SENSEX NIFTY India | Accounting Policy > Infrastructure - General > Accounting Policy followed by Bharat Heavy Electricals - BSE: 500103, NSE: BHEL

Bharat Heavy Electricals

BSE: 500103|NSE: BHEL|ISIN: INE257A01026|SECTOR: Infrastructure - General
Dec 11, 16:00
-0.55 (-0.6%)
VOLUME 350,046
Dec 11, 15:59
-0.35 (-0.38%)
VOLUME 3,688,196
Mar 15
Accounting Policy Year : Mar '16
1 Basis of preparation of Financial Statements
 The financial statements have been prepared as of a going concern on
 historical cost convention and on accrual method of accounting in
 accordance with the generally accepted accounting principles and the
 provisions of the Companies Act, 2013 as adopted consistently by the
 2 Use of Estimates
 The preparation of financial statements in conformity with generally
 accepted accounting principles requires the Management to make
 estimates and assumptions that affect the income and expenditure during
 the reporting period and the assets and liabilities including
 contingent liabilities at the date of financial statements. The
 differences between actual results and estimates are recognized in the
 period in which results are known.
 3 Fixed Assets
 Fixed assets (other than land acquired free from State Government) are
 carried at the cost of acquisition or construction or book value less
 accumulated depreciation and impairment, if any.
 Cost includes value of internal transfers for capital works, taken at
 actual / estimated factory cost or market price, whichever is lower.
 Effect of extraordinary events such as devaluation / revaluation in
 respect of long term liabilities / loans utilized for acquisition of
 fixed assets is added to / reduced from the cost.
 Land acquired free of cost from the State Government is valued at
 Re.1/- except for that acquired after 16th July 1969, in which case the
 same is valued at the acquisition price of the State Government
 concerned, by corresponding credit to capital reserve.
 4 Leases
 A) (i) Assets Given on Lease Prior to 1st April 2001
 Assets manufactured and given on finance lease are capitalised at the
 normal sale price/fair value/contracted price and treated as sales.
 Depreciation on the same is charged at the rate applicable to similar
 type of fixed assets as per Accounting Policy on ''Depreciation''.
 Against lease rentals, matching charge is made through Lease
 Equalisation Account.
 Finance income is recognized over the lease period.
 (ii) Assets Given on Lease on or after 1st April 2001
 Assets manufactured and given on finance lease are recognized as sales
 at normal sale price / fair value / NPV.
 Finance income is recognized over the lease period.
 Initial direct costs are expensed at the commencement of lease.
 B) Assets Taken on Lease on or after 1st April 2001
 Assets taken on lease are capitalised at fair value / NPV / contracted
 Depreciation on the same is charged at the rate applicable to similar
 type of fixed assets as per Accounting Policy on ''Depreciation''.  If
 the lease assets are returnable to the lessor on expiry of lease
 period, the same is depreciated over its useful life or lease period,
 whichever is shorter.
 Lease payments made are apportioned between finance charges and
 reduction of outstanding liability in relation to assets taken on
 A) Assets Given on Lease:
 Assets manufactured and given on operating lease are capitalised. Lease
 income arising there from is recognized as income over the lease
 B) Assets Taken on Lease:
 Lease payments made for assets taken on operating lease are recognized
 as expense over the lease period.
 5 Intangible Assets
 A) Intangible assets are capitalised at cost if
 a.  it is probable that the future economic benefits that are
 attributable to the asset will flow to the company, and
 b.  the company will have control over the assets, and
 c.  the cost of these assets can be measured reliably and is more than
 Rs.10,000/- Intangible assets are amortised over their estimated useful
 lives not exceeding three years in case of software and not exceeding
 ten years in case of others on a straight line pro-rata monthly basis.
 B) a.  Expenditure on research including the expenditure during the
 research phase of Research & Development Projects is charged to
 Statement of profit and loss in the year of incurrence.
 b.  Expenditure incurred on Development including the expenditure
 during the development phase of Research & Development Project meeting
 the criteria as per Accounting Standard on Intangible Assets , is
 treated as intangible asset.
 c.  Fixed assets acquired for purposes of research and development are
 6 Borrowing Costs
 Borrowing costs that are attributable to the manufacture, acquisition
 or construction of qualifying assets, are included as part of the cost
 of such assets.
 A qualifying asset is one that necessarily takes more than twelve
 months to get ready for intended use or sale.
 Other borrowing costs are recognized as expense in the period in which
 they are incurred.
 7 Depreciation
 (i) Depreciation on fixed assets (other than those used abroad under
 contract) is charged upto the total cost of the assets on straight-line
 method as per the useful life prescribed in Schedule II of the
 Companies Act, 2013, except where estimated useful life is shorter
 based on technically assessed estimated useful life as shown
 General plant & machinery                                12.5
 Automatic/semi- automatic machines                         10
 Erection equipment, Capital tools & tackles                 5
 Railway sidings,Locomotives & wagons                     12.5
 Drainage, sewerage & water supply                          30
 Servers and networks                                        5
 In respect of additions to/deductions from the fixed assets,
 depreciation is charged on pro-rata monthly basis.
 (ii) Where useful life of a part of the asset (costing at least Rs.1 cr
 or 10% of the cost of the asset, whichever is higher) is different from
 the useful life of the remaining asset, useful life of that part is
 determined separately and depreciation charged accordingly.
 (iii) Fixed assets used outside India pursuant to long term contracts
 are depreciated over the duration of the initial contract.
 (iv) Fixed assets costing Rs.10,000/- or less and those whose written
 down value as at the beginning of the year is Rs.10,000/- or less, are
 depreciated fully. In so far as township buildings are concerned, the
 cost per tenement is the basis for the limit of Rs.10,000/-.
 (v) At erection/project sites: The cost of roads, bridges and culverts
 is fully amortized over the tenure of the contract, while sheds,
 railway sidings, electrical installations and other similar enabling
 works (other than temporary structures) are so depreciated after
 retaining 5% as residual value.
 (vi) Temporary structures are fully depreciated in the year of
 (vii) Leasehold Land and Buildings are amortised over the period of
 lease. Buildings constructed on land taken on lease are depreciated
 over their useful life or the lease period, whichever is earlier.
 8 Investments
 (i) Longterm investments are carried at cost.  Decline, other than
 temporary, in the value of such investments, is recognized and provided
 (ii) Current investments are carried at cost or quoted/fair value
 whichever is lower.  Unquoted current investments are carried at cost.
 (iii) The cost of investment includes acquisition charges such as
 brokerage, fees and duties.
 Any reduction in the carrying amount & any reversals of such reductions
 are charged or credited to the Statement of profit and loss .
 9 Inventory Valuation
 (i) Inventory is valued at actual/estimated cost or net realisable
 value, whichever is lower.
 (ii) Finished goods in Plant and work in progress involving Hydro and
 Thermal sets including gas based power plants, boilers, boiler
 auxiliaries, compressors and industrial turbo sets are valued at
 actual/ estimated factory cost or at 97.5% of the realisable value,
 whichever is lower.
 (iii) In respect of valuation of finished goods in plant and
 work-in-progress, cost means factory cost; actual/estimated factory
 cost includes excise duty payable on manufactured goods.
 (iv) In respect of raw material, components, loose tools, stores and
 spares cost means weighted average cost.
 (v) a) For Construction contracts entered into on or after 01.04.2003:
 Where current estimates of cost and selling price of a contract
 indicates loss, the anticipated loss in respect of such contract is
 recognized immediately irrespective of whether or not work has
 b) For all other contracts:
 Where current estimates of cost and selling price of an individually
 identified project forming part of a contract indicates loss, the
 anticipated loss in respect of such project on which the work had
 commenced, is recognized.
 c) In arriving at the anticipated loss, total income including
 incentives on exports/deemed exports is taken into consideration.
 (vi) The components and other materials purchased / manufactured
 against production orders but declared surplus are charged off to
 revenue retaining residual value based on technical estimates.
 10 Revenue Recognition
 Sales are recorded based on significant risks and rewards of ownership
 being transferred in favour of the customer. Sales include goods
 dispatched to customers by partial shipment.
 A.  For construction contracts entered into on or after 1.4.2003
 Revenue is recognized on percentage completion method based on the
 percentage of actual cost incurred upto the reporting date to the total
 estimated cost of the contract.
 B.  For all other contracts
 (i) Recognition of sales revenue in respect of long production cycle
 items (Hydro and Thermal sets including gas-based power plants,
 boilers, boiler auxiliaries, compressors and industrial turbo sets) is
 made on technical estimates. When the aggregate value of shipments
 represents 30% or more of the realizable value, they are considered at
 97.5% of the realizable value or in its absence, quoted price.
 Otherwise, they are considered at actual/estimated factory cost or
 97.5% of the realizable value, whichever is lower. The balance 2.5% is
 recognized as revenue on completion of supplies under the contract.
 (ii) Income from erection and project management services is recognized
 on work done based on: Percentage of completion; or
 The intrinsic value, reckoned at 97.5% of contract value, the balance
 2.5% is recognized as income when the contract is completed.
 (iii) Income from engineering services rendered is recognized at
 realizable value based on percentage of work completed.
 (iv) Income from supply/erection of non- BHEL equipment/systems and
 civil works is recognized based on dispatches to customer/work done at
 project site.
 11 Accounting for Foreign Currency Transactions
 Transactions in foreign currencies are recorded at the exchange rates
 prevailing on the date of the transaction. Foreign currency monetary
 assets and liabilities are translated at year end exchange rates.
 Exchange difference arising on settlement of transactions and
 translation of monetary items are recognized as income or expense in
 the year in which they arise.
 12 Translation of Financial Statements of Integral Foreign Operations
 (i) Items of income and expenditure are translated at average rate
 except depreciation, which is converted at the rates adopted for the
 corresponding fixed assets.
 (ii) Monetary items are translated at the closing rate; non-monetary
 items carried at historical cost are translated at the rates in force
 on the date of the transaction; non-monetary items carried at fair
 value are translated at exchange rates that existed when the value were
 (iii) All translation variances are taken to Statement of Profit and
 Loss .
 13 Employee Benefits
 Provident Fund and Employees'' Family Pension Scheme contributions are
 accounted for on accrual basis. Liability for Earned Leave, Half Pay
 Leave, Gratuity, Travel claims on retirement and Post Retirement
 Medical Benefits are accounted for in accordance with actuarial
 valuation.  Compensation under Voluntary Retirement Scheme is charged
 off in the year of incurrence on a pro-rata monthly basis.
 14 Claims by/against the Company
 (i) Claims for liquidated damages against the Company are recognized in
 accounts based on management''s assessment of the probable outcome with
 reference to the available information supplemented by experience of
 similar transactions.
 (ii) Claims for export incentives/duty drawbacks/ duty refunds and
 insurance claims etc. are taken into account on accrual.
 (iii) Amounts due in respect of price escalation claims and/or
 variations in contract work are recognized as revenue only when there
 are conditions in the contracts for such claims or variations and/or
 evidence of the acceptability of the same from customer H owe ve r, e s
 calation is restricted to intrinsic value.
 15 Provision for Warranties
 (i) For construction contracts entered into on or after 01.04.2003:
 The company provides warranty cost at 2.5% of the revenue progressively
 as and when it recognises the revenue and maintain the same through the
 warranty period.
 (ii) For all other contracts:
 Provision for contractual obligations in respect of contracts under
 warranty at the year end is maintained at 2.5% of the value of
 contract. In the case of contracts for supply of more than a single
 product 2.5% of the value of each completed product is provided.
 (iii) Warranty claims/ expenses on rectification work are accounted for
 against natural heads as and when incurred and charged to provisions in
 the year end.
 16 Government Grants
 Government Grants are accounted when there is reasonable certainty of
 their realisation.
 Grants related to fixed depreciable assets are adjusted against the
 gross cost of the relevant assets while those related to
 non-depreciable assets are credited to capital reserve.  Grants related
 to revenue, unless received as compensation for expenses/losses, are
 recognized as revenue over the period to which these are related on the
 principle of matching costs to revenue.
 Grants in the form of non-monetary assets are accounted for at the
 acquisition cost, or at nominal value if received free.
 17 Taxes on income
 Current tax is determined on the basis of taxable income in accordance
 with the provisions of the Income Tax Act, 1961. Deferred tax
 liability/ asset resulting from timing difference between accounting
 income and taxable income is recognized considering the tax rate and
 laws that have been enacted or substantively enacted as on the balance
 sheet date. Deferred tax asset is accounted for and carried forward
 only to the extent that there is reasonable certainty that sufficient
 future taxable income will be available against which such deferred tax
 assets can be realised. Deferred tax assets in respect of unabsorbed
 depreciation and carry forward of losses are recognized only if there
 is virtual certainty that there will be sufficient future taxable
 income available to realise such assets.
 18 Impairment
 The carrying amount of cash generating units is reviewed at each
 balance sheet date where there is any indication of impairment . An
 impairment loss is recognized in the statement of profit and loss where
 the carrying amount exceeds the recoverable amount of the cash
 generating units.  An impairment loss is reversed if there is change in
 the recoverable amount and such loss either no longer exists or has
 19 Segment Reporting
 Segment reporting is in line with the accounting policies of the
 company. Revenue and expenses are identified to segments on the basis
 of their relationship to the operating activities of the segment.
 Revenue ,expenses, assets and liabilities which are not allocable to
 segments on a reasonable basis, are included under Unallocated
 revenue/expenses/assets/ liabilities.
Source :
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