2. Material Accounting Policy Information
A summary of the material accounting policy
information applied in the preparation of the
financial statements are as given below. These
accounting policies have been applied consistently
to all periods presented in the financial statements.
2.1 Basis of Preparation
i) Compliance with Ind AS
The financial statements are prepared in
compliance with Indian Accounting Standards
(Ind AS) notified under Section 133 of the
Companies Act, 2013 (the Act), Companies
(Indian Accounting Standards) Rules, 2015,
the relevant provisions of the Companies Act,
2013 (to the extent notified), The Companies
Act, 1956 and the provisions of Electricity Act,
2003, in each case, to the extent applicable
and as amended thereafter.
ii) Basis of Measurement
The financial statements have been prepared
on accrual basis and under the historical cost
convention except following which have been
measured at fair value:
• Certain financial assets and liabilities
measured at fair value (refer Note no. 2.13
for accounting policy regarding financial
instruments),
• Defined benefit plans - plan assets
measured at fair value.
iii) Functional and presentation currency
The financial statements are presented in
Indian Rupees (Rupees or f), which is the
Company's functional and presentation
currency and all amounts are rounded to
the nearest crore and two decimals thereof,
except as stated otherwise.
iv) Use of estimates
The preparation of financial statements
requires estimates and assumptions that
affect the reported amount of assets,
liabilities, revenue and expenses during the
reporting period. Although, such estimates
and assumptions are made on a reasonable
and prudent basis taking into account all
available information, actual results could
differ from these estimates. The estimates
and underlying assumptions are reviewed on
an on-going basis. Revisions to accounting
estimates are recognised in the period in
which the estimate is revised if the revision
effects only that period or in the period of
the revision and future periods if the revision
affects both current and future years (refer
Note no. 3 on critical accounting estimates,
assumptions and judgments).
v) Current and non-current classification
The Company presents assets and liabilities
in the balance sheet based on current/non-
current classification.
An asset is current when it is:
• Expected to be realised or intended to be
sold or consumed in normal operating
cycle;
• Held primarily for the purpose of trading;
• Expected to be realised within twelve
months after the reporting period; or
• Cash or cash equivalent unless restricted
from being exchanged or used to settle a
liability for at least twelve months after
the reporting period.
All other assets are classified as non-current.
A liability is current when:
• It is expected to be settled in normal
operating cycle;
• It is held primarily for the purpose of
trading;
• It is due to be settled within twelve
months after the reporting period; or
• There is no unconditional right to defer
settlement of the liability for at least
twelve months after the reporting period.
All other liabilities are classified as non¬
current.
Deferred tax assets/liabilities are classified as
non-current.
The Company recognises twelve months
period as its operating cycle.
2.2 Property, Plant and Equipment
The Company had opted to consider the carrying
value of Property, Plant and Equipment as per
previous GAAP on the date of transition to Ind AS
(1st April, 2015) to be the deemed cost as per Ind
AS 101 'First time Adoption of Indian Accounting
Standards'.
Initial Recognition and Measurement
Property, Plant and Equipment is initially measured
at cost of acquisition/construction including any
costs directly attributable to bringing the asset to
the location and condition necessary for it to be
capable of operating in the manner intended by
management. After initial recognition, Property,
Plant and Equipment is carried at cost less
accumulated depreciation / amortisation and
accumulated impairment losses, if any.
In the case of commissioned assets, deposit
works/cost- plus contracts where final settlement
of bills with contractors is yet to be effected,
capitalisation is done on provisional basis
subject to necessary adjustments in the year of
final settlement.
Assets and systems common to more than one
transmission system are capitalised on the basis of
technical estimates/ assessments.
Transmission system assets are considered as
ready for intended use from the date of commercial
operation declared or approved in terms of CERC
Tariff Regulations and capitalised accordingly.
The cost of land includes provisional deposits,
payments/liabilities towards compensation,
rehabilitation and other expenses wherever
possession of land is taken.
Expenditure on levelling, clearing and grading
of land if incurred for construction of building is
capitalised as part of cost of the related building.
Spares parts individually costing more than
^10,00,000/-, standby equipment and servicing
equipment which meets the recognition criteria of
Property, Plant and Equipment are capitalised.
The acquisition or construction of some items
of property, plant and equipment although not
directly increasing the future economic benefits of
any particular existing item of property, plant and
equipment, may be necessary for the company
to obtain future economic benefits from its other
assets. Such items are recognised as property,
plant and equipment.
Subsequent costs
Subsequent expenditure is recognised as an
increase in carrying amount of assets when it is
probable that future economic benefits deriving
from the cost incurred will flow to the company and
cost of the item can be measured reliably.
The cost of replacing part of an item of Property,
Plant & Equipment is recognised in the carrying
amount of the item if it is probable that future
economic benefits embodied within the part will
flow to the company and its cost can be measured
reliably. The carrying amount of the replaced part
is derecognised. If the cost of the replaced part or
earlier inspection component is not available, the
estimated cost of similar new parts/inspection
component is used as an indication of what the
cost of the existing part/ inspection component
was when the item was acquired or inspection was
carried out.
The costs of the day-to-day servicing of property,
plant and equipment are recognised in the
Statement of Profit & Loss as incurred.
Derecognition
An item of Property, Plant and Equipment is
derecognised on disposal or when no future
economic benefits are expected from its use or
disposal.
The gain or loss arising from derecognition of
an item of property, plant and equipment is
determined as the difference between the net
disposal proceeds and the carrying amount of the
asset and is recognised in the Statement of Profit
and Loss on the date of derecognition.
2.3 Capital Work-In-Progress (CWIP)
Cost of material, erection charges and other
expenses incurred for the construction of Property,
Plant and Equipment are shown as CWIP based
on progress of erection work till the date of
capitalisation.
Expenditure of Corporate office, Regional Offices
and Projects, directly attributable to construction of
property, plant and equipment are identified and
allocated on a systematic basis to the cost of the
related assets.
Interest during construction and expenditure (net)
allocated to construction as per policy above
are kept as a separate item under CWIP and
apportioned to the assets being capitalised in
proportion to the closing balance of CWIP.
Deposit works/cost-plus contracts are accounted
for on the basis of statement received from the
contractors or technical assessment of work
completed.
Unsettled liability for price variation/exchange rate
variation in case of contracts is accounted for on
estimated basis as per terms of the contracts.
2.4 Intangible Assets and Intangible Assets
under development
The Company had opted to consider the carrying
value of Intangible Assets as per previous GAAP
on the date of transition to Ind AS (1st April, 2015)
to be the deemed cost as per Ind AS 101 'First time
Adoption of Indian Accounting Standards'.
Intangible assets with finite useful life that are
acquired separately are carried at cost less any
accumulated amortisation and accumulated
impairment losses.
Subsequent expenditure on already capitalised
Intangible assets is capitalised when it increases
the future economic benefits embodied in an
existing asset and is amortised prospectively.
The cost of software (which is not an integral part of
the related hardware) acquired for internal use and
resulting in significant future economic benefits is
recognised as an intangible asset when the same
is ready for its use.
Afforestation charges for acquiring right-of-way
for laying transmission lines are accounted for as
intangible assets on the date of capitalisation of
related transmission lines.
Expenditure incurred, eligible for capitalisation
under the head Intangible Assets, are carried as
"Intangible Assets under Development" till such
assets are ready for their intended use.
Expenditure on research activities is recognised as
an expense in the period in which it is incurred.
Expenditure on development activities shall be
recognised as Intangible asset if it meets the
eligibility criteria as per Ind AS 38 'Intangible Assets',
otherwise it shall be recognised as an expense.
An item of Intangible asset is derecognised upon
disposal or when no future economic benefits are
expected from its use or disposal. Gains or losses
arising from derecognition of an intangible asset
are measured as the difference between the net
disposal proceeds and the carrying amount of the
asset and are recognised in the Statement of Profit
and Loss when the asset is derecognised.
2.5 Investment property
The Company had opted to consider the carrying
value of Investment Property as per previous GAAP
on the date of transition to Ind AS (1st April, 2015)
to be the deemed cost as per Ind AS 101 'First time
Adoption of Indian Accounting Standards'.
Investment property comprises portions of land
and/or buildings that are held for long term rental
yields and/or for capital appreciation.
Investment properties are initially measured at
cost, including transaction costs. Subsequent
to initial recognition, investment properties are
carried at cost less accumulated depreciation and
accumulated impairment loss, if any.
Transfers to or from investment property is made
when there is a change in use i.e. an asset meets
or ceases to meet the definition of investment
property and there is evidence of the change in use.
Investment properties are derecognised either
when they have been disposed off or when they
are permanently withdrawn from use and no future
economic benefit is expected from their disposal.
The difference between the net disposal proceeds
and the carrying amount of the asset is recognised
as profit or loss in the period of derecognition.
2.6 Depreciation / Amortisation
Property, Plant and Equipment
Depreciation/amortisation on the items of property,
plant and equipment related to transmission
business is provided on straight line method
following the rates and methodology notified by
the CERC for the purpose of recovery of tariff and
on property, plant and equipment of telecom and
consultancy business is provided on straight line
method as per useful life specified in Schedule II
of the Companies Act, 2013 except for property,
plant and equipment specified in the following
paragraphs.
ULDC assets commissioned prior to 1st April 2014 are
depreciated on Straight Line Method @ 6.67% per
annum. Such assets commissioned on or after 1st
April 2014 are depreciated on straight line method
following the rates and methodology notified by the
CERC for the purpose of recovery of tariff.
In the case of property, plant and equipment
of National Thermal Power Corporation Limited
(NTPC), National Hydro-Electric Power Corporation
Limited (NHPC), North-Eastern Electric Power
Corporation Limited (NEEPCO), Neyveli Lignite
Corporation Limited (NLC) transferred w.e.f. April 1,
1992, Jammu and Kashmir Lines w.e.f. April 1, 1993,
and Tehri Hydro Development Corporation Limited
(THDC) w.e.f. August 1, 1993, depreciation is charged
based on gross block as indicated in transferor's
books with necessary adjustments so that the life of
the assets as laid down in the CERC notification for
tariff is maintained.
Depreciation on spares parts, standby equipment
and servicing equipment which are capitalised,
is provided on straight line method from the date
they are available for use over the remaining useful
life of the related assets of transmission business,
following the rates and methodology notified by the
CERC.
Depreciation on following items of property, plant
and equipment is provided based on estimated
useful life as per technical assessment.
Residual value of above assets is considered as Nil.
Mobile phones are charged off in the year of
purchase.
Property, plant and equipment costing f5,000/- or
less, are fully depreciated in the year of acquisition.
Where the cost of depreciable property, plant
and equipment has undergone a change due to
increase/decrease in long term monetary items
on account of exchange rate fluctuation, price
adjustment, change in duties or similar factors, the
unamortised balance of such asset is depreciated
prospectively at the rates and methodology as
specified by the CERC Tariff Regulations, except for
telecom and consultancy business assets where
residual life is determined on the basis of useful life
of property, plant and equipment as specified in
Schedule II of the Companies Act, 2013.
Depreciation on additions to/deductions from
Property, Plant and Equipment during the year is
charged on pro-rata basis from/up to the date on
which the asset is available for use/disposed.
The residual values, useful lives and methods
of depreciation for items of property, plant and
equipment other than items of property, plant and
equipment related to transmission business are
reviewed at each financial year-end and adjusted
prospectively, wherever required.
Right of Use Assets:
Right of Use assets are fully depreciated from the
lease commencement date on a straight line basis
over the lease term.
Leasehold land is fully amortised over lease period
or useful life of the related plant whichever is lower
in accordance with the rates and methodology
specified in CERC Tariff Regulation. Leasehold land
acquired on perpetual lease is not amortised.
Intangible Assets
Cost of software capitalised as intangible asset is
amortised over the period of legal right to use or 3
years, whichever is less with Nil residual value.
Afforestation charges are amortised over thirty
five years from the date of capitalisation of
related transmission assets following the rates
and methodology notified by Central Electricity
Regulatory Commission (CERC) Tariff Regulations.
Telecom Licenses are amortised on straight line
basis over their respective useful lives.
Expenditure on development of 1200kv Transmission
System shall be amortised over a period of 10 years.
Amortisation on additions to/deductions from
Intangible Assets during the year is charged on
pro-rata basis from/up to the date on which the
asset is available for use/disposed.
The amortisation period and the amortisation
method for intangible assets are reviewed at
each financial year-end and are accounted for as
change in accounting estimates in accordance
with Ind AS 8 "Accounting Policies, Changes in
Accounting Estimates and Errors".
2.7 Borrowing Costs
All the borrowed funds (except short term funds
for working capital) are earmarked to specific
projects. The borrowing costs (including bond
issue expenses, interest, discount on bonds, front
end fee, guarantee fee, management fee etc.) are
allocated to the projects in proportion to the funds
so earmarked.
Exchange differences arising from foreign currency
borrowing to the extent regarded as an adjustment
to interest costs are treated as borrowing cost.
Borrowing costs directly attributable to the
acquisition or construction of qualifying assets
are capitalised (net of income on temporary
deployment of funds) as part of the cost of such
assets till the assets are ready for the intended
use. Qualifying assets are assets which take a
substantial period of time to get ready for their
intended use.
All other borrowing costs are recognised in
Statement of Profit and Loss in the period in which
they are incurred.
2.8 Impairment of non-financial assets
The carrying amounts of the Company's non¬
financial assets are reviewed at each reporting
date to determine whether there is any indication of
impairment considering the provisions of Ind AS 36
'Impairment of Assets'. If any such indication exists,
then the asset's recoverable amount is estimated.
The recoverable amount of an asset or cash¬
generating unit is the higher of its fair value less costs
to disposal and its 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. For the purpose of
impairment testing, assets that cannot be tested
individually are grouped together into the smallest
group of assets that generates cash inflows from
continuing use that are largely independent of the
cash inflows of other assets or groups of assets (the
"cash-generating unit", or "CGU").
An impairment loss is recognised if the carrying
amount of an asset or its CGU exceeds its
estimated recoverable amount. Impairment losses
are recognised in the statement of profit and loss.
Impairment losses recognised in respect of CGUs
are reduced from the carrying amounts of the
assets of the CGU.
Impairment losses recognised in prior periods are
assessed at each reporting date for any indications
that the loss has decreased or no longer exists.
An impairment loss is reversed if there has been
a change in the estimates used to determine
the recoverable amount. An impairment loss is
reversed only to the extent that the asset's carrying
amount does not exceed the carrying amount that
would have been determined, net of depreciation
or amortisation, if no impairment loss had been
recognised.
2.9 Cash and cash equivalents
Cash and cash equivalents include cash on hand
and at bank, and deposits held at call with banks
having a maturity of three months or less from
the date of acquisition that are readily convertible
to a known amount of cash and are subject to an
insignificant risk of changes in value.
2.10 Inventories
Inventories are valued at lower of the cost,
determined on weighted average basis and net
realisable value.
Spares which do not meet the recognition criteria
as Property, Plant and Equipment, including spare
parts individually costing up to ^10,00,000/- are
recorded as inventories.
Surplus materials as determined by the
management are held for intended use and are
included in the inventory.
The diminution in the value of obsolete/
unserviceable/surplus stores and spares and non¬
moving unserviceable inventories is ascertained on
review and provided for.
2.11 Leases
Lease is a contract that conveys the right to control
the use of an identified asset for a period of time in
exchange for consideration.
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 assets, (ii) the customer has substantially
all the economic benefits from the use of the
asset through the period of the lease and (iii) the
customer has the right to direct the use of the asset.
i) As a Lessee
At the date of commencement of the lease,
the Company recognises a right-of-use asset
(ROU) and a corresponding lease liability for
all lease arrangements in which it is a lessee,
except for lease with a term of twelve months
or less (i.e. short term leases) and leases for
which the underlying asset is of low value. For
these short-term and leases for which the
underlying asset is of low value, the Company
recognises 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 they will be
exercised.
The right-of-use assets are initially recognised
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, accumulated impairment
losses, if any and adjusted for any
remeasurement of the lease liability. The
Company applies Ind AS 36 to determine
whether a ROU asset is impaired and
accounts for any identified impairment loss
as described in the accounting policy 2.8 on
"Impairment of non-financial assets".
The lease liability is initially measured at
present value of the lease payments that are
not paid at that date.
The interest cost on lease liability is expensed
in the Statement of Profit and Loss, unless
eligible for capitalisation as per accounting
policy 2.7 on "Borrowing costs".
Lease liability and ROU asset have been
separately presented in the financial
statements and lease payments have been
classified as financing cash flows.
ii) As a Lessor
A lease is classified at the inception date as a
finance lease or an operating lease.
a) Finance leases
A lease that transfers substantially all the risks
and rewards incidental to ownership of an
asset is classified as a finance lease.
State sector Unified Load Dispatch Centre
(ULDC)/ Fiber Optic Communication Assets
(FOC)/Bilateral line assets leased to the
beneficiaries are considered as Finance
Lease. Net investment in such leased assets
are recorded as receivable at the lower
of the fair value of the leased property
and the present value of the minimum
lease payments along with accretion in
subsequent years is accounted for as Lease
Receivables under current and non-current
other financial assets. Wherever grant-in-aid
is received for construction of State Sector
ULDC, lease receivable is accounted for net of
such grant.
The interest element of lease is accounted
in the Statement of Profit and Loss over the
lease period based on a pattern reflecting
a constant periodic rate of return on the
net investment as per the tariff notified
by CERC.
FERV on foreign currency loans relating to
leased assets is adjusted to the amount of
lease receivables and is amortised over the
remaining tenure of lease. FERV recovery (as
per CERC norms) from the constituents is
recognised net of such amortised amount.
b) Operating leases
An operating lease is a lease other than a
finance lease. Leases in which a significant
portion of the risks and rewards of ownership
are retained by the lessor are classified as
operating leases.
For operating leases, the asset is capitalised
as property, plant and equipment and
depreciated over its economic life. Rental
income from operating lease is recognised
over the term of the arrangement.
2.12 Employee benefits
2.12.1 Defined contribution plans
A defined contribution plan is a post-employment
benefit plan under which an entity pays fixed
contributions into separate entities (Funds) and
will have no legal or constructive obligation to
pay further contributions, if the Fund does not hold
sufficient assets to pay all employee's benefits
related to employee service in the current and prior
periods. Obligations for contribution to defined
contribution plans are recognised as an employee
benefits expense in the statement of profit and loss
in the period during which services are rendered by
employees.
The Company has a defined contribution pension
scheme which is administered through a separate
trust. The obligation of the Company is to contribute
to the trust to the extent of amount not exceeding
30% of basic pay and dearness allowance less
employer's contribution towards provident fund,
gratuity, post-retirement medical facility (PRMF) or
any other retirement benefits. The contributions to
the fund for the year are recognised as an expense
and charged to the statement of profit and loss.
2.12.2 Defined benefit plans
A defined benefit plan is a post-employment
benefit plan other than a defined contribution plan.
The Company's liability towards gratuity, post¬
retirement medical facility, baggage allowance
for settlement at home town after retirement,
acknowledgement of service on retirement and
provident fund scheme to the extent of interest
liability on provident fund contribution are in the
nature of defined benefit plans.
The gratuity is funded by the Company and is
managed by separate trust. The Company has Post¬
Retirement Medical Facility (PRMF), under which
retired employee and the spouse are provided
medical facilities in the Company empanelled
hospitals. They can also avail treatment as out¬
patient subject to a ceiling fixed by the Company.
The Company pays fixed contribution to Provident
Fund at predetermined rates to a separate trust,
which invests the funds in permitted securities. The
contributions to the fund for the year are recognised
as expense and are charged to the statement of
profit and loss. The obligation of the Company is
limited to such fixed contributions and to ensure
a minimum rate of interest on contributions to the
members as specified by the Government of India
(Gol).
The Company has schemes for payment of
baggage allowance on superannuation towards
expenses for settlement at hometown for the
superannuated employees & their dependents
and for providing an acknowledgement of service
on retirement.
The Company's net obligation in respect of defined
benefit plans is calculated separately for each
plan by estimating the amount of future benefit
that employees have earned in return for their
service in the current and prior periods; that benefit
is discounted to determine its present value. Any
unrecognised past service costs and the fair value
of any plan assets are deducted. The discount rate
is based on the prevailing market yields of Indian
government securities as at the reporting date that
have maturity dates approximating the terms of the
Company's obligations and that are denominated
in the same currency in which the benefits are
expected to be paid.
The calculation is performed annually by a qualified
actuary using the projected unit credit method.
When the calculation results in a benefit to the
Company, the recognised asset is limited to the
total of any unrecognised past service costs and
the present value of economic benefits available
in the form of any future refunds from the plan or
reductions in future contributions to the plan. An
economic benefit is available to the Company if it is
realisable during the life of the plan, or on settlement
of the plan liabilities. Any actuarial gains or losses
are recognised in OCI in the period in which they
arise and subsequently not reclassified to profit or
loss.
When the benefits of a plan are improved, the
portion of the increased benefit relating to past
service by employees is recognised in the statement
of profit and loss on a straight-line basis over the
average period until the benefits become vested.
To the extent that the benefits vest immediately,
the expense is recognised immediately in the
statement of profit and loss.
2.12.3 Other long-term employee benefits
Benefits under the Company's leave encashment
and employee family economic rehabilitation
scheme constitute other long term employee
benefits.
The Company's net obligation in respect of leave
encashment is the amount of future benefit that
employees have earned in return for their service
in the current and prior periods; that benefit is
discounted to determine its present value. The
discount rate is based on the prevailing market
yields of Indian government securities as at
the reporting date that have maturity dates
approximating the terms of the Company's
obligations. The calculation is performed using the
projected unit credit method. Any actuarial gains or
losses are recognised in the statement of profit and
loss in the period in which they arise.
As per 'POWERGRID Employee Family Economic
Rehabilitation Scheme', which is optional, in the
event of death or permanent total disability of an
employee, the dependent(s) or the employee, as
the case may be, is paid a fixed amount based
on the last salary drawn by the employee till the
notional date of superannuation of the employee
upon depositing the final provident fund and
gratuity amount which will be interest free.
2.12.4 Short-term benefits
Short term employee benefit obligations are
measured on an undiscounted basis and are
expensed as the related service is provided.
A liability is recognised for the amount expected
to be paid under performance related pay if the
Company has a present legal or constructive
obligation to pay this amount as a result of
past service provided by the employee and the
obligation can be estimated reliably.
2.13 Financial instruments
A financial instrument is any contract that gives
rise to a financial asset of one entity and a financial
liability or equity instrument of another entity.
Financial Assets
Classification
The Company classifies its financial assets in the
following categories:
• at amortised cost,
• at fair value through other comprehensive
income
• at fair value through profit or loss
The classification depends on the following:
• the entity's business model for managing the
financial assets and
• the contractual cash flow characteristics of
the financial asset
Initial recognition and measurement
All financial assets are recognised initially at
fair value plus, in the case of financial assets
not recorded at fair value through profit or loss,
transaction costs, if any, that are attributable to
the acquisition of the financial asset. However,
trade receivables that do not contain a significant
financing component are measured at transaction
price.
Subsequent measurement
Debt Instruments at Amortised cost: Assets that
are held for collection of contractual cash flows
where those cash flows represent solely payments
of principal and interest are measured at
amortised cost. A gain or loss on a debt investment
that is subsequently measured at amortised cost
is recognised in profit or loss when the asset is
derecognised or impaired. Interest income from
these financial assets is included in finance income
using the effective interest rate method.
Debt Instruments at Fair value through other
comprehensive income (FVOCI): Assets that are
held for collection of contractual cash flows and for
selling the financial assets, where the assets' cash
flows represent solely payments of principal and
interest, are measured at fair value through other
comprehensive income (FVOCI). On derecognition
of the asset, cumulative gain or loss previously
recognised in OCI is reclassified from the equity to
profit and loss. Interest income from these financial
assets is included in finance income using the
effective interest rate method.
Debt instruments at Fair value through profit or
loss (FVPL): Assets that do not meet the criteria for
amortised cost or FVOCI are measured at fair value
through profit or loss. Interest income and net gain
or loss on a debt instrument that is subsequently
measured at FVPL are recognised in statement of
profit and loss and presented within other income
in the period in which it arises.
Equity investments
All equity investments in scope of Ind AS 109
'Financial Instruments' are measured at fair value.
The company may, on initial recognition, make
an irrevocable election to present subsequent
changes in the fair value in other comprehensive
income (FVOCI) on an instrument by-instrument
basis.
For equity instruments classified as at FVOCI, all
fair value changes on the instrument, excluding
dividends are recognised in the OCI. There is no
recycling of the amounts from OCI to Profit or Loss,
even on sale of investment. However, the Company
may transfer the cumulative gain or loss within
equity.
Derecognition of financial assets
A financial asset is derecognised only when
i) The right to receive cash flows from the asset
have expired, or
ii) a) The company has transferred the rights to
receive cash flows from the financial asset (or)
retains the contractual rights to receive the cash
flows of the financial assets, but assumes a
contractual obligation to pay the cash flows to
one or more recipients and
b) the company has transferred substantially
all the risks and rewards of the asset (or) the
company has neither transferred nor retained
substantially all the risks and rewards of the
asset, but has transferred control of the asset.
The difference between the carrying amount and
the amount of consideration received/receivable
is recognised in the Statement of Profit and Loss.
Impairment of financial assets:
For trade receivables and contract assets,
the company applies the simplified approach
required by Ind AS 109 Financial Instruments,
which requires expected lifetime losses to
be recognised from initial recognition of the
receivables.
For recognition of impairment loss on other
financial assets and risk exposure, the company
determines whether there has been a significant
increase in the credit risk since initial recognition.
If credit risk has not increased significantly,
12-month Expected Credit Loss (ECL) is used to
provide for impairment loss. However, if credit risk
has increased significantly, lifetime ECL is used.
If, in a subsequent period, credit quality of the
instrument improves such that there is no longer
a significant increase in credit risk since initial
recognition, then the entity reverts to recognising
impairment loss allowance based on 12 -month
ECL.
Financial Liabilities
Financial liabilities of the Company are
contractual obligation to deliver cash or another
financial asset to another entity or to exchange
financial assets or financial liabilities with another
entity under conditions that are potentially
unfavourable to the Company.
The Company's financial liabilities include loans
& borrowings, trade and other payables.
Classification, initial recognition and
measurement
Financial liabilities are recognised initially at fair
value minus, in the case of financial liabilities
not recorded at fair value through profit or loss,
transaction costs that are directly attributable to
the issue of financial liabilities.
Subsequent measurement
After initial recognition, financial liabilities are
subsequently measured at amortised cost using
the EIR method. Amortised cost is calculated by
taking into account any discount or premium
on acquisition and fees or costs that are an
integral part of the effective interest rate (EIR).
Any difference between the proceeds (net of
transaction costs) and the redemption amount
is recognised in the Statement of Profit and Loss
over the period of the borrowings using the EIR.
Gains and losses are recognised in Statement
of Profit and Loss when the liabilities are
derecognised.
The EIR amortisation is included as finance costs
in the Statement of Profit and Loss.
Derecognition of financial liability
A financial liability is derecognised when the
obligation under the liability is discharged or
cancelled or expires. When an existing liability
is replaced by another from the same lender
on substantially different terms, or the terms of
an existing liability are substantially modified,
such an exchange or modification is treated
as the derecognition of the original liability and
the recognition of a new liability. The difference
between the carrying amount of a financial
liability that has been extinguished or transferred
to another party and the consideration paid,
including any non-cash assets transferred or
liabilities assumed, is recognised in Statement of
Profit and Loss as other income or finance cost.
Offsetting of financial instruments
Financial assets and financial liabilities are offset
and the net amount is reported in the Balance
Sheet if there is a currently enforceable legal right
to offset the recognised amounts and there is an
intention to settle on a net basis, to realise the
assets and settle the liabilities simultaneously.
2.14 Investment in Subsidiaries
A subsidiary is an entity controlled by the Company.
Control exists when the Company has power over
the entity, is exposed, or has rights to variable
returns from its involvement with the entity and has
the ability to affect those returns by using its power
over the entity.
Power is demonstrated through existing rights that
give the ability to direct relevant activities, those
which significantly affect the entity's returns.
Investments in subsidiaries are carried at cost less
impairment, if any. The cost comprises price paid to
acquire investment and directly attributable cost.
2.15 Investment in Joint Ventures and
Associates
A joint venture is a type of joint arrangement
whereby the parties that have joint control of the
arrangement have rights to the net assets of the
joint venture. 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.
The investment in joint ventures and associates
are carried at cost less impairment, if any. The cost
comprises price paid to acquire investment and
directly attributable cost.
2.16 Foreign Currency Translation
(a) Functional and presentation currency
Items included in the financial statements of the
Company are measured using the currency of
the primary economic environment in which the
Company operates ('the functional currency').
The financial statements are presented in Indian
Rupees (Rupees or f), which is the Company's
functional and presentation currency.
(b) Transactions and balances
Transactions in foreign currencies are initially
recorded at the exchange rates prevailing on the
date of the transaction. Foreign currency monetary
items are translated with reference to the rates of
exchange ruling on the date of the Balance Sheet.
Non-Monetary items denominated in foreign
currency are reported at the exchange rate
ruling on the date of initial recognition of the non¬
monetary prepayment asset or deferred income
liability, or the date that related item is recognised
in the financial statements, whichever is earlier. In
case the transaction is recognised in stages, then
transaction date is established for each stage.
Foreign exchange gains and losses (other than
related to foreign currency loans outstanding) are
presented in the statement of profit and loss on a
net basis within other gains/ (losses).
The Company has availed the exemption available
in Ind AS 101, to continue the policy adopted for
accounting for exchange differences arising from
translation of long-term foreign currency monetary
liabilities outstanding as on March 31, 2016.
Foreign currency loans outstanding as on March
31, 2016:
Foreign Exchange Rate Variation (FERV) arising on
settlement / translation of such foreign currency
loans relating to property, plant and equipment/
capital work-in-progress is adjusted to the carrying
cost of related assets and is recoverable/payable
from the beneficiaries on actual payment basis
as per Central Electricity Regulatory Commission
(CERC) norms w.e.f. 1st April, 2004 or Date of
Commercial Operation (DOCO) whichever is
later. The above FERV to the extent recoverable or
payable as per the CERC norms is accounted for as
follows:
i) FERV recoverable/payable adjusted to carrying
cost of property, plant and equipment is accounted
for as 'Deferred foreign currency fluctuation asset/
liability a/c' with a corresponding credit/debit
to 'Deferred income/expenditure from foreign
currency fluctuation a/c'.
ii) 'Deferred income/expenditure from foreign
currency fluctuation a/c' is amortised in the
proportion in which depreciation is charged on
such FERV.
iii) The amount recoverable/payable as per CERC
norms on year to year basis is adjusted to the
'Deferred foreign currency fluctuation asset/liability
a/c' with corresponding debit / credit to the trade
receivables.
FERV earlier charged to Statement of Profit and Loss
& included in the capital cost for the purpose of
tariff is adjusted against 'Deferred foreign currency
fluctuation asset/liability a/c'.
FERV arising out of settlement/translation of long
term monetary items (other than foreign currency
loans) relating to Property Plant & Equipment /CWIP
is adjusted in the carrying cost of related assets.
FERV arising during the construction period from
settlement/translation of monetary items (other
than non-current loans) denominated in foreign
currency to the extent recoverable/payable to
the beneficiaries as capital cost as per CERC
tariff Regulation are accounted as Regulatory
Deferral Account Balances. Transmission charges
recognised on such amount is adjusted against
above account. Other exchange differences are
recognised as income or expenses in the period in
which they arise.
Foreign currency loans drawn on or after April 1,
2016:
Exchange differences arising from foreign currency
borrowing to the extent regarded as an adjustment
to interest costs are treated as borrowing cost.
Other exchange differences are recognised in the
Statement of Profit and Loss.
Exchange difference to the extent recoverable
as per CERC tariff regulations are recognised as
Regulatory Deferral Account Balances through
Statement of Profit and Loss.
2.17 Income Tax
Income tax expense represents the sum of
current and deferred tax. Tax is recognised in the
Statement of Profit and Loss, except to the extent
that it relates to items recognised directly in equity
or other comprehensive income. In this case the
tax is also recognised directly in equity or in other
comprehensive income.
Current income tax
The Current Tax is based on taxable profit for the
year under the tax laws enacted and applicable
to the reporting period in the countries where the
company operates and generates taxable income
and any adjustment to tax payable in respect of
previous years.
Deferred tax
Deferred tax is recognised on temporary differences
between the carrying amounts of assets and
liabilities in the company's financial statements
and the corresponding tax bases used in the
computation of taxable profit and is accounted
for using the Balance Sheet method. Deferred tax
assets are generally recognised for all deductible
temporary differences, unused tax losses and
unused tax credits to the extent that it is probable
that future taxable profits will be available against
which those deductible temporary differences,
unused tax losses and unused tax credits can
be utilised. The carrying amount of deferred tax
assets is reviewed at each Balance Sheet date and
reduced to the extent that it is no longer probable
that sufficient taxable profits will be available
against which the temporary differences can be
utilised.
Deferred tax assets and liabilities 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 Balance
Sheet date.
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.
Deferred tax assets include Minimum Alternative
Tax (MAT) paid in accordance with the tax laws in
India, which is likely to give future economic benefits
in the form of availability of set off against future
income tax liability. MAT is recognised as deferred
tax asset in the balance sheet when the asset can
be measured reliably and it is probable that the
future economic benefit associated with the asset
will be realised.
2.18 Regulatory Deferral Account Balances
Certain expenses and income, allowed under CERC
regulations to be reimbursed by/passed on to
beneficiaries in future, are to be accounted in the
Statement of Profit and Loss as per the provisions
of Ind AS 114 'Regulatory Deferral Accounts' and
Guidance Note on "Accounting for Rate Regulated
Activities" issued by the Institute of Chartered
Accountants of India (ICAI). Such expenses and
income, to the extent recoverable /payable as
part of tariff under CERC Regulations are treated as
Regulatory Deferral Assets/Liabilities.
The Company presents separate line items in the
Balance Sheet for:
(a) the total of all Regulatory Deferral Account
Debit Balances; and
(b) the total of all Regulatory Deferral Account
Credit Balances.
A separate line item is presented in the profit or loss
section of the Statement of Profit and Loss for the
net movement in all Regulatory Deferral Account
Balances for the reporting period.
Regulatory deferral accounts balances are
adjusted in the year in which the same become
recoverable from or payable to the beneficiaries.
2.19 Revenue
Revenue is measured based on the transaction
price to which the Company expects to be entitled in
a contract with a customer and excludes amounts
collected on behalf of third parties. The Company
recognises revenue when it transfers control of a
product or service to a customer.
Significant Financing Component
Where the period between the transfer of the
promised goods or services to the customer and
payment by the customer exceeds one year,
the Company assesses the effects of significant
financing component in the contract. As a
consequence, the Company makes adjustment in
the transaction prices for the effects of time value
of money.
2.19.1 Revenue from Operations
Transmission
Transmission Income is accounted for based
on tariff orders notified by the CERC. In case of
transmission projects where final tariff orders are
yet to be notified, transmission income is accounted
for on provisional basis as per tariff regulations and
orders of the CERC in similar cases. Difference, if
any, is accounted on issuance of final tariff orders
by the CERC. Transmission Income in respect of
additional capital expenditure incurred after the
date of commercial operation is accounted for
based on expenditure incurred on year to year
basis as per CERC tariff regulations. As at each
reporting date, transmission income includes an
accrual for services rendered to the customers but
not yet billed.
Rebates allowed to beneficiaries as early payment
incentives are deducted from the amount of
revenue.
The Transmission system incentive / disincentive is
accounted for based on certification of availability
by the respective Regional Power Committees
(RPCs) and in accordance with the CERC tariff
regulations. Where certification by RPCs is not
available, incentive/disincentive is accounted for on
provisional basis as per estimate of availability by
the company and differences, if any is accounted
upon certification by RPCs.
Advance against depreciation (AAD), forming part
of tariff pertaining upto the block period 2004¬
09, to facilitate repayment of loans, was reduced
from transmission income and considered as
deferred income to be included in transmission
income in subsequent years. The outstanding
deferred income in respect of AAD is recognised
as transmission income, after twelve years from
the end of the financial year in which the asset
was commissioned, to the extent depreciation
recovered in the tariff during the year is lower than
depreciation charged in the accounts.
Other Operating Revenue
Income from Interest on differential Provisional
and Final Tariff, Income from lease lines, Deferred
income from Grant in aid and Income from scrap
generated from other than property, plant and
equipment are considered as 'other operating
revenue'.
Income from Scrap generated from other than
property, plant and equipment is accounted for as
and when sold.
Telecom Services
Income from Telecom Services, net of downtime
credit, is recognised on the basis of terms of
agreements/purchase orders from the customers.
Upfront fee received in advance under long term
contracts providing Indefeasible Right to Use (IRU),
is recognised as revenue on the basis of estimation
of revenue over the period of contract.
Consultancy Services
In respect of 'Cost-plus-consultancy contracts',
involving execution on behalf of the client, revenue is
recognised in proportion to the stage of completion
of the work performed at the reporting date, which
is determined based on input method.
Income from other consultancy contracts are
accounted for on technical assessment of progress
of services rendered.
2.19.2Other Income
Interest income is recognised, when no significant
uncertainty as to measurability or collectability
exists, on a time proportion basis taking into account
the amount outstanding and the applicable interest
rate, using the effective interest rate method (EIR).
Surcharge recoverable from trade receivables,
liquidated damages, warranty claims and interest
on advances to suppliers are recognised when
no significant uncertainty as to measurability and
collectability exists.
Income from Scrap generated from property,
plant and equipment is accounted for as and
when sold.
Dividend income is recognised when right to receive
payment is established.
Insurance claims for loss of profit are accounted for
in the year of acceptance. Other insurance claims
are accounted for based on certainty of realisation.
Revenue from rentals and operating leases is
recognised on an accrual basis in accordance with
the substance of the relevant agreement.
2.20 Government Grants
Grants-in-aid from Central Government or other
authorities towards capital expenditure for projects,
betterment of transmission systems and specific
depreciable assets initially are treated as deferred
income when there is a reasonable assurance that
they will be received and the Company will comply
with the conditions associated with the grant.
Deferred Income is recognised in the Statement of
Profit and Loss over the useful life of related asset
in proportion to which depreciation on these assets
is provided. In case of non-monetary government
grants, both asset and grant are recorded at
nominal value.
Grants that compensate the Company for expenses
incurred are recognised over the period in which
the related costs are incurred and deducted from
the related expenses.
2.21 Dividends
Annual dividend distribution to the shareholders is
recognised as a liability in the period in which the
dividends are approved by the shareholders. Any
interim dividend paid is recognised on approval by
Board of Directors. Dividend payable is recognised
directly in equity.
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