Note No. 3. Material Accounting Policies

The significant accounting policies applied in preparation of the financial statements are given below. These policies have been applied consistently to all periods presented in the financial statements.

3.1 Property, Plant and Equipment:

3.1.1 Initial recognition and measurement:

Property, plant and equipment (PPE) are tangible items that are held for use in the production or supply of goods or services, or for rentals to others or for administrative purposes, and are expected to be used during more than one period.

An item of property, plant, and equipment is recognised as an asset if, and only if 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.

Items of property, plant and equipment that qualifies for recognition as an asset is initially recognised at cost. The initial cost comprises of purchase price, import duties and non-refundable purchase taxes, other expenditure directly attributable to bringing the assets to its location and condition necessary for it to be capable of operating in the manner intended by the management, borrowing cost, if any, incurred, and the initial estimates of the present value of any asset restoration obligation or obligatory decommissioning and dismantling costs.

Expenditure incurred on development of freehold land is capitalized as part of the cost of the land.

In case of self-constructed assets, cost includes the costs of all materials used in construction, direct labour, allocation of overheads and directly attributable borrowing costs, if any.

In the case of property, plant and equipment available for use, where the final settlement of bills is yet to be completed, and capitalization is done on provisional basis subject to necessary adjustment in the year of such final settlements.

Spare parts having unit value of more than ' 5 lakh, held for use in the production and/or supply of goods or services and are expected to be used during more than one period are recognised as property, plant, and equipment. Spares of critical nature and irregular in use, which can be identified to a particular equipment and having unit value more than ' 1 lakh is also recognised as property, plant and equipment.

Property, plant and equipment are stated in the balance sheet at cost less accumulated depreciation/amortisation and accumulated impairment losses, except for freehold land which is carried at historical costs.

3.1.2 Subsequent expenditure:

Subsequent expenditure is recognised in the carrying amount of the asset 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.

Expenditure on major inspection/maintenance or repairs including cost of replacing the parts of assets and overhaul costs where it is probable that future economic benefits associated with the expenditure will be available to the Company over a period of more than one year, are capitalised and the carrying amount of the identifiable parts so replaced is derecognised.

On fresh overhaul, remaining carrying amount of the costs of previous overhaul, if any, are derecognised.

3.1.3 Capital work-in-progress:

Assets in the course of construction are included under capital work in progress and are carried at cost, less any recognised impairment loss. Such capital work in progress, on completion, is transferred to the appropriate category of property, plant, and equipment.

Expenses for assessment of new potential projects incurred till investment decisions are taken are recognised in the statement of profit and loss when incurred. Expenditure incurred for projects after investment decisions are taken are accounted for under capital work in progress and are capitalized subsequently.

Any costs directly attributable to acquisition/construction of property, plant, and equipment till it is brought to the location and condition necessary for it to be capable of operating in the manner as intended by the management form part of capital work-in-progress.

3.1.4 Capital Advances:

Advances paid for acquisition/construction of capital assets are initially recognised as ‘Capital Advances’ and are adjusted against the invoices received from the vendors. Any amount remaining unadjusted are presented in the financial statements as capital advance under non-current assets.

3.1.5 Depreciation and amortisation:

Depreciation on property, plant and equipment are provided on a straight-line basis over their useful life, either as prescribed under Schedule II of the Companies Act, 2013 or, wherever considered necessary, determined on the basis of technical estimations carried out by the Management not exceeding the prescribed useful life as per Schedule II to the Companies Act, 2013.

Component of an item of property, plant, and equipment with a cost that is significant in relation to the total cost of that item, is depreciated separately if its useful life differs from that of the main asset. The Company has chosen a benchmark of '1 crore as significant value for identification of a separate component except ‘Pot Relining’ which is considered as a component of each ‘Electrolytic Pot’ due to its inherent nature and useful life.

The residual value of plant and machinery, vehicles, mobile equipment, and earth moving equipment, railway facilities, rolling stock, and residential quarters are maintained at 5% of the original cost and for all other assets, the residual value is considered as Nil.

The estimated useful lives and residual values are reviewed at each year end and the effect of any changes in estimates, is accounted for on a prospective basis.

The depreciation on certain assets is computed based on useful life which is different from those prescribed under Part C of Schedule II of the Companies Act, 2013. The useful life of such assets is based on internal assessment/technical evaluation and best represents the period over which the Company expects to use these assets. The useful life of:

(a) immovable property, plant and equipment at bauxite mines and coal mines is the life of the individual asset or the balance lease period of mines whichever is lower.

(b) captive thermal power generation plant namely Captive Power Plant (CPP) is considered to be in the range of 10-40 years.

(c) Steam Power Plant (SPP) is considered to be 25 years.

(d) Red Mud Ponds and Ash Ponds at Alumina Refinery and Ash Ponds at Smelter are based on their estimated remaining useful lives (holding capacity) evaluated on the basis of technical estimates made periodically;

(e) lean slurry ash disposal system at CPP is considered based on the estimated period over which ash can be disposed in the designated mine void.

(f) assets laid on leasehold land excluding assets of Bauxite mines are considered to be lower of balance lease period or the useful life of the asset.

(g) major spares are based on technical estimation of the said spares.

(h) major inspection/overhaul costs which have been capitalized are depreciated over the period until the next scheduled inspection/overhaul.

Depreciation commences when the property, plant and equipment are available for use in the location and condition necessary for it to be capable of operating in the manner intended by the management.

Assets laid on land not owned by the Company are depreciated over the useful life from the date on which the asset is capable of operating in the manner intended by the management unless a longer/shorter life can be justified.

Individual assets costing '10,000/- or less are depreciated fully in the year in which they are available for use in the location and condition necessary for it to be capable of operating in the manner intended by the management.

De-recognition of property, plant and equipment:

An item of property, plant, and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the use of the asset or its disposal. Any gain or loss arising on the disposal/de-recognition is recognised in the statement of profit and loss.

3.1.7 Stripping costs:

Stripping costs of surface mining is recognised as an asset when they represent significantly improved access to ore, provided all the following conditions are met:

(a) it is probable that the future economic benefit associated with the stripping activity will be realised;

(b) the component of the ore body for which access has been improved can be identified; and

(c) the costs relating to the stripping activity associated with the improved access can be reliably measured.

After initial recognition, stripping activity assets are carried at cost less accumulated amortisation and impairment. The expected useful life of the identified component of the ore body is used to depreciate or amortise the stripping asset.

Production stripping costs are incurred to extract the ore in the form of inventories and/or to improve access to an additional component of an ore body or deeper levels of material. Production stripping costs are accounted for as inventories to the extent the benefit from production stripping activity is realised in the form of inventories.

Where the mine development and operation are outsourced to a Mine Developer and Operator (MDO’) and the MDO is responsible for supply of coal against an agreed fixed price of coal delivered, irrespective of the stripping ratio, the Company does not recognise any stripping activity asset.

3.2 Intangible Assets:

An intangible asset is recognised if:

(a) it is probable that the expected future economic benefits that are attributable to the asset will flow to the Company; and

(b) the cost of the asset can be measured reliably.

3.2.1 Intangible assets acquired separately:

Intangible assets acquired are reported at cost less accumulated amortisation and impairment loss, if any. Intangible assets having finite useful life are amortised over their estimated useful lives. The estimated useful life and amortisation method are reviewed at the end of each annual reporting period, and the effect of any changes in estimate is accounted for on a prospective basis.

3.2.2 Internally generated intangible assets - research and development expenditure:

Expenditure on research activities, except capital expenditure which qualifies for recognition as property, plant and equipment, is recognised as an expense in the period in which it is incurred.

An internally-generated intangible asset arising from development is recognised if and only if all the conditions stipulated in “Ind AS 38 -Intangible Asset” are met.

3.2.3 Mining Rights:

Mining Right is the authorization granted to the Company by the respective authorities for mining operation.

The cost of mining rights includes amounts paid towards upfront money, Compensatory Afforestation (CA), Wildlife Management (WLF), Net Present Value (NPV) and related payments as determined by the regulatory authorities.

Cost of mining rights are amortised over the total estimated remaining commercial recoverable reserves of mining property and are subject to impairment loss.

3.2.4 Mines Development Expenses:

Expenditure incurred for mines development prior to commercial production i.e., primary development expenditure other than land, buildings, plant, and equipment is capitalised until the mining property is capable of commercial production.

3.2.5 User Rights:

Amount of expenditure incurred in a cluster project, having future economic benefits with exclusive use of co-beneficiaries but without physical control on the assets, are capitalised as user rights.

3.2.6 Software:

Software acquired separately, not embedded with original equipment are capitalised as software.

3.2.7 License and Franchise:

Amount of expenditure incurred for obtaining license for use of technology is capitalised under the head “License and Franchise”.

3.2.8 De-recognition of intangible assets:

An intangible asset is derecognised upon disposal or when no future economic benefits are expected to arise from the use of the asset or its disposal. Any gain or loss arising on the disposal/de-recognition is recognised in the statement of profit and loss.

3.2.9 Amortisation of intangible assets:

The basis of amortisation of intangible assets is as follows:

(a) Licenses in the nature of technical know-how for processing plants which are available for the useful life of the respective processing plants are amortised over a period of ten years.

(b) Software classified as intangible assets carries a useful life of 3 years and are amortised over that period.

(c) Mining Rights and Mines Development Expenses are amortised over the period of availability of mineral reserves.

(d) User Right for cluster projects is amortised over the useful life of the asset from the date of commissioning.

3.3 Impairment of non-financial assets:

At the end of each reporting period the carrying amounts of property, plant, and equipment and intangible assets are reviewed to determine whether there is any indication that the assets have suffered an impairment loss. If any such indication exists, the recoverable amount (i.e., higher of the fair value less cost to sell and the value-in-use) of the asset is estimated to determine the extent of impairment loss. When it is not possible to estimate the recoverable amount of an individual asset, the recoverable amount of the cash-generating unit (CGU) to which the asset belongs is estimated. If the estimated recoverable amount of the CGU is less than its carrying amount, the carrying amount of the CGU is reduced to its recoverable amount and the difference between the carrying amount and recoverable amount is recognised as impairment loss in the statement of profit or loss.

Recoverable amount is the higher of fair value less costs to sell and value in use. 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 for which the estimates of future cash flows have not been adjusted.

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.

3.4 Non-Current Assets Held for Sale:

Non-current assets and disposal groups are classified as held for sale, if their carrying amounts are recovered principally through a sale transaction rather than through continuing use, and its sale is highly probable.

The Company considers a sale is highly probable when it is committed to execute the sale within one year from the date of classification as held for sale in its present condition subject to terms that are usual and customary for sale of such assets.

Non-current assets held for sale and disposal groups are measured at the lower of their carrying amount and the fair value less cost of disposal. Non-current assets and disposal groups classified as held for sale are not subject to depreciation or amortization.

3.5 Investment in associates and joint ventures:

An associate is an entity over which the Company has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies.

A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the joint arrangement. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require unanimous consent of the parties sharing control.

Investment in associate and joint ventures are measured at cost. The investments carried at cost are tested for impairment in accordance with Ind AS 36 - Impairment of Assets. The carrying amount of the investment is tested for impairment as a single asset by comparing its recoverable amount with its carrying amount, any impairment loss recognised reduces the carrying amount of the investment.

3.6 Foreign currency transaction and translation:

The functional and presentation currency of the Company is Indian Rupee (“'”) which is the currency of the primary economic environment in which the Company operates.

In preparing the financial statements, transactions in 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 translated at the rates prevailing at that date. Exchange differences on monetary items are recognised in the statement of profit and loss in the period in which they arise.

Non-monetary assets and non-monetary liabilities denominated in a foreign currency and measured at historical cost are translated at the exchange rate prevailing at the date of transaction.

3.7 Provisions and contingencies:

3.7.1 Provisions:

Provisions are recognised when there is a present obligation (legal or constructive) as a result of a past event and it is probable (“more likely than not”) that it is required to settle the obligation, and a reliable estimate can be made of the amount of the obligation.

The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the balance sheet date, taking into account the risks and uncertainties surrounding the obligation.

Where a provision is measured using the estimated cash outflows to settle the present obligation, its carrying amount is the present value of those cash outflows.

If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows to net present value using an appropriate pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the liability. Unwinding of the discount is recognised in the statement of profit and loss as a finance cost. Provisions are reviewed at each reporting date and are adjusted to reflect the current best estimate.

Present obligations arising under onerous contracts are recognised and measured as provisions. An onerous contract is considered to exist when a contract under which the unavoidable costs of meeting the obligations exceed the economic benefits expected to be received from it.

3.7.2 Restoration, rehabilitation, and decommissioning:

An obligation to incur restoration, rehabilitation and environmental costs arises when environmental disturbance is caused by the development or ongoing production of a mine and other manufacturing facilities. Obligated restoration, rehabilitation and decommissioning liabilities are recognised as per statutory mandate or explicit mention about such activities in various permissions obtained from authorities for operating the facilities.

Net present value of such costs is provided for and a corresponding amount is capitalised at the commencement of each project. These costs are recognised in the statement of profit and loss over the life of the asset by way of depreciation and unwinding of the discounted liability. The cost estimates are reviewed periodically and are adjusted to reflect known developments which may have an impact on the cost estimates or life of operations. The cost of the related asset is adjusted for changes in the provision due to factors such as updated cost estimates, changes in lives of operations, new disturbances, and revisions of discount rates. The adjusted cost of the asset is depreciated prospectively over the lives of the assets to which they relate. The unwinding of the discount is shown as finance cost in the statement of profit and loss.

Obligation for land reclamation and decommissioning of structures at coal mines is estimated in accordance with the guidelines from Ministry of Coal, Government of India and as per approved Mine Closure Plan. The estimates of expenses are escalated for inflation, and then discounted at a discount rate that reflects current market assessment of the time value of money and the risks, such that the amount of provision reflects the present value of the expenditures expected to be incurred to settle the obligation. The mine closure obligation is initially recognised by creating corresponding land reclamation and site restoration asset. The asset is amortised over the remaining life of the mine on a straight line basis. The value of the obligation is progressively increased over time as the effect of discounting unwinds; creating an expense recognised as finance cost.

Further, a designated escrow fund deposit account is maintained for mine closure obligation of the coal mine as per the approved mine closure plan.

3.7.3 Environmental liabilities:

Environmental liabilities are recognised when the Company becomes obliged, legally, or constructively to rectify environmental damage or perform remedial work.

The Company recognises provisions against such obligations at an undiscounted amount, unless the effect of time value of material.

3.7.4 Enterprise Social Commitments:

Enterprise Social Commitment is the amount to be spent on social and economic development of the surrounding area over a period of time where any new project is set up. Such obligation arises out of conditions mentioned in the Environment Clearance Certificate given by the Government for new projects and are generally defined as a percentage of total project cost.

Present value of such future cash flows discounted at appropriate and applicable discount rates are capitalised against the obligation created. Actual cash flows that happen over the period are adjusted against the obligation. The obligation is increased over a period of time and the differential is recognized in the statement of profit and loss as finance cost.

3.7.5 Legal Obligations:

Provision is recognised once it has been established that the Company has a present obligation based on consideration of the information which becomes available up to the date of reporting. Provisions are recognised at an undiscounted amount, unless the effect of time value of money is material.

3.7.6 Contingent Liabilities:

Contingent liabilities are possible obligations that arises from past events, the existence of which would be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Company or a present obligation, but payment is not probable, or the amount cannot be measured reliably. Contingent liabilities are disclosed in the financial statements unless the possibility of any outflow in settlement is remote.

3.7.7 Contingent Assets:

Contingent assets are not recognised in the financial statement but are disclosed where inflow of economic benefits is probable.

3.8 Leases:

The Company determines whether an arrangement contains a lease by assessing whether the fulfilment of a transaction is dependent on the use of a specific asset and whether the transaction conveys the right to control the use of that asset to the Company in return for payment.

Company as a lessee:

At the date of commencement of lease, the Company recognizes, “Right of Use” or ROU Asset at cost, and the lease liability is measured at the present value of all lease payments that are not paid at that date, except leases with a lease term of 12 months or less that do not contain a purchase option (Short term leases) and leases for which the underlying asset is of low value.

3.8.1 Initial Measurement:

The “Cost of ROU Asset” includes amount of:

i. Initial measurement of lease liability

ii. Prepaid lease payments less any lease incentives received

iii. Initial direct cost incurred by the company as lessee and

iv. Estimated costs to dismantle remove or, restore the underlying asset.

The lease liability is measured at the present value of lease payments discounted using interest rate implicit in the lease if that rate can be readily determined. If that rate cannot be readily determined, the Company uses incremental borrowing rate.

The “lease payment” includes:

i. Fixed payments (including in-substance fixed payment);

ii. Variable lease payment that depends upon an index or a rate;

iii. Amount payable by the company as residual value guarantee;

iv. The exercise price of purchase option if the Company expects with reasonable certainty to exercise the same;

v. Payment of penalties for termination by the Company, if the term of lease contains such option for the Company.

The Company applies Ind AS 36 - Impairment of Assets to determine whether a ROU asset is impaired and accounts for any identified impairment loss as per its accounting policy on Impairment of non-financial assets. ROU assets are depreciated over the lease term on a straight-line basis.

3.8.2 Subsequent Measurement:

During subsequent periods, lease liability is measured at amortised cost using effective interest rate method and the ROU asset is measured at cost less accumulated depreciation and accumulated impairment, if any.

The lease payments are classified as cash flow from financing activities.

3.8.3 Short-term leases and leases of low-value assets:

The lease payments for leases with a lease term of 12 months or less that do not contain a purchase option and leases for which the underlying asset is of low value, are recognized as expenses on a straight-line basis over the lease term.

Company as a lessor:

Leases for which the Company is a lessor are classified as either finance or operating leases. Whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee, the contract is classified as finance lease. All other leases are classified as operating leases.

In case of operating leases, rental income is recognised on a straight-line basis over the term of the relevant lease. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognised over the lease term on the same basis as rental income. Contingent rents are recognised as income in the period in which they are earned.

In case of finance leases, amounts due from lessees under finance leases are recorded as receivables at the Company’s net investment in the leases. Finance lease income is allocated to accounting periods so as to reflect a constant periodic rate of return on the net investment outstanding in respect of the lease.

3.9 Inventories:

Inventories of raw materials, stores and spares are valued at the lower of cost (net of tax credit) and net realisable value. Cost is determined on moving weighted average price.

Stores and spares (excluding must keep items) held but not issued for more than 5 years are valued at 5% of the cost.

Materials and other supplies held for use in the production (other than considered as non-moving) are not written down below cost, if the finished products in which they will be incorporated are expected to be sold at or above cost.

Inventories of finished goods, semi-finished goods, intermediary products, and work in process including scraps generated from aluminium processing are valued at lower of cost and net realisable value.

Cost includes value of material consumed plus cost of conversion comprising of labour cost and attributable portion of manufacturing overhead.

Net realisable value is the estimated selling price in the ordinary course of business available on the reporting date less estimated cost necessary to make the sale.

3.10 Trade receivables:

Trade receivables are measured at their transaction price unless it contains a significant financing component or pricing adjustments embedded in the contract, in which case, it is recognised net of such adjustments. Trade receivables are held with the objective of collecting the contractual cash flows and therefore are subsequently measured at amortised cost less loss allowance for expected credit losses.

Trade receivables are amounts due from customers for goods sold or services performed in the ordinary course of business. If the receivable is expected to be collected within a period of 12 months or less from the reporting date, they are classified as current assets otherwise as noncurrent assets.

3.11 Cash and Cash Equivalents:

Cash and cash equivalents comprise cash at bank and on hand and short-term bank deposits having maturity period of three months or less from the date of acquisition, that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.

For the purpose of the statement of cash flows, cash and cash equivalents consist of cash and short-term deposits, as defined above.

3.12 Financial Instruments:

Financial assets and liabilities are recognised when the Company becomes a party to the contractual provisions of the instrument. Except for trade receivables and payables, financial assets and liabilities are initially measured at fair value. Transaction cost that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities measured at fair value through profit or loss) are added to or deducted from the fair value measured on initial recognition of financial asset or financial liabilities.

3.12.1 Financial assets:

a. Financial assets at amortised cost:

Financial assets, including trade receivables where it contains significant financing component, are classified as subsequently measured at amortised costs and are measured accordingly using effective interest method if the financial assets are held within a business model whose objective is to hold these assets in order to collect contractual cash flows and the contractual terms of the financial assets give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

b. Financial assets at fair value through Other Comprehensive Income (‘FVOCI’):

Financial assets (other than equity instruments) are classified as subsequently measured at fair value through other comprehensive income if these financial assets are held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets and the contractual terms of the financial assets give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

The changes in fair value recognised in other comprehensive income is accumulated in other equity and are reclassified to profit or loss when such financial assets are disposed of / derecognised.

c. Financial assets at fair value through Profit or loss (‘FVTPL’):

Financial assets are classified as subsequently measured at fair value through profit or loss unless it is classified as subsequently measured at amortised cost or at fair value through other comprehensive income. Transaction costs directly attributable to the acquisition of financial assets and liabilities at fair value through profit or loss are immediately recognised in the statement of profit or loss.

Investments in equity instrument of entities other than subsidiaries, associates and joint ventures are measured at fair value and changes in fair values are recognised in profit or loss, unless the Company has irrevocably elected to record the changes in fair values in the other comprehensive income. The option to record the changes in fair value of equity instruments is exercised on an instrument by instrument basis. Changes in fair value of equity instruments recoginsed in OCI is accumulated within equity and never reclassified to profit or loss.

3.12.1.1 De-recognition of financial assets:

Financial assets are derecognised only when the contractual rights to the cash flows from the asset expires, or when substantially all the risks and rewards of ownership of the assets are transferred to another entity. The gain or loss on de-recognition of financial assets that is measured at amortised cost or fair value through profit or loss is recognised in the statement of profit and loss.

The changes in fair value financial assets (other than equity instruments) recognised in other comprehensive income is accumulated in other equity and are reclassified to profit or loss when such financial assets are disposed of/derecognised.

3.12.1.2 Impairment of financial assets:

At each reporting date, assessment is made whether the credit risk on a financial instrument has increased significantly or not since initial recognition.

If the credit risk on a financial instrument has not increased significantly since initial recognition, the loss allowance is measured for that financial instrument at an amount equal to 12 month expected credit losses. If the credit risk on that financial instrument has increased significantly since initial recognition, the loss allowance is measured for a financial instrument at an amount equal to the lifetime expected credit losses.

The amount of expected credit losses (or reversal) that is required to adjust the loss allowance at the reporting date is recognised as an impairment gain or loss in the statement of profit and loss.

3.12.2 Financial liabilities:

Financial liabilities including trade payables are measured at their transaction price unless it contains a significant financing component or pricing adjustments embedded in the contract, in which case, it is recognised net of such adjustments.

Financial liabilities, including trade payables are subsequently measured at amortised cost using effective interest method.

3.12.2.1 De-recognition of financial liability:

Financial liabilities are derecognised when, and only when, the obligations are discharged, cancelled or expired.

In the case of retention for liquidated damages, if on finalization/closure of contract, liquidated damage is leviable, the amount retained is written back and recognized as income except capital contracts where liquidated damage is directly attributable to escalation/increase in the cost of the asset. In such case, the retention amount is adjusted against cost of the asset.

3.12.3 Off-setting financial instruments:

Financial assets and liabilities are offset and the net amount reported in the balance sheet, when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis or realise the asset and settle the liability simultaneously. The legally enforceable right must not be contingent on future events and must be enforceable in the normal course of business.

3.13 Borrowing cost:

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets are added to the cost of those assets, until such time as the assets are substantially ready for their intended use.

Qualifying assets are assets that necessarily take a substantial period of time, considered as more than twelve months, to get ready for their intended use or sale. Transaction costs in respect of long-term borrowings are amortised over the tenure of respective loans using effective interest method.

All other borrowing cost is recognised in statement of profit and loss in the period in which they are incurred.

3.14 Accounting for government grants:

Government grants are recognised when there is reasonable assurance that the conditions attached to them will be complied and that the grants will be received.

Government grants related to assets whose primary condition is that the Company should purchase, construct, or otherwise acquire non-current assets are recognised in the balance sheet by setting up the grant as deferred income and are transferred to profit or loss on a systematic basis over the useful life of the related assets.

Government grants related to income are recognised as income on a systematic basis over the periods necessary to match them with the costs for which they are intended to compensate.

The Company receives Government grant as export incentive under Foreign Trade Policy (FTP) of the Government of India. The same is recognised/presented as other operating income when there is a reasonable assurance that the conditions attached to them will be complied and that the grants will be received.

3.15 Employee Benefits:

3.15.1 Short-term employee benefits:

A liability is recognised for benefits accruing to employees in respect of wages and salaries, short term compensated absences etc. in the period the related service is rendered at the undiscounted amount of the benefits expected to be paid.

3.15.2 Post-employment and long-term employee benefits:

3.15.2.1 Defined contribution plans:

A defined contribution plan is plan under which fixed contributions are paid to a separate entity and the Company has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay. Contributions to defined contribution retirement benefit plans are recognised as an expense when employees have rendered service entitling them for such contributions.

3.15.2.2 Defined benefit plans:

For defined benefit plans, the cost of providing benefits is determined through actuarial valuation using the Projected Unit Credit Method, carried out at each balance sheet date.

The service cost, net of interest on the net defined benefit liability, is treated as an expense. Past service cost is recognised as an expense when the plan amendment or curtailment occurs or when any related restructuring costs or termination benefits are recognised.

Re-measurement gains and losses of the net defined benefit liability are recognised immediately in other comprehensive income and are not reclassified to statement of profit and loss. The retirement benefit obligation recognised in the balance sheet represents the present value of the defined-benefit obligation as reduced by the fair value of plan assets.

3.15.3 Other long-term employee benefits:

Liabilities recognised in respect of other long-term employee benefits are measured at the present value of the estimated future cash outflows

in respect of services provided by employees up to the reporting date. The expected costs of these benefits are accrued over the period of

employment using the same accounting methodology as used for defined benefit retirement plans. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are recognised in the statement of profit and loss in the period in which they arise. These obligations are valued annually by independent actuaries.

3.16 Revenue:

3.16.1 Revenue from sale of goods or services:

The Company’s revenue is generated mainly from the sale of products like Alumina, Aluminium and Power. Revenue from contracts with customers is recognised upon satisfaction of the performance obligation for an amount that the Company is entitled to under the contract (net of variable consideration, if any), allocated to that performance obligation.

The transaction price of a promised goods or services is the amount net of discounts, excluding the taxes and duties collected on behalf of the government that reflects the consideration to which the Company expects to be entitled in exchange for that goods or services. Revenue from sale of goods include revenue from related ancillary services, if any.

Performance obligation is satisfied when customer obtains control of the goods or services promised as per the contract. The control of the goods or services are transferred to the customer when legal title, physical possession, significant risk and rewards of ownership passes to the customer, customer has accepted the goods in accordance with the sales contract or there is an objective evidence that all criteria for acceptance have been satisfied, and the Company has the present right to payment, all of which generally occurs upon shipment or delivery of the goods or services.

Revenue from sale of wind power is recognised based on energy transmitted to DISCOMs/consumer at the price notified by respective authorities subject to Power Purchase Agreement (PPA) with them.

A contract asset is the right to consideration in exchange for goods or services transferred to the customer. If the Company performs part of its obligation by transferring goods or services to a customer before the customer pays consideration or before payment is due, a contract asset is recognised for the earned consideration when that right is conditional on the Company’s future performance.

A contract liability is the obligation to transfer goods or services to a customer for which the Company has received consideration from the customer. If a customer pays consideration before the Company transfers goods or services to the customer, a contract liability is recognized when the payment is received.

3.16.2 Interest income:

Interest income from a financial asset is recognised when it is probable that the economic benefits will flow to the Company and the amount of income can be measured reliably. Interest income is recognised using effective interest rate method.

3.16.3 Dividend:

Dividend income from investments is recognised when the right to receive the dividend is established, it is probable that the economic benefits associated with the dividend will flow to the Company and the amount of the dividend can be measured reliably.

3.16.4 Income from Incentives:

Incentives and subsidies are recognized as other operating revenue when there is reasonable assurance that the Company will comply with the conditions as provided in the relevant statute.

3.16.5 Liquidated Damages:

Claims for liquidated damages are accounted for as and when these are considered recoverable by the Company. These are adjusted to the capital cost or recognised in statement of profit and loss, as the case may be.

3.17 Income Taxes:

Tax expense represents the sum of current tax and deferred tax.

3.17.1 Current taxes:

Current tax expense is based on taxable profit for the year as per the Income Tax Act,1961. Current tax liabilities (assets) for the current and prior period are measured at amounts expected to be paid (or recovered) using the tax rates and tax laws that have been enacted or substantively enacted by the end of reporting period and includes any adjustment to tax payable in respect of previous years.

Current tax assets and tax liabilities are offset where the Company has a legally enforceable right to offset and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously.

3.17.2 Deferred taxes:

Deferred tax expense or income is recognised on temporary difference between the carrying amount of assets and liabilities in the financial statements using balance sheet approach and liability method. Deferred taxes are computed on the temporary differences between carrying amount of assets and liabilities and its corresponding tax base used in computation of taxable profits.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates and tax laws that have been enacted or substantively enacted by the end of the reporting period. Tax relating to items recognised in the other comprehensive income or equity is recognised in the other comprehensive income or directly in equity respectively.

The carrying amount of deferred tax asset is reviewed at the end of each reporting period and adjusted to the extent it has become probable that sufficient taxable profits will be available to allow the asset to be recovered.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off when they relate to income taxes levied by the same taxation authority.

3.18 Exceptional items:

Exceptional items are items of income and expenses within profit or loss from ordinary activities but of such size, nature, or incidence whose disclosure is necessary for better explanation of the financial performance achieved by the Company.

3.19 Restatement of material error/omissions:

Errors and omissions is construed to be material for restating the opening balances of assets and liabilities and equity if the sum total effect of earlier period income/expenses exceeds ' 50 crore.

Note No. 4. Critical accounting judgments and key sources of estimation uncertainty

The preparation of the financial statements requires the management to make complex and/or subjective judgements, estimates and assumptions about matters that are inherently uncertain. These estimates and assumptions affect the reported amounts of assets and liabilities as well as disclosure of contingent liabilities and assets at the date of the financial statements and also revenues and expenses during the reported period.

The estimates and associated assumptions are based on past experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised.

4.1 Critical accounting judgments:

Apart from those involving estimations that the management have made in the process of applying the Company's accounting policies that have the most significant effect on the amounts recognised in the financial statements, management has decided that reporting of Company’s financial assets at amortised cost would be appropriate in the light of its business model and have confirmed the Company’s positive intention and ability to hold these financial assets to collect contractual cash flows.

4.2 Key sources of estimation uncertainty:

The following are the key assumptions concerning the future, and other key sources of estimation of uncertainty at the end of the reporting period that may have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year.

4.2.1 Impairment:

Investments in Associates and other investments, loans and advances, property, plant and equipment and intangible assets are reviewed for impairment whenever events and changes in circumstances indicate that the carrying value may not be fully recoverable or atleast annually.

Future cash flow estimates of Cash Generating Units which are used to calculate the asset’s fair value are based on expectations about future operations primarily comprising estimates about production and sales volumes, commodity prices, reserves and resources, operating rehabilitations and restoration costs and capital expenditure.

4.2.2 Useful lives of property, plant and equipment:

The Company reviews the useful life of property, plant and equipment at the end of each reporting period. This reassessment may result in change in depreciation expense in the future periods.

4.2.3 Assessment of Mining Reserve:

Changes in the estimation of mineral reserves where useful lives of assets are limited to the life of the project, which in turn is limited to the life of the probable and economic feasibility of reserve, could impact the useful lives of the assets for charging depreciation. Bauxite and coal reserves at

Mines is estimated by experts in extraction, geology and reserve determination and based on approved mining plan submitted to Indian Bureau of Mines (IBM) or the Coal Controller as the case may be.

4.2.4 Obligation for post-employment benefit liability:

Liability for post-employment benefit and other long term employee benefit is based on valuation by the actuary which is in turn based on realistic actuarial assumptions.