NOTE-1A: MATERIAL ACCOUNTING POLICIES
I. CORPORATE INFORMATION
The financial statements of "Indian Oil Corporation Limited” ("the Company” or "IOCL”) are for the year ended March 31, 2024.
The Company is a public limited company incorporated and domiciled in India. Its shares are listed on Bombay Stock Exchange and National Stock Exchange in India. The registered office of the Company is located at Indian Oil Bhavan, G-9, Ali Yavar Jung Marg, Bandra (East), Mumbai.
Indian Oil is India's flagship Maharatna national oil company with business interests straddling the entire hydrocarbon value chain - from refining, pipeline transportation & marketing, to exploration & production of crude oil & gas, petrochemicals, gas marketing, alternative energy sources and globalisation of downstream operations.
The financial statements have been approved for issue in accordance with a resolution of the Board of Directors passed in its meeting held on April 30, 2024.
II. MATERIAL ACCOUNTING POLICIES
1. Basis of preparation and statement of compliance
1.1 The financial statements have been prepared on accrual basis and in accordance with the applicable Indian Accounting Standards (Ind AS) prescribed under Section 133 of the Companies Act, 2013 ("the Act”) read with the Companies (Indian Accounting Standards) Rules and other relevant provisions of the Act and Rules thereunder, as amended from time to time.
1.2 The financial statements have been prepared on a historical cost basis, except for the following assets and liabilities which have been measured at fair value:
- Derivative financial instruments,
- Certain financial assets and liabilities measured at fair value (refer serial no. 16 of accounting policies regarding financial instruments) and
- Plan assets related to employee benefits (refer serial no. 12 of accounting policies regarding employee benefits)
1.3 The financial statements are presented in Indian Rupees (H) which is Company's presentation and functional currency and all values are rounded to the nearest crore (up to two decimals) except when otherwise indicated.
2. Property, Plant and Equipment (PPE) and Intangible Assets
2.1 Property, Plant and Equipment (PPE)
2.1.1 Property, Plant and Equipment (PPE) are stated in the Balance Sheet at cost, less any accumulated depreciation and accumulated impairment losses (if any), except freehold land which are carried at historical cost.
2.1.2 Technical know-how / licence fee relating to plants/ facilities and specific software that are integral part of the related hardware are capitalised as part of cost of the underlying asset.
2.1.3 Spare Parts are capitalized when they meet the definition of PPE, i.e., when the Company intends to use these for a period exceeding 12 months.
2.1.4 Environment responsibility related obligations directly attributable to projects is recognized as project cost on the basis of progress of project or on actual incurrence, whichever is higher.
2.1.5 On transition to Ind AS, the Company has elected to continue with the carrying value of all of its PPE recognized as at April 1, 2015 measured as per the previous GAAP and use that carrying value as the deemed cost of the PPE.
2.2 Capital Work in Progress (CWIP)
2.2.1 Expenditure incurred on assets under construction (including a project) is carried at cost under CWIP.
2.2.2 Construction Period Expenses
Revenue expenses exclusively attributable to projects incurred during construction period are capitalized.
Borrowing cost incurred during construction period on loans specifically borrowed and utilized for projects is capitalized on quarterly basis up to the date of capitalization.
Borrowing cost, if any, incurred on General Borrowings used for projects is capitalized at the weighted average cost of all borrowings other than those mentioned above. The amount of such borrowings is determined on quarterly basis after setting off the amount of internal accruals.
2.2.3 Capital Stores
Capital Stores are valued at weighted average cost. Specific provision is made for likely diminution in value, wherever required.
2.3 Intangible Assets & Amortisation
2.3.1 Technical know-how / licence fee relating to production process and process design are recognized as Intangible Assets and amortised on a straight-line basis over the life of the underlying plant/ facility.
2.3.2 Expenditure incurred in research phase is charged to revenue and that in development phase, unless it is of capital nature, is also charged to revenue.
2.3.3 Cost incurred on computer software/licences purchased/ developed resulting in future economic benefits, other than specific software that are integral part of the related hardware, are capitalized as Intangible Asset and amortised over a period of three years beginning from the
month in which such software/ licences are capitalized. However, where such computer software/ licence is under development or is not yet ready for its intended use, accumulated cost incurred on such items are accounted as "Intangible Assets Under Development”.
2.3.4 Right of ways with indefinite useful lives are not amortised but tested for impairment annually at the cash-generating unit level. The assessment of indefinite life is reviewed annually to determine whether the indefinite life continues to be supportable. If not, the change in useful life from indefinite to finite is made on a prospective basis.
2.3.5 Intangible Assets acquired are measured on initial recognition at cost. The cost of Intangible Assets acquired in a business combination is based on its fair value at the date of acquisition. Following initial recognition, Intangible Assets are carried at cost less any accumulated amortisation and accumulated impairment losses. In case of internally generated intangibles, development cost is recognized as an asset when all the recognition criteria are met.
2.3.6 Intangible Assets are amortised over the useful life on straight line basis and assessed for impairment whenever there is an indication that the Intangible Asset may be impaired. The amortisation period and the amortisation method for an Intangible Asset are reviewed at the end of each reporting period. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are considered to modify the amortisation period or method, as appropriate, and are treated as changes in accounting estimates. The amortisation expense on intangible assets is recognized in the Statement of Profit and Loss unless such expenditure forms part of carrying value of another asset.
2.3.7 On transition to Ind AS, the Company has elected to continue with the carrying value of all of its Intangible Assets recognized as at April 1, 2015 measured as per the previous GAAP and use that carrying value as the deemed cost of the Intangible Assets.
2.3.8 Amortisation is charged pro-rata on monthly basis on assets, from/upto the month of capitalization/ sale, disposal or classified to Asset held for disposal.
2.4 Depreciation
2.4.1 Cost of PPE (net of residual value) excluding freehold land is depreciated on straight-line method as per the useful life prescribed in Schedule II to the Act except in case of the following assets:
a. Useful life based on technical assessment
• 15 years for Plant and Equipment relating
to Retail Outlets (other than storage tanks and related equipment), LPG cylinders and pressure regulators
• 10 years for Dispensing Unit
• 25 years for solar power plant
• 13 years for Optical Fiber Cable
• Certain assets of R&D Centre (15-25 years)
• Certain assets of CGD business, (Compressor / Booster Compressor and Dispenser - 10 years, Cascade - 20 years)
• Moulds used for the manufacturing of the packaging material for Lubricants- 5 years
• In other cases, like Spare Parts etc. (2-30 years)
b. In case of specific agreements e.g., enabling assets etc., useful life as per agreement or Schedule II to the Act, whichever is lower.
c. In case of immovable assets constructed on leasehold land, useful life as per Schedule-II to the Act or lease period of land (considering renewable / likely renewable period over and above the contractual lease period considered for the leases), whichever is lower, and
d. In case where useful life is mandated as per the other relevant statute or any of the regulation.
The Company depreciates components of the main asset that are significant in value and have different useful lives as compared to the main asset separately. The Company depreciates spares over the life of the spare from the date it is available for use.
2.4.2 Depreciation is charged pro-rata on monthly basis on assets, from/up to the month of capitalization/ sale, disposal or classified to Asset held for disposal.
2.4.3 Residual value is determined considering past experience and generally the same is between 0 to 5% of cost of assets except:
a. In case of Steel LPG cylinder and pressure regulator, residual value is considered at 25% and in case of fibre composite LPG cylinder, residual value is considered at 10% based on estimated realisable value
b. in case of catalyst with noble metal content, residual value is considered based on the cost of metal content and
c. In few cases residual value is considered based on transfer value agreed in respective agreement.
2.4.4 PPE, other than LPG Cylinders and Pressure Regulators, costing upto H 5,000/- per item are depreciated fully in the year of capitalization. Further, spares, components like catalyst excluding noble metal content and major overhaul/ inspection are also depreciated fully over their respective useful life.
2.4.5 The residual values, useful lives and methods of depreciation of PPE are reviewed at each financial year end and adjusted prospectively, if appropriate.
3. Leases
The Company assesses at contract inception whether a contract is, or contains, a lease. That is, if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.
3.1 Leases as Lessee (Assets taken on lease)
The Company applies a single recognition and measurement approach for all leases, except for short-term leases and leases of low-value assets. The Company recognizes lease liabilities to make lease payments and right-of-use assets representing the right to use the underlying assets.
3.1.1 Lease Liabilities
At the commencement date of the lease, the Company recognizes lease liabilities measured at the present value of lease payments to be made over the contractual lease term, for which enforceable rights is available. In calculating the present value of lease payments, the Company uses the incremental borrowing rate at the lease commencement date, if the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made.
3.1.2 Right-of-use Assets
The Company recognizes right-of-use (ROU) assets at the commencement date of the lease (i.e., the date the underlying asset is available for use). Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. Perpetual Right of use (ROU) assets related to land are not depreciated but tested for Impairment loss, if any.
3.1.3 Short-term leases and leases of low-value assets
The Company applies the short-term lease recognition exemption to its short-term leases of Property, Plant and Equipment (i.e., those leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option). It also applies the lease of low-value assets recognition exemption to leases that are considered of low value and is not intended for sublease. Lease payments on short-term leases and leases of low-value assets are recognized as expense on a straight-line basis over the lease term or another systematic basis if that basis is more representative of the pattern of the lessee's benefit.
3.2 Leases as Lessor (assets given on lease)
3.2.1 When the company acts as lessor, it determines at the commencement of the lease whether it is a finance lease or an operating lease. Rental income from operating lease
is recognized on a straight-line basis over the term of the relevant lease except where another systematic basis is more representative of the time pattern of the benefit derived from the asset given on lease.
All assets given on finance lease are shown as receivables at an amount equal to net investment in the lease. Principal component of the lease receipts is adjusted against outstanding receivables and interest income is accounted by applying the interest rate implicit in the lease to the net investment.
3.2.2 When the Company is an intermediate lessor it accounts for its interests in the head lease and the sub-lease separately. It assesses the lease classification of a sub-lease with reference to the ROU asset arising from the head lease, not with reference to the underlying asset. If a head lease is a short-term lease to which the Company applies the shortterm lease exemption described above, then it classifies the sub-lease as an operating lease.
4. Impairment Of Non-Financial Assets (Also Refer Para 14 For Impairment Of E&P Assets)
The Company assesses, at each reporting date, whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, the Company estimates the asset's recoverable amount. An asset's recoverable amount is the higher of an asset's or cash-generating unit's (CGU) fair value less cost of disposal and its value in use. Impairment loss is recognized when the carrying amount of an asset exceeds recoverable amount.
In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less cost of disposal, recent market transactions are taken into account. If no such transactions can be identified, an appropriate valuation model is used. These calculations are corroborated by valuation multiples, quoted share prices for publicly traded companies or other available fair value indicators.
The Company bases its impairment calculation on detailed budgets and forecast calculations, which are prepared separately for each of the Company's CGUs to which the individual assets are allocated. These budgets and forecast calculations generally cover a period of 15 years. For longer periods, a long-term growth rate is calculated and applied to project future cash flows after the fifteenth year. To estimate cash flow projections beyond periods covered by the most recent budgets/forecasts, the Company extrapolates cash flow projections in the budget using a steady or declining growth rate for subsequent years, unless an increasing rate
5. Borrowing Costs
Borrowing costs that are attributable to the acquisition or construction of the qualifying asset are capitalized as part of the cost of such asset. Capitalization of borrowing costs is suspended when active development activity on the qualifying assets is interrupted other than on temporary basis and charged to the Statement of Profit and Loss during such extended periods. All other borrowing costs are recognized in the Statement of Profit and Loss in the period in which the same are incurred.
6. Foreign Currency Transactions
6.1 Transactions in foreign currency are initially recorded at spot exchange rates prevailing on the date of transactions.
6.2 Monetary items denominated in foreign currencies (such as cash, receivables, payables etc.) outstanding at the end of reporting period, are translated at exchange rates prevailing on that date.
6.3 Non-monetary items denominated in foreign currency, (such as PPE, intangible assets, equity investments, capital/ revenue advances other than expected to be settled in cash etc.) are recorded at the exchange rate prevailing on the date of the transaction, other than those measured at fair value.
Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value is determined. The gain or loss arising on translation of non-monetary items measured at fair value is treated in line with the recognition of the gain or loss on the change in fair value of the item (i.e., translation differences on items whose fair value gain or loss is recognized in Other Comprehensive Income (OCI) or the Statement of Profit and Loss are also recognized in OCI or the Statement of Profit and Loss, respectively).
6.4 Any gains or losses arising due to differences in exchange rates at the time of translation or settlement are accounted for in the Statement of Profit and Loss either under the head foreign exchange fluctuation or interest cost to the extent regarded as an adjustment to borrowing costs as the case may be, except those relating to loans mentioned below.
Exchange differences on long-term foreign currency loans obtained or re-financed on or before March 31,2016 relating to acquisition of depreciable assets are adjusted to the carrying cost of the assets and depreciated over the balance life of the assets.
7. Inventories
7.1 Raw Materials & Work in Progress
7.1.1 Raw materials including crude oil are valued at cost determined on weighted average basis or net realisable value, whichever is lower. Work in Progress is valued at raw materials cost-plus processing cost as applicable or net
realisable value, whichever is lower. Crude oil in Transit is valued at cost or net realisable value, whichever is lower.
7.1.2 Initial cost of inventories includes the transfer of gains and losses on qualifying cash flow hedges, recognized in OCI, in respect of the purchases of raw materials.
7.2 Finished Products and Stock in Trade
7.2.1 Finished Products and Stock in Trade, other than lubricants, are valued at cost determined on 'First in First Out' basis or net realisable value, whichever is lower. Cost of Finished Products internally produced is determined based on raw materials cost and processing cost.
7.2.2 Lubricants are valued at cost on weighted average basis or net realisable value, whichever is lower. Cost of lubricants internally produced is determined based on cost of inputs and processing cost.
7.2.3 Imported products in transit are valued at cost or net realisable value whichever is lower.
7.3 Stores and Spares
7.3.1 Stores and Spares (including Chemicals, packing Containers i.e., empty barrels, tins etc.) are valued at weighted average cost. Specific provision is made in respect of identified obsolete stores & spares and chemicals for likely diminution in value. Further, a provision @ 5% of cost is also made on the balance stores and spares (excluding barrels, tins, stores in transit, chemicals/catalysts, crude oil, and own products) towards likely diminution in the value.
7.3.2 Stores and Spares in transit are valued at cost.
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