Note 2a: Material accounting policies
2.1 Basis of preparation:
Compliance with Ind AS
The financial statements are in compliance, in all material aspects, with Indian Accounting Standards (Ind AS) notified
under Section 133 of the Companies Act, 2013 (the Act) read with the [Companies (Indian Accounting Standards)
Rules, 2015] and other relevant provisions of the Act and rules made thereunder.
Historical cost convention
The financial statements have been prepared on the historical cost basis except for following which have been
measured at fair value;
- Defined benefit plan assets
- Certain financial assets and liabilities (including derivative instruments) is measured at fair value
All assets and liabilities have been classified as current or non-current as set out in the Schedule III (Division II) to the
Companies Act, 2013.
2.2 Business combinations and Goodwill:
Business combination - acquisition
Acquisitions of businesses are accounted for using the acquisition method. In determining whether a particular set of
activities and assets is a business, the Company assesses whether the set of assets and activities acquired includes,
at a minimum, an input and substantive process and whether the acquired set has the ability to produce outputs. The
consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the
acquisition-date fair values of the assets transferred, liabilities incurred to the former owners of the acquiree and the
equity interests issued by the Company in exchange for control of the acquiree.
Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are, with limited
exceptions, measured initially at their fair values at the acquisition date.
Acquisition-related costs are expensed as incurred.
The excess of the
- consideration transferred; and
- acquisition-date fair value of any previous equity interest in the acquired entity
over the fair value of the net identifiable assets acquired is recorded as goodwill. If those amounts are less than the
fair value of the net identifiable assets of the business acquired, the difference is recognised in other comprehensive
income and accumulated in equity as capital reserve provided there is clear evidence of the underlying reasons for
classifying the business combination as a bargain purchase. In other cases, the bargain purchase gain is recognised
directly in equity as capital reserve.
Business combination - common control transaction
Business combinations involving entities that are controlled by the Company are accounted for using the pooling of
interests method as follows:
- The assets and liabilities of the combining entities are reflected at their carrying amounts.
- No adjustments are made to reflect fair values or recognise any new assets or liabilities. Adjustments are only
made to harmonise accounting policies.
- The financial information in the financial statements in respect of prior periods is restated as if the business
combination had occurred from the beginning of the preceding period in the financial statements, irrespective of
the actual date of the combination. However, where the business combination had occurred after that date, the
prior period information is restated only from that date.
- The balance of the retained earnings appearing in the financial statements of the transferor is aggregated
with the corresponding balance appearing in the financial statements of the transferee or is adjusted against
general reserve.
- The identity of the reserves is preserved and the reserves of the transferor become the reserves of the transferee.
- The difference, if any, between the amounts recorded as share capital issued plus any additional consideration in
the form of cash or other assets and the amount of share capital of the transferor is transferred to capital reserve
and is presented separately from other capital reserves.
Business combination-related costs are generally recognised in statement of profit and loss as incurred.
Acquisition of an asset or a group of assets
In case of acquisition of an asset or a group of assets that does not constitute a business, the Company identifies and
recognises individual identifiable assets acquired (including those assets that meet the definition of, and recognition
criteria for, intangible assets under Ind AS 38, Intangible Assets) and liabilities assumed. The Purchase Consideration
shall be allocated to the individual identifiable assets and liabilities on the basis of their relative fair values at the date
of purchase. Such a transaction or event does not give rise to goodwill or gain on bargain purchase.
Goodwill
Goodwill on acquisitions of subsidiaries is included in intangible assets. Goodwill is not amortised but is tested for
impairment annually, or more frequently if events or changes in circumstances indicate that it might be impaired and
is carried at cost less accumulated impairment losses. Gains and losses on the disposal of a business include the
carrying amount of goodwill relating to such business.
Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is made to those
cash-generating units that are expected to benefit from the business combination in which the goodwill arose.
2.3 Investments in subsidiaries, joint ventures and associates:
Investments in associates, joint ventures and subsidiaries are measured at cost less provision for impairment, if any.
2.4 Property, plant and equipment:
Freehold land is carried at historical cost. All other items of property, plant and equipment held for use in the production
or supply of goods or services, or for administrative purposes, are stated in the balance sheet at cost less accumulated
depreciation and accumulated impairment losses except that on adoption of Ind AS, property, plant and equipment
had been measured at deemed cost, using the net carrying value as per previous GAAP as at April 01, 2015.
Capital work in progress in the course of construction for production, supply or administrative purposes is carried
at cost, less any recognised impairment loss. Cost includes purchase price, taxes and duties, labour cost and
other directly attributable costs incurred upto the date the asset is ready for its intended use. Such property, plant
and equipment are classified to the appropriate categories when completed and ready for intended use. Directly
attributable costs are capitalized until the asset is ready to use in accordance with the Company’s accounting policy
of capitalization.
Subsequent cost 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. Subsequent costs relating to day to day servicing of the item are not recognised in
the carrying amount of an item of property, plant and equipment; rather, these costs are recognised in profit or loss
as incurred.
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 the sales proceeds and the carrying
amount of the asset and is recognised in profit or loss.
Depreciation methods, estimated useful lives and residual value
Depreciation commences when the assets are ready for their intended use. Depreciation for the year is provided on
additions / deductions of the assets during the period from / up to the month in which the asset is added / deducted.
Depreciation on property, plant and equipment which are governed as per the provisions of Part B of Schedule II of
the Companies Act, 2013 is provided on straight line basis using the depreciation rates, the methodology and residual
value as notified by the respective regulatory bodies in accordance with the Electricity Act, 2003. For other property,
plant and equipment in non-regulated business, depreciation is provided on a straight line basis over the estimated
useful lives.
The estimated useful life, residual values and depreciation method are reviewed at the end of each reporting period
in respect of property, plant and equipment of non-regulated business. The effect of any such change in estimate in
this regard is accounted for on a prospective basis.
$ For assets acquired on or after April 01,2009 in case of Regulated generation and distribution business, remaining depreciable value as
on 31st March of the year closing after a period of 12 years from date on which assets are ready for their intended use, shall be spread
over the balance useful life of the assets as defined in GERC / CERC Multi Year Tariff (MYT) regulations.
2.5 Impairment of assets:
Property, plant and equipment (including Capital work-in-progress) and intangible assets are reviewed for impairment
losses whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An
impairment loss is recognized for the amount by which the carrying amount of the assets exceeds its recoverable
amount, which is the higher of an asset’s fair value less costs of disposal and value in use. Value in use is the present
value of the future cash flows expected to be derived from an asset or cash-generating unit. An impairment loss is
recognised immediately in profit or loss.
For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately
identifiable cash inflows which are largely independent of the cash inflows from other assets or groups of assets
(cash-generating units). Non-financial assets other than goodwill that suffered an impairment are reviewed for possible
reversal of the impairment at the end of each reporting period.
2.6 Borrowing costs:
Borrowing costs that are directly attributable to the acquisition and construction of qualifying assets, which are
assets that necessarily take a substantial period of time to get ready for their intended use, such as new projects and
/ or specific assets created in the existing business, are capitalized up to the date of completion and ready for their
intended use.
Income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is
deducted from the borrowing costs eligible for capitalisation.
Other borrowing costs are charged to the statement of profit and loss in the period of their accrual.
2.7 Cash and cash equivalents:
For the purpose of presentation in the statement of cash flows, cash and cash equivalents include cash on hand,
cheques / drafts on hand, current account balances with banks and other short-term, highly liquid investments with
original maturities of three months or less that are readily convertible to known amounts of cash and which are subject
to an insignificant risk of changes in value. Bank overdrafts are shown within borrowings in current liabilities in the
balance sheet.
2.8 Inventories:
Fuel, stores and spares, loose tools and traded goods are stated at the lower of cost and net realisable value. Cost
of inventories includes purchase price and all other costs incurred in bringing the inventories to their present location
and condition. Costs are assigned to individual items of inventory on the weighted average basis except for inventory
of Regasified Liquefied Natural Gas (RLNG) which is valued using specific identification method considering its
procurement for beneficiary usage or others. Costs of purchased inventory are determined after deducting rebates
and discounts.
Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion
and the estimated costs necessary to make the sale.
2.9 Revenue recognition:
Revenue towards satisfaction of a performance obligation is measured and recognized at transaction price, when the
control of the goods or services has been transferred to consumers net of discounts and other similar allowances.
(i) Revenue from power supply is accounted for in accordance with the rates, terms and conditions laid down under
the relevant Tariff Regulations / Tariff Orders notified by the Electricity Regulators / agreements entered with the
customers / power exchange rates, as applicable. Revenue recognised includes amounts billed to consumers on
the basis of recording of consumption of energy by installed meters based on the applicable tariff and adjustments
in respect of unbilled amounts towards revenue gaps / unapproved Fuel and Power Purchase Price Adjustment
(FPPPA) which are recognised considering applicable tariff regulations / tariff orders, past trends of approval,
management's probability estimate and when no significant uncertainty exists in such determination. Revenue
from power supply exclude taxes and duties.
These adjustments / accruals are carried forward as ‘Unbilled revenue’ under “Other current financial assets”
in Note 21, which would be adjusted through future billing based on tariff determination by the regulator in
accordance with the electricity regulations.
(ii) Trading of RLNG are recognised, net of returns and rebates, on transfer of control of ownership to the buyer.
Sales exclude Goods and Services Tax.
(iii) Gross proceeds from sale of Certified Emission Reduction Certificates (CERs) are recognized when all the control
of CERs have been passed to buyer, usually on delivery of the CERs.
(iv) Income from Generation Based Incentive is accounted on accrual basis considering eligibility of project for
availing incentive.
(v) Contributions by consumers towards items of property, plant and equipment, which require an obligation to
provide electricity connectivity to the consumers, are recognised as a credit to deferred revenue. Such revenue
is recognised in accordance with depreciation of such property, plant and equipment.
2.10 Foreign currency translation:
Functional and presentation currency
The financial statements are prepared in Indian rupee (I) which is functional as well as presentation currency of
the Company.
Transactions and balances
In preparing the financial statements of the Company, transactions in currencies other than the entity’s functional
currency (foreign currencies) are recognised at the rates of exchange prevailing at the dates of the transactions.
At the end of each reporting period, monetary items denominated in foreign currencies are retranslated at the rates
prevailing at that date.
Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.
Foreign exchange differences arising on foreign currency borrowings are presented in the Statement of profit and loss,
within finance costs. All other foreign exchange differences arising on settlement of monetary items or on reporting
the Company’s monetary items at rates different from those at which they were initially recorded during the financial
year are recognized as income or expense in the financial year in which they arise.
2.11 Employee benefits:
Defined contribution plans
Contributions to retirement benefit plans in the form of provident fund, employee state insurance scheme, pension
scheme and superannuation schemes as per regulations are charged as an expense on an accrual basis when
employees have rendered the service. The Company has no further payment obligations once the contributions have
been paid.
Defined benefits plans
The liability or asset recognised in the balance sheet in respect of the retirement benefit plan i.e. gratuity plan is the
present value of the defined benefit obligation at the end of the reporting period less the fair value of plan assets. The
defined benefit obligation is calculated by an actuary using projected unit credit method.
The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows
by reference to market yields at the end of the reporting period on government bonds that have terms approximating
to the terms of the related obligations.
The net interest cost is calculated by applying the discount rate to the net balance of the defined benefit obligation
and the fair value of the plan assets. This cost is included in the employee benefit expense in the statement of profit
and loss.
Remeasurements, comprising actuarial gains and losses and the effect of the changes to the asset ceiling (if applicable),
is reflected immediately in the balance sheet with a charge or credit recognised in other comprehensive income in the
period in which they occur and consequently recognised in retained earnings and is not reclassified to profit or loss.
The retirement benefit recognised in the balance sheet represents the actual deficit or surplus in the Company’s
defined benefit plans. Any surplus resulting from this calculation is limited to the present value of any economic benefits
available in the form of reductions in future contributions to the plans.
Other long-term employee benefit obligations
The liabilities for earned leave and sick leave are not expected to be settled wholly within 12 months after the end of
the period in which the employees render the related service. They are therefore measured as the present value of
expected future payments to be made in respect of services provided by employees up to the end of the reporting
period using the projected unit credit method. The benefits are discounted using the market yields at the end of the
reporting period that have terms approximating to the terms of the related obligation. Remeasurements as a result of
experience adjustments and changes in actuarial assumptions are recognised in profit or loss.
The said obligations are presented as current liabilities in the balance sheet if the entity does not have an unconditional
right to defer settlement for at least twelve months after the reporting period, regardless of when the actual settlement
is expected to occur.
2.12 Taxation:
Income tax expense represents the sum of the tax currently payable and deferred tax.
Current tax
The tax currently payable is based on estimated taxable income for the year in accordance with the provisions of
the Income Tax Act, 1961. Taxable profit differs from ‘profit before tax’ as reported in the statement of profit and loss
because of items of income or expenses that are taxable or deductible in other years and items that are never taxable
or deductible. Management periodically evaluates positions taken in the tax returns with respect to situations for which
applicable tax regulations are subject to interpretation and considers whether it is probable that a taxation authority
will accept an uncertain tax treatment. The Company measures its tax balances either based on the most likely amount
or the expected value, depending on which method provides a better prediction of the resolution of the uncertainty.
Advance taxes and provisions for current income taxes are offset with each other when there is a legally enforceable
right to offset and balances arise with the same tax authority.
Deferred tax
Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities in the
financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities
are generally recognised for all taxable temporary differences.
Deferred tax assets are generally recognised for all deductible temporary differences, unused tax losses and unused
tax credits to the extent that it is probable that taxable profits will be available against which those deductible
temporary differences can be utilised.
The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent
that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Deferred tax liabilities and assets are measured at the tax rates that are expected to apply in the period in which the
liability is settled or the asset realised, based on tax rates (and tax laws) that have been enacted or substantively
enacted by the end of the reporting period.
The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the
manner in which the Company expects, at the end of the reporting period, to recover or settle the carrying amount of
its assets and liabilities.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and
liabilities and when the deferred tax balances relate to the same taxation authority.
Deferred tax is recognised in profit or loss, except to the extent that it relates to items recognised in other comprehensive
income or directly in equity.
2.13 Earnings per share:
Basic earnings per share is computed by dividing the profit / (loss) by the weighted average number of equity shares
outstanding during the year.
Diluted earnings per share is computed by adjusting the figures used in the determination of basic EPS to take
into account:
- After tax effect of interest and other financing costs associated with dilutive potential equity shares.
- The weighted average number of additional equity shares that would have been outstanding assuming the
conversion of all dilutive potential equity shares.
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