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, nonrefundable 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 prorata 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 straightline 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 preexisting 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 remeasurement 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.
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