B. Material Accounting Policies:
B.1 Basis of Preparation and Presentation
The Financial Statements have been prepared on the
historical cost basis except for following assets and
liabilities which have been measured at fair value amount:
i) Certain Financial Assets and Liabilities (including
derivative instruments),
ii) Defined Benefit Plans - Plan Assets, and
iii) Equity settled Share Based Payments
The Financial Statements of the Company have been
prepared to comply with the Indian Accounting
standards ('Ind AS'), including the Rules notified under
the relevant provisions of the Companies Act, 2013,
(as amended from time to time) and Presentation and
disclosure requirements of Division II of Schedule III to
the Companies Act, 2013, (Ind AS Compliant Schedule
III) as amended from time to time. The Company follows
indirect method prescribed in Ind AS 7 - Statement of
Cash Flows for presentation of its cash flows.
The Company's Financial Statements are presented in
Indian Rupees (?), which is also its functional currency
and all values are rounded to the nearest crore
(?00,00,000), except when otherwise indicated.
B.2 Summary of Material Accounting Policies
(a) Current and Non-Current Classification
The Company presents assets and liabilities in the
Balance Sheet based on Current/ Non-Current
classification considering an operating cycle
of 12 months being the time elapsed between
deployment of resources and the realisation/
settlement in cash and cash equivalents there-
against.
(b) Property, Plant and Equipment
Property, Plant and Equipment are stated at cost,
net of recoverable taxes, trade discount and rebates
less accumulated depreciation and impairment
losses, if any. Such cost includes purchase price,
borrowing cost and any cost directly attributable
to bringing the assets to its working condition for
its intended use, net charges on foreign exchange
contracts and adjustments arising from exchange
rate variations attributable to the assets. In case of
land the Company has availed fair value as deemed
cost on the date of transition to Ind AS.
Other Indirect Expenses incurred relating to
project, net of income earned during the project
development stage prior to its intended use,
are considered as pre-operative expenses and
disclosed under Capital Work-in-Progress.
Depreciation on Property, Plant and Equipment
is provided using written down value method on
depreciable amount except in case of certain
assets of Oil to Chemicals and Other segment
which are depreciated using straight-line method.
Depreciation is provided based on useful life of
the assets as prescribed in Schedule II to the
Companies Act, 2013 except in respect of the
following assets, where useful life is as under:
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.
(c) Leases
The Company, as a lessee, recognises a right-
of-use asset and a lease liability for its leasing
arrangements, if the contract conveys the right
to control the use of an identified asset. Initially
the right-of-use assets measured at cost which
comprises initial cost of the lease liability adjusted
for any lease payments made at or before the
commencement date plus any initial direct costs
incurred. Subsequently measured at cost less
any accumulated depreciation/ amortisation,
accumulated impairment losses, if any and adjusted
for any remeasurement of the lease liability.
The right-of-use assets is depreciated/ amortised
using the straight-line method from the
commencement date over the shorter of lease term
or useful life of right-of-use asset.
The Company measures the lease liability at the
present value of the lease payments that are not
paid at the commencement date of the lease.
The lease payments are discounted using the
interest rate implicit in the lease, if that rate can be
readily determined. If that rate cannot be readily
determined, the Company uses incremental
borrowing rate.
For short-term and low value leases, the Company
recognises the lease payments as an operating
expense on a straight-line basis over the lease term.
(d) Intangible Assets
Intangible Assets are stated at cost of acquisition
net of recoverable taxes, trade discount and
rebates less accumulated amortisation/depletion
and impairment losses, if any. Such cost includes
purchase price, borrowing costs, and any cost
directly attributable to bringing the asset to its
working condition for the intended use, net charges
on foreign exchange contracts and adjustments
arising from exchange rate variations attributable to
the Intangible Assets.
Other Indirect Expenses incurred relating to
project, net of income earned during the project
development stage prior to its intended use, are
considered as pre-operative expenses and disclosed
under Intangible Assets Under Development.
The Company assesses if useful life of an
intangible asset is finite or indefinite. A summary
of amortisation/depletion policies applied to the
Company's Intangible Assets to the extent of
depreciable amount is as follows:
The amortisation period and the amortisation
method for Intangible Assets with a finite useful life
are reviewed at each reporting date.
(e) Inventories
Items of inventories are measured at lower of
cost and net realisable value after providing for
obsolescence, if any, except in case of by-products
which are valued at net realisable value.
Cost of finished goods, work-in-progress, raw
materials, chemicals, stores and spares, packing
materials, trading and other products are
determined on weighted average basis.
(f) Provisions
Provisions are recognised when the Company has
a present obligation (legal or constructive) as a
result of a past event, it is probable that an outflow
of resources embodying economic benefits will
be required to settle the obligation and a reliable
estimate can be made of the amount of the
obligation. If the effect of the time value of money
is material, provisions are discounted using a current
pre-tax rate that reflects, when appropriate, the
risks specific to the liability. When discounting
is used, the increase in the provision due to the
passage of time is recognised as a finance cost.
Provision for Decommissioning Liability
The Company records a provision for
decommissioning costs towards site restoration
activity. Decommissioning costs are provided at
the present value of future expenditure using a
current pre-tax rate expected to be incurred to fulfil
decommissioning obligations and are recognised
as part of the cost of the underlying assets. Any
change in the present value of the expenditure,
other than unwinding of discount on the provision,
is reflected as adjustment to the provision and the
corresponding asset. The change in the provision
due to the unwinding of discount is recognised in
the Statement of Profit and Loss.
(g) Contingent Liabilities
Disclosure of contingent liability is made when
there is a possible obligation arising from past
events, the existence of which will be confirmed
only by the occurrence or non-occurrence of one
or more uncertain future events not wholly within
the control of the Company or a present obligation
that arises from past events where it is either not
probable that an outflow of resources embodying
economic benefits will be required to settle or a
reliable estimate of amount cannot be made.
(h) Current Tax and Deferred Tax
The tax expenses for the period comprise of current
tax and deferred tax. The Company exercises
judgment in computation of current tax considering
the relevant rulings and reassesses the carrying
amount of deferred tax assets at the end of each
reporting period.
(i) Share Based Payments
In case of Group equity-settled share-based
payment transactions, where the Company grants
stock options to the employees of its subsidiaries,
the transactions are accounted by increasing
the cost of investment in subsidiary with a
corresponding credit in the equity.
(j) Foreign Currencies Transactions and
Translation
Exchange gains or losses on foreign currency
borrowings taken prior to April 1, 2016 which
are related to the acquisition or construction of
qualifying assets are adjusted in the carrying cost of
such assets.
(k) Revenue Recognition
Revenue from contracts with customers is
recognised when control of the goods or services
are transferred to the customer at an amount that
reflects the consideration entitled in exchange for
those goods or services. The Company is generally
the principal as it typically controls the goods or
services before transferring them to the customer.
Revenue is measured at the amount of
consideration which the Company expects to be
entitled to in exchange for transferring distinct
goods or services to a customer as specified in the
contract, excluding amounts collected on behalf of
third parties (for example taxes and duties collected
on behalf of the government). Consideration is
generally due upon satisfaction of performance
obligations and a receivable is recognised when it
becomes unconditional.
Generally, the credit period varies between 0-60
days from the shi pment or delivery of goods or
completion of services as the case may be. The
Company provides volume rebates to certain
customers once the quantity of products purchased
during the period exceeds a threshold specified and
also accrues discounts to certain customers based
on customary business practices which is derived
on the basis of crude price volatility and various
market demand - supply situations. Consideration
are determined based on its most likely amount.
Generally, sales of petroleum products contain
provisional pricing features where revenue is initially
recognised based on provisional price. Difference
between final settlement price and provisional price
is recognised subsequently.
(l) Financial Instruments
i. Financial Assets
Purchase and sale of Financial Assets are
recognised using trade date accounting. Trade
receivables that do not contain a significant
financing component are measured at
transaction price.
The Company has elected to account for its
investments in subsidiaries, associates and
joint venture at cost less impairment loss
(if any).
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'. However,
dividend on such equity investments are
recognised in Statement of Profit and loss
when the Company's right to receive payment
is established. The investments in preference
shares with the right to surplus assets which
are in nature of equity in accordance with
Ind AS 32 are treated as separate category
of investment and measured at Fair Value
Through Other Comprehensive Income
(FVTOCI). Other Financial Assets are generally
measured at Fair Value Through Profit or Loss
(FVTPL) except where the Company, based
on the business model objectives, measures
these at Amortised Cost or Fair Value Through
Other Comprehensive Income (FVTOCI).
The Company uses 'Expected Credit Loss' (ECL)
model, for evaluating impairment of Financial
Assets other than those measured at FVTPL.
Expected Credit Losses are measured through
a loss allowance at an amount equal to:
• 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
• 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, the 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.
ii. Financial Liabilities
For trade and other payables maturing
within one year from the balance sheet
date, the carrying amounts are determined
to approximate fair value due to the short
maturity of these instruments.
iii. Derivative Financial Instruments and
Hedge Accounting
The Company uses various derivative financial
instruments such as interest rate swaps,
currency swaps, forwards & options and
commodity contracts to mitigate the risk of
changes in interest rates, exchange rates and
commodity prices. At the inception of a hedge
relationship, the Company formally designates
and documents the hedge relationship to
which the Company wishes to apply hedge
accounting and the risk management objective
and strategy for undertaking the hedge.
Any gains or losses arising from changes in the
fair value of derivatives are taken directly to
Statement of Profit and Loss, except for the
effective portion of cash flow hedge which is
recognised in Other Comprehensive Income
and later to Statement of Profit and Loss
when the hedged item affects profit or loss
or is treated as basis adjustment if a hedged
forecast transaction subsequently results in
the recognition of a Non-Financial Assets or
Non-Financial liability.
Hedges that meet the criteria for hedge
accounting are accounted for as follows:
A. Cash Flow Hedge
The Company designates derivative
contracts or non-derivative Financial
Assets/ Liabilities as hedging instruments
to mitigate the risk of movement in
interest rates and foreign exchange rates
for foreign exchange exposure on highly
probable future cash flows attributable to
a recognised asset or liability or forecast
cash transactions.
B. Fair Value Hedge
The Company designates derivative
contracts or non-derivative Financial
Assets/Liabilities as hedging instruments
to mitigate the risk of change in fair value
of hedged item due to movement in
interest rates, foreign exchange rates and
commodity prices.
iv. Offsetting
Financial Assets and Financial Liabilities are
offset and the net amount is presented in
the balance sheet when, and only when, the
Company has a legally enforceable right to set
off the amount and it intends, either to settle
them on a net basis or to realise the asset and
settle the liability simultaneously.
(m) Accounting for Oil and Gas Activity
Oil and Gas Joint Arrangement are in the nature of
joint operations. Accordingly, assets and liabilities
as well as income and expenditure are accounted on
the basis of available information on a line-by-line
basis with similar items in the Company's Financial
Statements, according to the participating interest
of the Company.
The Company follows the Guidance Note on
Accounting for Oil and Gas producing activities
- Ind AS issued by the Institute of Chartered
Accountants of India for the purposes of the
accounting. Seismic costs, geological and
geophysical studies, petroleum exploration
license fees and general and administration costs
directly attributable to exploration and evaluation
activities are expensed off. The costs incurred on
acquisition of interest in oil and gas blocks and on
exploration and evaluation other than those which
are expensed off are accounted for as Intangible
Assets Under Development. All development
costs incurred in respect of proved reserves are
also capitalised under Intangible Assets Under
Development. Once a well is ready to commence
commercial production, the costs accumulated in
Intangible Assets Under Development are classified
as Intangible Assets corresponding to proved
developed oil and gas reserves. The exploration
and evaluation expenditure which does not result
in discovery of proved oil and gas reserves and all
cost pertaining to production are charged to the
Statement of Profit and Loss.
The Company uses technical estimation of reserves
as per the Petroleum Resources Management
System guidelines 2011 and standard geological
and reservoir engineering methods. The reserve
review and evaluation is carried out annually.
C. Critical Accounting Judgements
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 next financial years.
(A) Estimation of Oil and Gas Reserves
The determination of the Company's estimated oil and
natural gas reserves requires significant judgements
and estimates to be applied and these are regularly
reviewed and updated. Factors such as the availability of
geological and engineering data, reservoir performance
data, acquisition and divestment activity, drilling of
new wells, and commodity prices all impact on the
determination of the Company's estimates of its oil and
natural gas reserves. The Company bases its proved
reserves estimates on the requirement of reasonable
certainty with rigorous technical and commercial
assessments based on conventional industry practice
and regulatory requirements.
Estimates of oil and natural gas reserves are used to
calculate depletion charges for the Company's oil and
gas properties. The impact of changes in estimated
proved reserves is dealt with prospectively by amortising
the remaining carrying value of the asset over the
expected future production. Oil and natural gas reserves
also have a direct impact on the assessment of the
recoverability of asset carrying values reported in the
Financial Statements.
Details on proved reserves and production both on
product and geographical basis are provided in Note 33.2.
(B) Property Plant and Equipment/ Intangible
Assets
Estimates are involved in determining the cost
attributable to bringing the assets to the location and
condition necessary for it to be capable of operating
in the manner intended by the management. Property,
Plant and Equipment/Intangible Assets are depreciated/
amortised over their estimated useful life, after taking
into account estimated residual value. Management
reviews the estimated useful life and residual values of
the assets annually in order to determine the amount
of depreciation/ amortisation to be recorded during
any reporting period. The useful life and residual values
are based on the Company's historical experience
with similar assets and take into account anticipated
technological and future risks. The depreciation/
amortisation for future periods is revised if there are
significant changes from previous estimates.
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