3 MATERIAL ACCOUNTING POLICY INFORMATION
A summary of the material accounting policies
applied in the preparation of the financial statements
is given below. These accounting policies have been
applied consistently to all the periods presented in
the financial statements.
3.1 Property, Plant and Equipment
3.1.1 Recognition and Measurement
The Company has elected to continue with the
carrying value of its Property Plant & Equipment
(PPE) recognised as on April 1,2015 (transition date)
measured as per the Previous GAAP and used that
carrying value as its deemed cost as on the transition
date as per Para D7AA of Ind AS 101
An item of property, plant and equipment is
recognised as an asset if it is probable that future
economic benefits associated with the item will
flow to the Company and its cost can be measured
reliably. This recognition principle is applied to costs
incurred initially to acquire an item of property, plant
and equipment. Property, plant and equipment held
for use in the production or/and supply of goods or
services, or for administrative purposes, are stated at
cost, less accumulated depreciation and impairment
losses, if any, The initial cost at cash price equivalence
of property, plant and equipment acquired comprises
its purchase price, including import duties, non¬
refundable purchase taxes, any directly attributable
costs of bringing the assets to its working condition
and location and present value of any obligatory
decommissioning costs for its intended use.
In case of constructed assets, cost includes the
costs of all materials used in construction, direct
labour, allocation of overheads, directly attributable
borrowing costs.
The excess of net sale proceeds of items produced
during testing over the cost of testing, if any, shall
be deducted from the directly attributable costs
considered as part of cost of an item of property,
plant, and equipment.
Spares having useful life of more than one year
and having value of ' 10 lakh or more in each case,
are capitalised under the respective heads as and
when available for use. Where an item of property,
plant and equipment comprises major components
having different useful lives, these components are
accounted for as separate items.
Capital work-in-progress comprises of assets in the
course of construction for production and/ or supply
of goods or services or administrative purposes are
carried at cost less any recognised impairment loss.
At the point when an asset is operating as intended
by the management, the cost of construction is
transferred to the appropriate category of property,
plant and equipment. Costs associated with the
commissioning of an asset are capitalised where
the asset is available for use as intended by the
management.
An item of property, plant and equipment is
derecognised upon disposal or when no future
economic benefits are expected to arise from the
continued use of the asset. Any gain or loss arising
on the disposal or retirement of an item of property,
plant and equipment is determined as the difference
between net disposal proceeds and the carrying
amount of the asset and is recognised in the
Statement of Profit and Loss.
Claims for liquidated damages are accounted for as
and when these are considered recoverable by the
Company.
In the event that construction is not completed by
an agreed upon date, or if the asset does not meet
certain performance or other requirements outlined
in the contract, certain construction agreements
provide for the payment of liquidated damages
by the contractor to the company for the asset
under construction. Liquidated damages represent
compensation for a reasonable estimate of the
companies cost associated with a delay or less than
expected performance.
The payments received by the company from the
contractor is presumed to be a reduction of the
cost of the asset being constructed, to the extent
liquidated damages are reimbursements of direct
and incremental costs incurred by the company as
a result of the contractor's breach is credited to the
asset.
In cases other than above, the claim for liquidation
damages are credited to statement of profit and loss.
Suppliers' and Contractors' claims for price escalation
are accounted for to the extent such claims are
accepted by the Company.
3.1.2 Subsequent Cost
Subsequent expenditure is recognised as an increase
in the carrying amount of the asset or recognised
as a separate asset, as appropriate, only when it is
probable that future economic benefits derived
from the cost incurred will flow to the Company and
the cost of the item can be measured reliably. The
carrying amount of replaced item(s) is derecognised.
Any repair of '50 lakh or more of property, plant and
equipment is recognised in the carrying amount of
the respective item if it is probable that the future
economic benefits of the costs incurred will flow to
the Company. The carrying amount of the replaced
item(s) is derecognised.
3.2 Depreciation
Depreciation on property, plant and equipment and
investment property is provided on straight line
method, considering residual value of 5% of the
cost of the asset, over the useful lives of the asset, as
specified in Schedule II of the Companies Act, 2013
except in case of following category of assets, where
useful life is determined by technical experts. The
useful life estimated by the technical experts is as
under:
For these classes of assets, based on technical
evaluation carried out by external technical experts,
the Company believes that the useful lives as given
above best represent the period over which Company
expects to use these assets. Hence, the useful lives
for these assets are different from the useful lives
as prescribed under Part C of Schedule II of the
Companies Act 2013.
Freehold land is not depreciated.
The estimated useful lives and residual values of
depreciable/ amortisable assets are reviewed at each
year end, with the effect of any changes in estimates
accounted for on a prospective basis.
Where the historical cost of a depreciable asset
undergoes a change, the depreciation on the revised
unamortised depreciable amount is provided over
the residual useful life of the asset. Depreciation on
addition/ deletion during the year is provided on pro¬
rata basis with reference to the month of addition/
deletion. Assets costing up to ' 5000/- are fully
depreciated in the year in which they are put to use.
Depreciation on capital spares is provided over the
useful life of the spare or remaining useful life of the
mother asset, as reassessed, whichever is lower.
3.3 Intangible assets
Company has elected to continue with the carrying
value of its Intangible assets recognised as of April 1,
2015 (transition date) measured as per the Previous
GAAP and used that carrying value as its deemed cost
as on the transition date as per Para D7AA of Ind AS
101.
Mining Rights
Mining rights are treated as Intangible Assets and all
related costs thereof are amortised using the unit of
production basis over the commercially recoverable
reserves. In case the mining rights are not renewed,
the balance related cost paid is charged to revenue in
the year of decision of non-renewal.
Acquisition Cost i.e. cost associated with acquisition
of licenses, and rights to explore including related
professional fees, payment towards statutory forestry
clearances, as and when incurred, are treated as
addition to the Mining Rights.
Other Intangible Assets
Other intangible assets are amortised on straight¬
line method over the expected duration of benefits.
Software, which is not an integral part of related
hardware, is treated as intangible asset and amortised
over a period of five years or its licence period,
whichever is less.
Research and development
Development expenditure is capitalised only if
it can be measured reliably and the related asset
and process are identifiable and controlled by
the Company Research and other development
expenditure is recognised as revenue expenditure as
and when incurred.
3.3.1 Subsequent Cost
Subsequent expenditure is capitalised only when it
increases the future economic benefits embodied
in the specific asset to which it relates. All other
expenditure is recognised in the Statement of Profit
and Loss.
3.3.2 De-recognition of intangible assets
An intangible asset is derecognised on disposal, or
when no future economic benefits are expected
from use or disposal. Gains or losses arising from
derecognition of an intangible asset, measured as
the difference between the net disposal proceeds
and the carrying amount of the asset are recognised
in the statement of profit and loss when the asset is
derecognised.
3.4 Stripping Cost
The stripping cost incurred during the production
phase of a surface mine is recognised as a component
of the mining asset if such cost provides a benefit in
terms of improved access to ore in future periods and
following criteria are met:
• It is probable that the future economic benefits
(improved access to an ore body) associated with
the stripping activity will flow to the entity,
• The entity can identify the component of an ore
body for which access has been improved, and
• The costs relating to the improved access to that
component can be measured reliably.
The expenditure, which cannot be specifically
identified to be incurred to access ore is charged to
revenue, based on stripping ratio as per five-year
mining plan for mines, except collieries which is
based on project report.
3.5 Impairment of Non-Financial Assets
The Company reviews the carrying amount of its
assets on each Balance Sheet date for the purpose
of ascertaining impairment indicators if any, by
considering assets of entire one Plant as Cash
Generating Unit (CGU). If any such indication exists,
the assets' recoverable amount is estimated, as higher
of the Net Selling Price and the Value in Use. An
impairment loss is recognised whenever the carrying
amount of an asset exceeds its recoverable amount.
An assessment is made at each balance sheet date
to determine whether there is an indication that
previously recognised impairment losses no longer
exist or have decreased. If such indication exists, the
Company estimates the asset's or CGU's recoverable
amount. A previously recognised impairment
loss is reversed only if there has been a change
in the assumptions used to determine the asset's
recoverable amount since the last impairment loss
was recognised.
3.6 Borrowing costs
Borrowing costs directly attributable to the
acquisition or construction of a qualifying asset,
which takes substantial period of time, are capitalised
as a part of the cost of that asset, during the period
of time that is necessary to complete and prepare
the asset for its intended use. Borrowing cost also
includes exchange differences to the extent regarded
as an adjustment to the borrowing costs.
The Company considers a period of twelve months or
more as a substantial period of time.
Transaction costs in respect of long-term borrowings
are amortised over the tenor of respective loans
using effective interest method and included within
borrowing costs. All other borrowing costs are
recognised in the Statement of Profit and Loss in the
period in which these are incurred.
3.7 Inventories
Raw materials, Stores & Spares and Finished/Semi-
finished products (including process scrap) are valued
at lower of cost and net realisable value of the items
of the respective Plants/Units. In case of identified
obsolete/ surplus/ non-moving items, necessary
provision is made and charged to revenue. The net
realisable value of semi-finished special products,
which have realisable value at finished stage only, is
estimated for the purpose of comparison with cost.
Immaterial By-products, Residue products and other
scrap are valued at estimated net realisable value.
The basis of determining cost is:
Raw materials - Periodical weighted average cost
Minor raw materials - Moving weighted average cost
Stores & Spares - Moving weighted average cost
Materials in-transit - at cost
The sub-grade iron ore fines and Tailings generated
over time at the captive mines of the Company have
been considered as inventory w.e.f. 01.04.2019 and
01.04.2020 respectively and were assigned values in
the books of accounts considering it as immaterial
by-products.
De-silted Tailings (Slime) have been considered as
inventory to the extent of % age quantity of iron ore
embedded in the Tailings and valued at lower of cost
minus beneficiation charges in the year of recognition
and net realisable value.
The cost of Iron scrap embedded in BF Slag has been
calculated at 75% of the variable cost of Hot Metal
minus the cost of extraction of scrap in the year of
recognition and valued at lower of cost and net
realisable value of the item.
The cost of Steel scrap embedded in LD Slag has
been calculated at 75% of the variable cost of Crude
Steel minus the cost of extraction of scrap in the year
of recognition and valued at lower of cost and net
realisable value of the item.
Finished/Semi-finished products Cost of purchase,
cost of conversion and other appropriate share of
costs including manufacturing overheads incurred
in bringing them to their respective present location
and condition.
3.8 Government Grants
Government grants are recognised when there is
reasonable assurance that the Company will comply
with the conditions attaching to them and that the
grants will be received.
Government grants are recognised in Statement of
Profit & Loss on a systematic basis over the periods
in which the Company recognises as expenses the
related costs for which the grants are intended to
compensate. Where the Grant relates to an asset
value, it is recognised as deferred income, and
amortised over the expected useful life of the asset.
Other grants are recognised in the statement of Profit
& Loss concurrent to the expenses to which such
grants relate/ are intended to cover.
Where the Company receives non-monetary grants,
the asset and the grant are recorded gross at fair
amounts and released to the income statement over
the expected useful life and pattern of consumption
of the benefit of the underlying asset.
3.9 Foreign Currency Transactions
Foreign currency transactions are translated into
the functional currency of the Company using
the exchange rates prevailing at the date of the
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.
Non-monetary items are not retranslated at period-
end and are measured at historical cost (translated
using the exchange rates at the transaction date),
except for non-monetary items measured at fair value
which are translated using the exchange rates at the
date when fair value was determined.
The Company opted for accounting the exchange
differences arising on reporting of long term foreign
currency monetary items in line with Companies
(Accounting Standards) Amendment Rules, 2009
relating to Accounting Standard-11 (Revised)
notified by Government of India on 31st March, 2009
(as amended on 29th December, 2011), which will
continue in accordance with Ind-AS 101 for all pre¬
existing long term foreign currency monetary items as
at 31st March, 2016. Accordingly, for foreign currency
loans taken before 31st March, 2016, for adjustments
arising from exchange rate variations relating to long
term monetary items attributable to the depreciable
fixed assets are capitalised. For foreign currency loans
taken after 31st March 2016, exchange differences
arising on settlement or translation of long term
monetary items are recognised in statement of profit
or loss.
Exchange differences arising on the re-translation or
settlement of other monetary items are included in
the Statement of profit and loss for the period.
3.10 Employee Benefits
Defined Contribution Plan
A defined contribution plan is a post-employment
benefit plan under which the Company pays fixed
contributions to a separate entity. Payment to
defined contribution benefit plans are recognised as
an expense when employees have rendered service
entitling them to the contributions. Contributions
towards Pension Funds are charged to the Statement
of Profit and Loss of the period when the contributions
to the Funds are due.
Defined Benefit Plan
Defined benefit plans are the amount of the benefit
that an employee will receive on completion of
services by reference to length of service, last
drawn salary or direct costs related to such benefits.
The legal and/ or constructive obligation for such
benefits remains with the Company.
The liability recognised for Defined Benefit Plans is
the present value of the Defined Benefit Obligation
(DBO) at the reporting date less the fair value of plan
assets, together with adjustments for unrecognised
actuarial gains or losses and past service costs. The
management estimates the present value of the
DBO annually through valuations by an independent
actuary using the projected unit credit method.
Actuarial gains and losses are included in Statement
of Profit and Loss or Other Comprehensive Income of
the year.
Remeasurement, comprising of actuarial gains and
losses, the effect of the changes to the asset ceiling (if
applicable) and the return on plan assets (excluding
interest), is reflected in the Balance Sheet with a
charge or credit recognised in other comprehensive
income in the period in which they occur.
Remeasurement recognised in other comprehensive
income is reflected immediately in retained earnings
and will not be reclassified to the Statement of Profit
and Loss.
Short Term Employee Benefits
Short term employee benefits comprise of employee
costs such as salaries, bonus, ex-gratia, annual leave
and sick leave which are accrued in the year in which
the associated services are rendered by employees of
the Company.
Liabilities recognised in respect of short-term
employee benefits are measured at the undiscounted
amount of the benefits expected to be paid in
exchange for the related services.
Expenditure incurred on Voluntary Retirement
Scheme is charged to the Statement of Profit and Loss
immediately.
3.11 Revenue Recognition
The Company manufactures and sells a range of steel
and other products.
Sale of Goods
Sales are net of Goods and Services Tax (GST),
rebates and price concessions. Sales are recognised
when it satisfies performance obligation by
transferring promised goods or services (i.e. assets)
to the customers and the customers obtain control
of those goods or services. Where the contract
prices are not finalised with government agencies,
sales are accounted for on provisional basis. In case
of rails supplied to the Indian Railways, sales are
accounted for based on the final price approved by
the Railway Board. However, in absence of the same,
sales are considered on the latest price available
with the Company i.e. provisional price approved
by the Railway Board, or fair price recommended
by the Office of the Chief Advisor-Cost, or price as
recommended by the Joint Pricing Committee (JPC).
Marine export sales are recognised on:
i) the issue of bill of lading, or
ii) negotiation of export bills upon expiry of laycan
period, in cases where realisation of material
value without shipment is provided in the letter
of credit of respective contracts, whichever is
earlier.
Other Operating Income
Export incentives under various schemes are
recognised as "Other Operating Income" when the
right to receive incentives arises and the realisation
of the same is considered highly probable.
Other Income
Interest and dividend income
Interest income is accrued on a time proportion basis,
by reference to the principal amount outstanding
and the effective interest rate applicable.
Interest on delayed realization from customers are
accounted for, when there is certainty of realisation
and can be measured reliably.
Dividend income is recognised when the right to
receive dividend is established.
3.12 Leases
At the inception of a contract, the Company assesses
whether a contract is, or contains a lease based on
whether the contract conveys the right to control
the use of an identified asset for a period of time in
exchange for consideration.
Company as a Lessee
The Company recognises a right-of-use asset and
a lease liability at the lease commencement date
except for short-term leases of twelve months or less
and leases for which the underlying asset is of low
value, which are expensed in the statement of Profit
& Loss on a straight-line basis over the lease term. The
right-of-use asset is initially measured at cost, which
comprises the initial amount of the lease liability
adjusted for any lease payments made at or before
the commencement date, plus any initial direct
costs incurred and an estimate of costs to dismantle
and remove the underlying asset or to restore the
underlying asset or the site on which it is located, less
any lease incentives received.
The right-of-use asset is subsequently depreciated
using the straight-line method from the
commencement date to the earlier of the end of the
useful life of the right-of-use asset or the end of the
lease term. Certain lease arrangements include the
options to extend the lease term. Right-of use assets
and lease liabilities include these options when it
is reasonably certain that they will be exercised.
The estimated useful lives of right-of-use assets are
determined on the same basis as those of property,
plant and equipment. In addition, the right-of-
use asset is periodically reviewed for indicators of
impairment and reduced by impairment losses, if
any, and adjusted for certain re-measurements of the
lease liability.
The lease liability is initially measured at the present
value of the lease payments that are not paid at
the commencement date, discounted based on the
interest rate implicit in the lease or if that rate cannot
be readily determined, the Company's incremental
borrowing rate
The lease liability is measured at amortised cost using
the effective interest method. It is remeasured when
there is a change in future lease payments arising
from a change in an index or rate, if there is a change
in the Company's estimate of the amount expected to
be payable under a residual value guarantee, or if the
Company changes its assessment of whether it will
exercise a purchase, extension or termination option.
When the lease liability is re measured, a
corresponding adjustment is made to the carrying
amount of the right-of-use asset, or is recorded in
profit or loss if the carrying amount of the right-of-
use asset has been reduced to zero.
Company as a Lessor
Finance leases
Leases which effectively transfer to the lessee
substantially all the risks and rewards incidental
to ownership of the leased item are classified and
accounted for as finance lease. Lease rental receipts
are apportioned between the finance income and
capital repayment based on the implicit rate of
return. Contingent rents are recognised as revenue in
the period in which they are earned.
Operating leases
Leases in which the Company does not transfer
substantially all the risks and rewards of ownership
of an asset are classified as operating leases. The
respective leased assets are included in the balance
sheet based on their nature. Rental income is
recognized on straight-line basis over the lease term
except where scheduled increase in rent compensates
the Company with expected inflationary costs.
3.13 Non-current assets held for sale
Company classifies a non-current asset as held for sale
if its carrying amount will be recovered principally
through a sale transaction. This condition is regarded
as met only when the asset is available for immediate
sale in its present condition and its sale is highly
probable.
Non-current assets including discontinued
operations, classified as held for sale are measured at
the lower of the carrying amounts and fair value less
costs to sell and presented separately in the financial
statements. Once classified as held for sale, the assets
are not subject to depreciation or amortisation.
Any profit or loss arising from the sale or re¬
measurement of discontinued operations is
presented as part of a single line item in Statement of
Profit and Loss.
3.14 Mine Closure
Mine Closure Provision includes the dismantling and
demolition of infrastructure, the removal of residual
materials and the remediation of disturbed areas
for mines. This provision is based on all regulatory
requirements and related estimated cost based on
best available information. Mine closure costs are
provided for in the accounting period when the
obligation arises based on the net present value
of the estimated future costs of restoration to be
incurred during the life of the operation and post
closure.
|