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 amortized 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 amortized 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
Intangible 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 Ind-AS 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.
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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