3. Material Accounting Policies
3.1. Investments in subsidiaries, associates and joint ventures:
The Company records the investments in subsidiaries, associates and joint ventures at cost less impairment loss, if any.
When the Company issues financial guarantees on behalf of subsidiaries, associates and joint ventures, it records the initial fair value of financial guarantee as deemed investment with a corresponding liability recorded as deferred revenue under financial guarantee obligation. Such deemed investment is added to the carrying amount
of investment in subsidiaries, associates and joint ventures. Subsequently, the liability is measured in accordance with Note no. 3.25 (iv). Deferred revenue is recognized in the Statement of Profit and Loss over the remaining period of financial guarantee issued as other income.
Interest free loans provided to subsidiaries are recognized at fair value on the date of disbursement and the difference on fair valuation is recognized as deemed investment in subsidiaries. Such deemed investment is added to the carrying amount of investment in subsidiaries. Loans are accounted at amortized cost method using effective interest rate. If there is an early repayment of loan made by the subsidiaries, the proportionate amount of the deemed investment recognized earlier is adjusted.
Where the Company is a sponsor in respect of Compulsory Convertible Debentures issued by subsidiaries & joint ventures and is mandatorily required to purchase such debentures, a financial liability is recognized at fair value with a corresponding debit to deemed investment. Financial liability is subsequently measured at amortized cost. The deemed investment is added to the carrying amount of investment in subsidiaries or joint ventures and carried at cost.
Disposal of investment in subsidiaries, associates and joint ventures
On disposal of investment in subsidiaries, associates and joint ventures, the difference between net disposal proceeds and the carrying amounts (including corresponding value of dilution in deemed investment) are recognized in the Statement of Profit and Loss.
3.2. Interests in joint operations
A joint operation is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the assets, and obligations for the liabilities, relating to the arrangement.
The Company has Joint Operations in the nature of Production Sharing Contracts (PSC) and Revenue Sharing Contracts (RSC) with the Government of India and various body corporates for exploration, development and production activities of hydrocarbons.
The Company’s share in the assets and liabilities along with attributable income and expenditure of the Joint Operations is merged on line by line basis with the similar items in the Financial Statements of the Company and adjusted for depreciation, depletion, survey, exploratory well costs written off, decommissioning provision, impairment and sidetracking in accordance with the accounting policies of the Company.
The hydrocarbon reserves in such areas are taken in proportion to the participating interest of the Company.
With respect to use of leased assets in the joint operations, the Company recognizes lease liability and corresponding right-of-use asset in accordance with the terms of related joint operating agreement.
3.3. Government Grants
Government grants are recognized when there is reasonable assurance that the Company will comply with the conditions attached to them and that the grants will be received.
Capital grants which relates to an asset and whose primary condition is that the Company should purchase, construct or otherwise acquire non-current assets are recognized and disclosed as ‘deferred income’ under non-current liability in the Balance Sheet. It is further recognized as income on a systematic basis over the expected useful lives of the related assets.
Non-monetary grants received by the Company are recognized at nominal value for grants and assets.
3.4. Property, Plant and Equipment (PPE) including Oil and Gas Assets
(i) Oil and Gas Assets
Oil and Gas Assets (tangible & intangible) acquired/ constructed are initially recognized at cost and then subsequently carried at cost less accumulated depletion and impairment losses. These are created in respect of an area / field having proved developed oil and gas reserves, when the well in the area / field is ready to commence commercial production.
Cost of temporary occupation of land, successful exploratory wells, all development wells (including service
wells), allied facilities, depreciation on support equipment used for drilling and estimated future decommissioning costs are capitalized and classified as Oil and Gas Assets.
Oil and Gas Assets are depleted using the “Unit of Production Method”. The rate of depletion is computed with reference to an area covered by individual lease/ license/asset/amortization base by considering the proved developed reserves and related capital costs incurred including estimated future decommissioning / abandonment costs net of salvage value. Acquisition cost of Oil and Gas Assets is depleted by considering the proved reserves. These reserves are estimated annually by the Reserve Estimates Committee of the Company, which follows the International Reservoir Engineering Procedures.
(ii) Other Property, Plant and Equipment
Property, Plant and Equipment (other than oil and gas assets) in the course of construction for production, supply or administrative purposes are carried at cost, less any recognised impairment loss. The cost of an asset comprises its purchase price or its construction cost (net of applicable tax credits), any cost directly attributable to bring the asset into the location and condition necessary for it to be capable of operating in the manner intended by the Management and decommissioning cost as per Note no 3.10. It includes professional fees and, for qualifying assets, borrowing costs capitalised in accordance with the Company’s accounting policy.
Parts of an item of PPE having different useful lives and significant value and subsequent expenditure on Property, Plant and Equipment arising on account of capital improvement or other factors are accounted for as separate components under the respective item of PPE. Expenditure on dry docking of rigs and vessels are accounted for as component of relevant assets.
Land and buildings held for use in the production or supply of goods or services, or for administrative purposes, are stated in the Balance Sheet at cost less accumulated depreciation and impairment losses, if any. Freehold land and land under perpetual lease are not depreciated.
Depreciation of PPE commences when the assets are ready for their intended use.
Depreciation is provided on the cost of PPE (other than freehold land, Oil and Gas Assets and properties under construction) less their residual values, using the written down value method (except for components of dry docking capitalised) over the useful life of PPE as stated in the Schedule II to the Companies Act, 2013 or based on technical assessment by the Company. Estimated useful lives of these assets are as under:
The estimated useful lives, residual values and depreciation method are reviewed on an annual basis and if necessary, changes in estimates are accounted for prospectively.
Depreciation on subsequent expenditure on PPE (other than of Oil and Gas Assets) arising on account of capital improvement or other factors is provided for prospectively over the remaining useful life.
Depreciation on refurbished/revamped PPE (other than of Oil and Gas Assets) which are capitalized separately is provided for over the reassessed useful life.
Depreciation on expenditure on dry docking of rigs and vessels capitalized as component of relevant rig / vessels is charged over the dry dock period on straight line basis.
Depreciation on PPE (other than Oil and Gas Assets) including support equipment and facilities used for exploratory/ development drilling is initially capitalised as part of drilling cost and expensed / depleted as per Note no. 3.4 (i). Depreciation on equipment/ assets deployed for survey activities is charged to the Statement of Profit and Loss.
An item of PPE is de-recognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on the disposal or retirement of an item of PPE is determined as the difference between the net sales/disposal proceeds and the carrying amount of the asset and is recognised in the Statement of Profit and Loss.
3.5. Lease Liabilities and Right-of-use Assets
The Company assesses whether a contract contains a lease, at inception of the contract. To assess whether a contract conveys the right to control the use of an identified asset, the Company assesses whether:
(i) the contract involves use of an identified asset;
(ii) the Company obtains substantially all of the economic benefits from the use of the asset through the period of the lease and
(iii) the Company has the right to direct the use of the asset.
The Company has exercised the option of not applying this standard to leases of intangible assets.
The Company as a ‘lessee’
At the date of commencement of the lease, the Company recognises a right-of-use assets (ROU assets) and a corresponding lease liability for all hiring contracts / arrangements in which it is a lessee, except for lease with a term of twelve months or less (i.e., short term leases) and lease of low value assets. For these short-term and low value leases, the Company recognizes the lease payments on straight-line basis over the term of the lease.
Certain lease arrangements include the options to extend or terminate the lease before the end of the lease term. ROU assets and lease liabilities includes these options when it is reasonably certain that the option to extend the lease will be exercised/option to terminate the lease will not be exercised.
The lease liability is initially measured at present value of the future lease payments over the reasonably certain lease term. The lease payments are discounted using the interest rate implicit in the lease, if it not readily determinable, using the incremental borrowing rate. For leases with similar characteristics, the Company, on a lease by lease basis, applies either the incremental borrowing rate specific to the lease or the incremental borrowing rate for the portfolio as a whole.
Lease liabilities are remeasured with a corresponding adjustment to the related right-of-use asset if the Company changes its assessment regarding extension or termination option.
The right-of-use assets are initially recognized at cost, which comprises the amount of the initial measurement of the lease liability adjusted for any lease payments made at or before the inception date of the lease along with any initial direct costs, restoration obligations and lease incentives received.
Subsequently, the right-of-use assets is measured at cost less any accumulated depreciation and accumulated impairment losses, if any. The right-of-use assets is depreciated using the straight-line method from the commencement date over the shorter of lease term or useful life of right-of-use assets.
The interest cost on lease liability (computed using effective interest method), is expensed in the statement of profit and loss, unless eligible for capitalization as per accounting policy below on Borrowing costs.
The Company accounts for each lease component within the contract as a lease separately from non-lease components of the contract in accordance with Ind AS 116 Leases and allocates the consideration in the contract to each lease component on the basis of the relative standalone price of the lease component and the aggregate stand-alone price of the non-lease components.
3.6. Intangible Assets
(i) Intangible assets acquired separately
Intangible assets with finite useful lives that are acquired separately are carried at cost less accumulated amortisation and impairment losses. Amortisation is recognised on a straight-line basis over their estimated useful lives not exceeding five years from the date of capitalisation. The estimated useful life is reviewed at the end of each reporting period and the effect of any changes in estimate is accounted for prospectively.
Intangible assets are derecognised on disposal, or when no future economic benefits are expected from use or disposal. Gains or losses arising from derecognition of an intangible asset are determined as the difference between the net disposal proceeds and the carrying amount of the asset, and recognised in the Statement of Profit and Loss when the asset is derecognised.
Research expenditure is recognized as an expense when it is incurred. Development expenditure is recognised as an intangible asset subject to fulfilment of specified conditions.
(ii) Intangible assets under development - Exploratory Wells in Progress
All exploration and evaluation costs incurred in drilling and equipping exploratory and appraisal wells, are initially capitalized as Intangible assets under development -Exploratory Wells in Progress till the time these are either transferred to Oil and Gas Assets on completion as per Note no.3.4 (i) or expensed as exploration and evaluation cost (including allocated depreciation) as and when determined to be dry or of no further use, as the case may be.
Cost of drilling exploratory type stratigraphic test wells are initially capitalized as Intangible assets under development - Exploratory Wells in Progress till the time these are either transferred to Oil and Gas Assets as per Note no.3.4 (i) or expensed as exploration and evaluation cost (including allocated depreciation) as when determined to be dry or the Petroleum Exploration License is surrendered.
Costs of exploratory wells are not carried over unless it could be reasonably demonstrated that there are indications of sufficient quantity of reserves and sufficient progress has been made in assessing the reserves and the economic and operating viability of the project. All such carried over costs are subject to review for impairment as per the policy of the Company.
(iii) Intangible oil & gas asset in Progress
Cost of survey conducted in the development area are initially capitalized as ‘intangible oil & gas asset in progress’ and transferred to ‘Oil and Gas Assets’ on conclusion of survey [Acqusition Processing and Interpretation (API)] activity as per Note no 3.8 (iii).
3.7. Impairment of tangible, intangible assets and right-of-use assets
The Company reviews the carrying amount of its tangible (Oil and Gas Assets, Development Wells in Progress (DWIP), Property, Plant and Equipment including Capital Works-in-Progress), right-of use assets of a “Cash
Generating Unit” (CGU) and intangible assets at the end of each reporting period to determine whether there is any significant indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). When it is not possible to estimate the recoverable amount of an individual asset, the Company estimates the recoverable amount of the cash-generating unit to which the asset belongs.
Recoverable amount is the higher of fair value less costs of disposal 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.
If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount and impairment loss is recognised in the Statement of Profit and Loss.
An assessment is made at the end of each reporting period to see if there are any indications that impairment losses recognized earlier, may no longer exist or may have come down. The impairment loss is reversed, if there has been a change in the estimates used to determine the asset’s recoverable amount since the previous impairment loss was recognized. If it is so, the carrying amount of the asset is increased to the lower of its recoverable amount and the carrying amount that have been determined, net of depreciation, had no impairment loss been recognized for the asset in prior years. After a reversal, the depreciation charge is adjusted in future periods to allocate the asset’s revised carrying amount, less any residual value, on a systematic basis over its remaining useful life. Reversals of Impairment loss are recognized in the Statement of Profit and Loss.
Exploration and Evaluation assets are tested for Impairment when further exploration activities are not planned in near future or when sufficient data exists to indicate that although a development is likely to proceed, the carrying amount of the exploration asset is unlikely to be recovered
in full from successful development or by sale. Impairment loss is reversed subsequently, to the extent that conditions for impairment are no longer present.
3.8. Exploration & Evaluation, Development and Production Costs
(i) Pre-acquisition cost
Expenditure incurred before obtaining the right(s) to explore, develop and produce oil and gas are expensed as and when incurred.
(ii) Acquisition cost
Acquisition costs of Oil and Gas Assets are costs related to right to acquire mineral interest and are accounted as follows: -
(a) Exploration and development stage
Acquisition cost relating to projects under exploration or development are initially accounted as Intangible Assets under development - exploratory wells in progress or Oil & Gas Assets under development - development wells in progress respectively. Such costs are capitalized by transferring to Oil and Gas Assets when a well is ready to commence commercial production. In case of abandonment / relinquishment of Intangible Assets under development - exploratory wells in progress, such costs are written off.
(b) Production stage
Acquisition costs of producing Oil and Gas Assets are capitalized as proved property acquisition cost under Oil and Gas Assets and amortized using the unit of production method over proved reserves of underlying assets.
(iii) Survey cost
Cost of Survey and prospecting activities conducted in the search of oil and gas in exploratory area are expensed as exploration cost in the year in which these are incurred.
Cost of survey conducted in the development area are initially capitalized as ‘intangible oil & gas asset in progress’ and transferred to ‘Oil and Gas Assets’ on conclusion of survey (API) activity.
(iv) Oil & Gas asset under development - Development Wells in Progress
All costs relating to Development Wells are initially capitalized as ‘Development Wells in Progress’ and transferred to ‘Oil and Gas Assets’ on “completion”.
(v) Production costs
Production costs include pre-well head and post-well head expenses including depreciation and applicable operating costs of support equipment and facilities.
3.9. Side tracking costs
In the case of an exploratory well, cost of side-tracking is treated in the same manner as the cost incurred on a new exploratory well. The cost of abandoned portion of side tracked exploratory wells is expensed as ‘Exploration cost written off’.
In the case of development wells, the entire cost of abandoned portion and side tracking is capitalized.
In case of side tracking of producing wells and service wells which form part of the development schemes are treated as development wells and the cost incurred on the side tracking is capitalized.
In the case of side tracking of producing wells and service wells which do not form part of the development schemes and the side-tracking results in additional proved developed oil and gas reserves or increases the future economic benefits therefrom beyond previously assessed standard of performance, the cost incurred on side tracking is capitalised, whereas the cost of abandoned portion of the well is depleted in the normal way. Otherwise, the cost of side tracking is expensed as ‘Work over Expenditure’.
3.10. Decommissioning costs
Decommissioning costs is recognized when the Company has a legal or constructive obligation to plug and abandon a well, dismantle and remove a facility or an item of Property, Plant and Equipment and to restore the site on which it is located. The full eventual estimated provision towards costs relating to dismantling, abandoning and restoring well sites and allied facilities are recognized in respective assets when the well is complete / facilities or Property, Plant and Equipment are installed.
The amount recognized is the present value of the estimated future expenditure determined using existing technology at current prices and escalated using appropriate inflation rate till the expected date of decommissioning and discounted up to the reporting date using the appropriate risk-free discount rate.
An amount equivalent to the decommissioning provision is recognized along with the cost of exploratory well or Property, Plant and Equipment. The decommissioning cost in respect of dry well is expensed as exploratory well cost.
Any change in the present value of the estimated decommissioning provision other than the periodic unwinding of discount is adjusted to the decommissioning provision and the carrying value of the related asset. In case reversal of decommissioning provision exceeds the carrying amount of the related asset including WDV of the capitalised portion of decommissioning provision in the carrying amount of the related asset, the excess amount is recognized in the Statement of Profit and Loss. The unwinding of discount on provision is charged in the Statement of Profit and Loss as finance cost.
Provision for decommissioning cost in respect of assets under Joint Operations is considered as per participating interest of the Company on the basis of estimates approved by the respective operating committee. Wherever the same are not approved by the respective operating committee, decommissioning cost estimates of the Company are considered.
3.11. Inventories
Finished goods (other than Sulphur and carbon credits) including inventories in pipelines / tanks are valued at cost or net realisable value whichever is lower. Cost of finished goods is determined on absorption costing method. It also includes systematic allocation of directly attributable fixed and variable production overheads. The value of inventories includes amortization cost of relevant assets, production related costs, excise duty and royalty (wherever applicable) but excludes recoverable taxes.
Crude oil in semi-finished condition at Group Gathering Stations (GGS) is valued at cost on absorption costing method or net realisable value, whichever is lower.
Crude oil in unfinished condition in flow lines up to GGS / platform is not valued as the same is not measurable. Natural Gas is not valued as it is not stored.
Cost of finished goods and semi-finished goods are determined on weighted average basis.
Inventory of stores and spare parts is valued at weighted average cost or net realisable value, whichever is lower. Provisions are made for obsolete and non-moving inventories. Sulphur (being residual in nature) and carbon credits are valued at net realisable value.
3.12. Revenue recognition
The Company derives revenues primarily from sale of products and services, such as crude oil, natural gas, value added products, pipeline transportation and processing services.
Revenue from contracts with customers is recognized at the point in time when the Company satisfies a performance obligation by transferring control of a promised product or service to a customer at an amount that reflects the consideration to which the Company expects to be entitled in exchange for the sale of products and service, net of discount, taxes. The transfer of control on sale of crude oil, natural gas and value-added products occurs at the point of delivery, where usually the title is passed and the customer takes physical possession, depending upon the contractual conditions. Any retrospective revision in prices is accounted for in the year of such revision.
Sale of crude oil and natural gas (net of levies) produced from Exploratory/ Development Wells in Progress is deducted from expenditure on such wells.
Any payment received in respect of contractual short lifted gas quantity for which an obligation exists to make-up such gas in subsequent periods is recognised as Contract Liabilities in the year of receipt. Revenue in respect of such contractual short lifted quantity of gas is recognized when such gas is actually supplied or when the customer’s right to make up is expired, whichever is earlier.
As per the Production Sharing Contracts for extracting the Oil and Gas Reserves with Government of India, out of the earnings from the exploitation of reserves after recovery of cost, a part of the revenue is paid to Government of India which is called Profit Petroleum. It is reduced from the
revenue from Sale of Products as Government of India’s Share in Profit Petroleum.
Revenue in respect of contractual short lifted quantity of gas with no obligation for make-up is recognized when collectability of the receivable is reasonably assured.
3.13. Other income
(i) Dividend income from investments is recognised when the shareholder’s right to receive the payment is established.
(ii) Income in respect of the following is recognized when collectability of the receivable is reasonably assured:
(a) Interest on delayed realization from customers and cash calls from JV partners;
(b) Liquidated damages from contractors/suppliers;
(iii) Interest income on deposit with banks is recognised at effective interest rate applicable, interest income from other financial assets is recognised at the effective interest rate method on initial recognition.
3.14. Foreign Exchange Transactions
The functional currency of the Company is Indian Rupees (“'”) which represents the currency of the primary economic environment in which it operates.
Transactions in currencies other than the Company’s functional currency (foreign currencies) are recognised at the rates of exchange prevailing at the dates of the transactions. At the end of each reporting period, monetary items denominated in foreign currencies are translated using mean exchange rate prevailing on the last day of the reporting period.
Exchange differences on monetary items are recognised in the Statement of Profit and Loss in the period in which they arise.
Non-monetary items denominated in foreign currency which are measured in terms of historical cost are recorded using the exchange rate at the date of the transaction.
3.15. Employee Benefits
Employee benefits include salaries, wages, Contributory provident fund, gratuity, leave encashment towards unavailed leave, compensated absences, post-retirement
medical benefits and other terminal benefits.
All short term employee benefits are recognized at their undiscounted amount in the accounting period in which they are incurred.
(i) Defined contribution plans
Employee Benefit under defined contribution plans comprising Post Retirement benefit scheme, Employee pension scheme-1995, composite social security scheme etc. is recognized based on the undiscounted amount of obligations of the Company to contribute to the plan. The same is paid to a fund administered through a separate trust.
(ii) Defined benefit plans
Defined employee benefit plans comprising of contributory provident fund, gratuity, post-retirement medical benefits and other terminal benefits, are recognized based on the present value of defined benefit obligation which is computed using the projected unit credit method, with actuarial valuations being carried out at the end of each annual reporting period. These are accounted either as current employee cost or included in cost of assets as permitted.
Net interest on the net defined liability is calculated by applying the discount rate at the beginning of the period to the net defined benefit liability or asset and is recognised the Statement of Profit and Loss except those included in cost of assets as permitted.
Remeasurement of defined retirement benefit plans except for leave encashment towards un-availed leave and compensated absences, comprising actuarial gains and losses, the effect of the changes to the asset ceiling (if applicable) and the return on plan assets (excluding net interest as defined above), are recognised in other comprehensive income except those included in cost of assets as permitted in the period in which they occur and are not subsequently reclassified to profit or loss.
The Company contributes all ascertained liabilities with respect to contributory provident fund, gratuity and unavailed leave to the ONGC’s Provident Fund Trust, ONGC’s Gratuity Fund Trust (OGFT) and Life Insurance Corporation of India (LIC), respectively. Liability towards post-retirement
medical benefits is being funded and contributed to LIC. Other defined benefit schemes are unfunded.
The retirement benefit obligation recognised in the Financial Statements represents the actual deficit or surplus in the Company’s defined benefit plans. Any surplus resulting from this calculation is limited to the present value of any economic benefits available in the form of reductions in future contributions to the plans.
(iii) Other long term employee benefits
Other long term employee benefit comprises of leave encashment towards un-availed leave and compensated absences. These are recognized based on the present value of defined obligation which is computed using the projected unit credit method, with actuarial valuations being carried out at the end of each annual reporting period. These are accounted either as current employee cost or included in cost of assets as permitted.
Re-measurements of leave encashment towards unavailed leave and compensated absences are recognized in the Statement of profit and loss except those included in cost of assets as permitted in the period in which they occur.
3.16. Administrative Expenses
Administrative expenses which are directly attributable are allocated to activities and the balance is charged to Statement of Profit and Loss as general administrative expenses
3.17. Insurance claims
Insurance claims are accounted for on the basis of claims admitted/expected to be admitted to the extent that the amount recoverable can be measured reliably and it is virtually certain to expect ultimate collection.
3.18. Income Taxes
Income tax expense represents the sum of the current tax and deferred tax.
(i) Current tax
The tax currently payable is based on taxable profit for the year. Taxable profit differs from ‘profit before tax’ as reported in the Statement of Profit and Loss because of items of income or expense that are taxable or deductible in
other years and items that are never taxable or deductible. The Company’s current tax is calculated using tax rates and laws that have been enacted or substantively enacted by the end of the reporting period and any adjustment to tax payable in respect of previous year.
(ii) Deferred tax
Deferred tax is recognised using the balance sheet method, providing for temporary differences between the carrying amounts of assets and liabilities in the Financial Statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognised for all taxable temporary differences. Deferred tax assets are generally recognised for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilised.
The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the deferred tax asset to be utilized.
Deferred tax liabilities and assets are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realised, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority.
The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Company expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.
Deferred tax assets are recognised for all deductible temporary differences, and any unused tax losses to the extent that it is probable that taxable profit will be available in future against which the deductible temporary differences, and unused tax losses can be utilised, except when the deferred tax asset relating to the deductible temporary difference arises from the initial recognition of
an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects (i) neither the accounting profit or loss nor taxable profit or loss and (ii) does not give rise to equal taxable and deductible temporary difference.
(iii) Current and deferred tax expense for the year
Current and deferred tax expense is recognised in the Statement of Profit and Loss, except when they relate to items that are recognised in other comprehensive income or directly in equity, in which case, the current and deferred tax are also recognised in other comprehensive income or directly in equity respectively.
3.19. Borrowing or Finance Costs
Borrowing costs including finance cost on lease liability specifically identified to the acquisition or construction of qualifying assets or development wells or exploratory wells is capitalized as part of such assets till the date of cessation of activities related to qualifying assets. A qualifying asset is one that necessarily takes substantial period of time to get ready for intended use. All other borrowing costs are charged to the Statement of Profit and Loss.
Borrowing cost also includes exchange differences arising from foreign currency borrowings to the extent that they are regarded as an adjustment to interest costs i.e., equivalent to the extent to which the exchange loss does not exceed the difference between the cost of borrowing in functional currency (?) when compared to the cost of borrowing in a foreign currency.
When there is an unrealised exchange loss which is treated as an adjustment to interest and subsequently there is a realised or unrealised gain in respect of the settlement or translation of the same borrowing, the gain to the extent of the loss previously recognised as an adjustment is recognised as an adjustment to interest.
3.20. Rig Days Costs
Rig movement costs are booked to the next location drilled/planned for drilling. Abnormal Rig days’ costs are considered as un-allocable and charged to the Statement of Profit and Loss.
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