note-2A material accounting policies
The standalone financial statements have been prepared
to comply in all material aspects with Indian Accounting
Standards (Ind AS) notified under the Companies (Indian
Accounting Standards) Rules, 2015 (as amended) under
Section 133 and other provisions of the Companies Act,
2013 and the regulations under the Electricity Act, 2003 to
the extent applicable. A summary of material accounting
policies which have been applied consistently are set out
below.
(a) Basis of Accounting
The financial statements have been prepared on the
historical cost convention except for the following:
i. Investments, except investment in subsidiaries
and Joint venture, are carried at fair value.
ii. Certain financial assets and liabilities are
measured at fair value.
(b) Use of estimates
As required under the provisions of Ind AS for
preparation of financial statements in conformity
thereof, the management has made judgements,
estimates and assumptions that affect the application
of accounting policies, and the reported amount
of assets, liabilities, income, and expenses and
disclosures. Actual results may differ from these
estimates. Estimates and underlying assumptions are
reviewed on a periodic basis. Revisions to accounting
estimates are recognized in the period in which the
estimates are revised and future periods affected.
(c) Property, plant and equipment (PPE) and
Depreciation
Tangible Assets are stated either at deemed cost as
considered on the date of transition to Ind- AS or
at cost of acquisition / construction together with
any incidental expenses related to acquisition and
appropriate borrowing costs, less accumulated
depreciation and accumulated impairment loss, if any.
An impairment loss is recognized where applicable,
when the carrying value of tangible assets of cash
generating unit exceed its fair value or value in use,
whichever is higher.
In terms of applicable Regulations under the
Electricity Act, 2003, depreciation on tangible assets,
other than freehold land is provided on straight line
method on a pro rata basis at the useful life specified
therein, the basis of which is considered by the West
Bengal Electricity Regulatory Commission (WBERC/
Commission) in determining the tariff for the year
of the Company. Leasehold land is amortised over
the unexpired period of the lease as appropriate.
Additional charge of depreciation for the year on
increase in value arising from fair valuation on date
of transition to Ind AS, is recouped from Retained
Earnings. Leasehold improvement is amortised over
the unexpired period of the lease.
As per amended Tariff Regulations, Advance against
Depreciation (AAD) relating to years, in respect of
which loans are fully repaid at the beginning of the
year, is determined and adjusted with the block of
asset for computation of net amount of depreciation
claimable by the Company under the Tariff setting
mechanism.
(d) Investment properties
Property that is held for long term rental yields is
classified as investment property. Carrying amount as
per previous GAAP has been considered as deemed
cost as on date of transition to Ind AS.
(e) Intangible Assets and amortisation
I ntangible assets comprising computer software and
mining rights, expected to provide future enduring
economic benefits are stated either at deemed cost
as considered on date of transition to Ind AS or at
cost of acquisition / implementation / development
less accumulated amortisation. The present value of
the expected cost of restoration of the coal mine is
included in its cost. An impairment loss is recognized
where applicable, when the carrying value of
intangible assets of cash generating unit exceed its
fair value or value in use, whichever is higher.
Cost of intangible assets, comprising computer
software related expenditure, are amortised over the
estimated useful life of three years. Mining rights are
amortised over the estimated useful life of the assets
of twenty years based on management's internal
assessment.
(f) Lease
Company as a lessee
The Company's lease asset classes primarily consist
of leases for land, plant & equipment, buildings and
offices. The Company assesses whether a contract
contains a lease, at the inception of a contract.
At the date of commencement of the lease, the
Company recognizes a right of use asset (ROU) and a
corresponding lease liability for all lease arrangements,
in which it is a lessee, except for leases with a term of
twelve months or less (short-term leases), non lease
components (like maintenance charges, etc.) and
leases of low value assets.
For these short-term leases, non lease components
and lease of low value assets, the Company recognizes
the lease rental payments as an operating expense.
Certain lease arrangements includes the options to
extend or terminate the lease before the end of the
lease term, that are factored when it is reasonably
certain that they will be exercised.
The right-of-use assets are initially recognized at cost,
which comprises the initial amount of the lease liability
adjusted for any lease payments made at or prior to
the commencement date of the lease plus any initial
direct costs. They are subsequently measured at
cost less accumulated depreciation and impairment
losses, if any. An impairment loss is recognised where
applicable, when the carrying value of ROU assets of
cash generating units exceeds its fair value or value in
use, whichever is higher.
Right-of-use assets are depreciated on a straight-line
basis over the lease term.
The lease liabilities are initially measured at the present
value of the future lease payments.
Company as a lessor
Leases for which the Company is a lessor is classified
as a finance or operating lease. Whenever the terms of
the lease transfer substantially all the risks and rewards
of ownership to the lessee, the contract is classified
as a finance lease. All other leases are classified as
operating leases.
(g) Financial asset
The financial assets are classified in the following
categories:
1) Financial assets measured at amortised cost.
2) Financial assets measured at fair value through
profit and loss.
3) Equity instruments.
The classification of financial assets depends on the
Company's business model for managing financial
assets and the contractual terms of the cash flow.
At initial recognition, the financial assets are measured
at their fair value.
Financial assets measured at amortised cost
Assets that are held for collection of contractual cash
flows and where those cash flows represent solely
payments of principal and interest are measured
at amortised cost. After initial measurement, such
financial assets are subsequently measured at
amortised cost using the effective interest rate
method. The losses arising from impairment are
recognised in the Statement of Profit and Loss.
Financial instruments measured at fair value through
profit and loss (FVTPL)
Financial instruments included within fair value
through profit and loss category are measured
initially as well as at each reporting period at fair
value plus transaction costs as applicable. Fair value
movements are recorded in Statement of Profit and
Loss. Investments in mutual funds are measured at fair
value through profit and loss.
Equity instruments
Equity investments in scope of Ind AS 109 are
measured at fair value. At initial recognition, the
Company makes an irrevocable election to present
in other comprehensive income subsequent changes
in the fair value. If the Company decides to classify
an equity instrument as at fair value through other
comprehensive income (FVTOCI), then all fair value
changes on the instrument, excluding dividends, are
recognized in the other comprehensive income (OCI).
Investment in subsidiaries and joint ventures are
carried at cost or at deemed cost as considered
on the date of transition to IndAS less provision
for impairment loss, if any. Investments are tested
for impairment 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 asset's carrying amount
exceeds its recoverable amount.
In terms of applicable Indian Accounting Standard,
Interest free long term loans to wholly owned
subsidiaries engaged in infrastructural activity are
bifurcated into loan receivables and deemed equity
contribution based on terms of the contract. On
the transaction date, the fair value of loan given
is determined using a market rate. The amount
is classified as a loan (financial asset) measured
at amortised cost including notional interest. The
remainder of the proceeds is allocated to interest
free component that is recognised and included
in Investments. The carrying amount of the above
Investments is not remeasured in subsequent years.
impairment of financial assets
The Company assesses on a forward looking basis the
expected credit losses associated with its unsecured
a ssets carried at a mortised cost. The impairment
methodology applied depends on whether there has
been a significant increase in credit risk.
For trade receivables the simplified approach of
expected life time losses has been used from initial
recognition of the receivables as required by Ind AS
109 Financial Instruments.
(h) Financial liabilities
Financial liabilities are measured at amortised cost
using the effective interest rate method.
Cost of commitment for borrowings of subsidiaries are
recognised as a liability at the time such commitment
is issued. The liability is initially measured at fair value
and subsequently at the amount initially recognised
less cumulative amortisation.
(i) Derivatives
The Company uses derivative financial instruments
such as forward currency contracts and interest
rate swaps to hedge its foreign currency risks and
interest rate risks respectively. Such derivative financial
instruments are recognised at fair value. Derivatives
are carried as financial assets when the fair value is
positive and as financial liabilities when the fair value
is negative. Gains or losses arising from such fair
valuation of derivatives also give rise to regulatory
income or expense which is recognised through
Statement of Profit and Loss and would be considered
in determining the Company's future tariff as per the
tariff regulations.
(J) inventories
Inventories of stores, fuel and traded goods are valued
at lower of cost and net realizable value. Cost is
calculated on weighted average basis and comprises
expenditure incurred in the normal course of business
in bringing such inventories to their present location
and condition.
Obsolete and slow moving inventories are identified
at the time of physical verification and provided for,
where necessary.
(k) Foreign Currency Transactions
The Company's financial statements are presented
in INR which is also the functional currency of the
Company. Transactions in foreign currency, if any, are
accounted for at the exchange rate prevailing on the
date of transactions. Transactions remaining unsettled
are translated at the exchange rate prevailing at the
end of the financial year. Exchange gain or loss arising
on settlement/ translation of monetary items is
recognized in the Statement of Profit and Loss.
The outstanding loans repayable in foreign currency,
if any, are restated at the year-end exchange rate.
Exchange gain or loss arising in respect of such
restatement also gives rise to regulatory income
or expense which is recognised as refundable or
recoverable, which will be taken into consideration in
determining the Company's future tariff in respect of
amount settled duly considering impact of derivative
contracts entered into for managing risks thereunder.
(l) Cash and cash equivalents
Cash and cash equivalents in the balance sheet
comprise cash at banks, cash on hand and term
deposits with original maturity of three months or
less.
For the purpose of presentation in the Cash Flow
Statement, cash and cash equivalents includes cash,
cheques and draft on hand or Balances with banks
which are unrestricted for withdrawal/usages and
highly liquid financial investments that are readily
convertible to known amounts of cash which are
subject to an insignificant risk of changes in value.
Bank overdrafts are shown within borrowings in
current liabilities in the balance sheet.
(m) Revenue from Operations
Revenue from contracts with customers is recognised
on supply of electricity or when services are rendered
to the customers at an amount that reflects the
consideration to which the Company is entitled under
appropriate regulatory framework.
Revenue to be earned from sale of electricity is
regulated based on parameters set out in tariff
regulations issued from time to time.
Earnings from sale of electricity are net of discount for
prompt payment of bills and do not include electricity
duty collected from consumers and payable to the
State Government.
The Company receives contribution from consumers
in accordance with the applicable Regulation,
that is being used to construct or acquire items of
property, plant and equipment in order to connect
the consumer to the Company's distribution network.
The Company recognises revenue in respect of such
contributions when the performance obligations are
met.
I ncome from meter rent is accounted for as per the
approved rates.
(n) Other Income
Income from investments and deposits, User fee
income from investment property, etc is accounted
on accrual basis as per contractual terms. Delayed
Payment Surcharge, as a general practice, is
determined and recognised on receipt of overdue
payment from consumers. Interest income arising
from financial assets is accounted for using amortised
cost method. Dividend Income is recognised when
the right to receive is established.
(o) Employee Benefits
The Company recognises contributions to provident
fund and pension funds on an accrual basis. Provident
Fund contributions are made to a fund administered
through duly constituted approved independent
trust. The interest rate payable to the members of
the trust shall not be lower than the statutory rate of
interest declared by the Central Government under
the Employees' Provident Funds and Miscellaneous
Provisions Act, 1952 and deficiency, if any, is made
good by the Company, impact of which is ascertained
by way of actuarial valuation as at the year end.
The Company, as per its schemes, extends employee
benefits current and/or post retirement which are
accounted for on accrual basis, based on actuarial
valuation as at the Balance Sheet date in respect
of gratuity, leave encashment and certain other
retiral benefits. Actuarial gains and losses, are
recognised through Other Comprehensive Income.
Compensation in respect of voluntary retirement
scheme is charged as an expense.
(p) Finance Costs
Finance Costs comprise interest expenses applicable
gain / loss on foreign currency borrowings in
appropriate cases and other borrowing costs. Finance
costs attributable to acquisition and / or construction
of qualifying assets are capitalized as a part of cost of
such assets up to the date such assets are ready for
their intended use. Finance Costs in case of foreign
currency borrowings is accounted for as appropriate,
duly considering the impact of the derivative contracts
entered into for managing risks thereof. Interest
expense arising from financial liabilities is accounted
for under effective interest rate method.
(q) Taxes
Current tax represents the amount payable based on
computation as per prevailing taxation laws under the
Income Tax Act, 1961.
Provision for deferred taxation is made using liability
method on temporary difference arising between the
tax bases of assets and liabilities and their carrying
amounts in the financial statements using tax rates
(and laws) that have been enacted or substantially
enacted by the end of the reporting period and are
expected to apply when the related deferred tax
asset is realised or the deferred tax liability is settled.
Deferred Tax Assets are recognized subject to the
consideration of prudence and are periodically
reviewed to reassess realization thereof. Deferred Tax
Liability or Asset will give rise to actual tax payable or
recoverable at the time of reversal thereof.
Current and Deferred tax relating to items
recognised outside profit or loss, that is either in
other comprehensive income (OCI) or in equity, is
recognised along with the related items.
The Company reviews the MAT credit entitlement at
each reporting date and recognises the credit against
the tax payable to the extent that it is probable that
it will be able to utilise the same against normal tax
during the specified period.
Since tax on profits forms part of claimable expenditure
under the applicable regulations, current tax liability
and deferred tax liability or asset is recoverable or
payable, through future tariff. Hence, recognition of
current tax liability and deferred tax asset or liability
is done with corresponding recognition of regulatory
liability or asset, to the extent applicable.
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