retirement and other employee benefits
Retirement benefit in the form of provident fund is a
defined contribution scheme. The contributions to
the provident fund are charged to the statement of
profit and loss for the year when the contributions are
due. The company has no obligation, other than the
contribution payable to the provident fund.
The company operates one defined benefit plan for its
employees, viz., gratuity. The costs of providing benefits
under these plans are determined on the basis of actuarial
valuation at each year-end. Actuarial valuation is carried
out for plan using the projected unit credit method.
Actuarial gains and losses for defined benefit plan are
recognized in full in the period in which they occur in the
statement of profit and loss.
2.13 Income taxes
Tax expense comprises of current and deferred tax.
Current income tax is measured at the amount expected
to be paid to the tax authorities in accordance with the
Income-Tax Act, 1961.Deferred income taxes reflects
the impact of current year timing differences between
taxable income and accounting income for the year and
reversal of timing differences of earlier years.
Deferred tax is measured based on the tax rates and the
tax laws enacted or substantively enacted at the balance
sheet date. Deferred tax assets and deferred tax liabilities
are offset, if a legally enforceable right exists to set off
current tax assets against current tax liabilities and the
deferred tax assets and deferred tax liabilities relate to
the taxes on income levied by same governing taxation
laws. Deferred tax assets are recognized only to the
extent that there is reasonable certainty that sufficient
future taxable income will be available against which such
deferred tax assets can be realized.
The carrying amount of deferred tax assets are reviewed
at each balance sheet date. The company writes-down
the carrying amount of a deferred tax asset to the extent
that it is no longer reasonably certain that sufficient
future taxable income will be available against which
deferred tax asset can be realized. Any such write-down is
reversed to the extent that it becomes reasonably certain
that sufficient future taxable income will be available.
Minimum alternate tax (MAT) paid in a year is charged to the
statement of profit and loss as current tax. The company
recognizes MAT credit available as an asset only to the
extent that there is convincing evidence that the company
will pay normal income tax during the specified period, i.e.,
the period for which MAT credit is allowed to be carried
forward. In the year in which the company recognizes MAT
credit as an asset in accordance with the Guidance Note
on Accounting for Credit Available in respect of Minimum
Alternative Tax under the Income-tax Act, 1961, the said
asset is created by way of credit to the statement of profit
and loss and shown as "MAT Credit Entitlement".
2.14 Earnings Per Share
Basic earnings per share are calculated by dividing the
net profit or loss for the period attributable to equity
shareholders (after deducting attributable taxes) by the
weighted average number of equity shares outstanding
during the period.
2.15 Contingent Liabilities and Contingent Assets
Provisions involving substantial degree of estimation in
measurement are recognized when there is a present
obligation as a result of past events and it is probable that
there will be an outflow of resources. Contingent Liabilities
are not recognized but are disclosed in the notes.
Contingent Assets are neither recognized nor disclosed
in the Financial Statements.
2.16 Financial instruments
Financial Assets
A. Initial recognition and measurement
All financial assets and liabilities are initially
recognized at fair value. Transaction costs that are
directly attributable to the acquisition or issue of
financial assets and financial liabilities, which are
not at fair value through profit or loss, are adjusted
to the fair value on initial recognition. Purchase and
sale of financial assets are recognised using trade
date accounting.
B. Subsequent measurement
a. Financial assets carried at amortised cost (AC)
A financial asset is measured at amortised
cost if it is held within a business model
whose objective is to hold the asset 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.
b. Financial assets at fair value through other
comprehensive income (FVTOCI)
A financial asset is measured at FVTOCI if it is
held within a business model whose objective
is achieved by both collecting contractual
cash flows and selling financial assets 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.
c. Financial assets at fair value through profit
or loss (FVTPL)
A financial asset which is not classified in any of
the above categories are measured at FVTPL.
C. Investment in subsidiaries
The Company has accounted for its investments in
subsidiaries, associates and joint venture at cost.
D. Other Equity Investments
All other equity investments are measured at fair
value, with value changes recognised in Statement of
Profit and Loss, except for those equity investments
for which the Company has elected to present the
value changes in 'Other Comprehensive Income.
E. Impairment of financial assets
In accordance with Ind AS 109, the Company
uses 'Expected Credit Loss' (ECL) model, for
evaluating impairment of financial assets other
than those measured at fair value through profit
and loss (FVTPL).
Expected credit losses are measured through a loss
allowance at an amount equal to:
a. The 12-months expected credit losses
(expected credit losses that result from those
default events on the financial instrument
that are possible within 12 months after the
reporting date); or
b. Full lifetime expected credit losses (expected
credit losses that result from all possible default
events over the life of the financial instrument)
For trade receivables Company applies 'simplified
approach' which requires expected lifetime losses
to be recognised from initial recognition of the
receivables. The Company uses historical default
rates to determine impairment loss on the portfolio
of trade receivables. At every reporting date these
historical default rates are reviewed and changes in
the forward looking estimates are analysed.
For other assets, the Company uses 12 month
ECL to provide for impairment loss where
there is no significant increase in credit risk.
If there is significant increase in credit risk full
lifetime ECL is used.
Financial liabilities
A. Initial recognition and measurement
All financial liabilities are recognized at fair value
and in case of loans, net of directly attributable cost.
Fees of recurring nature are directly recognised in
the Statement of Profit and Loss as finance cost.
B. Subsequent measurement
Financial liabilities are carried at amortized cost
using the effective interest method. For trade
and other payables maturing within one year from
the balance sheet date, the carrying amounts
approximate fair value due to the short maturity of
these instruments.
2.17 Critical accounting judgments and key sources of
estimation uncertainty
The preparation of the Company's Financial Statements
requires management to make judgement, estimates and
assumptions that affect the reported amount of revenue,
expenses, assets and liabilities and the accompanying
disclosures. Uncertainty about these assumptions and
estimates could result in outcomes that require a material
adjustment to the carrying amount of assets or liabilities
affected in future periods.
A. Decommissioning Liabilities
The liability for decommissioning costs are
recognized when the Company has obligation to
perform site restoration activity. The recognition
and measurement of decommissioning provisions
involves the use of estimates and assumptions.
These include; the timing of abandonment of well
and related facilities which would depend upon
the ultimate life of the field, expected utilization of
assets by other fields, the scope of abandonment
activity and pre-tax rate applied for discounting.
B. Recoverability of trade receivable
Judgements are required in assessing the
recoverability of overdue trade receivables and
determining whether a provision against those
receivables is required. Factors considered include
the credit rating of the counterparty, the amount
and timing of anticipated future payments and any
possible actions that can be taken to mitigate the
risk of non-payment.
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