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GAIL India
BSE: 532155|NSE: GAIL|ISIN: INE129A01019|SECTOR: Oil Drilling And Exploration
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« Mar 13
Accounting Policy Year : Mar '14
1.01 Accounting Convention
 
 The financial statements are prepared on accrual basis of accounting
 under historical cost convention in accordance with generally accepted
 accounting principles in India and the relevant provisions of the
 Companies Act, 1956 including accounting standards notified there
 under.
 
 1.02 Use of Estimates
 
 The preparation of financial statements requires estimates and
 assumptions which affect the reported amount of assets, liabilities,
 revenues and expenses of the reporting period. The difference between
 the actual results and estimates are recognized in the period in which
 the results are known or materialized.
 
 1.03 Inventories
 
 (i) Stock of LNG and Natural Gas in pipelines is valued at cost on
 First in First out (FIFO) basis or net realizable value, whichever is
 lower.
 
 (ii) Raw materials and finished products are valued at weighted average
 cost or net realizable value, whichever is lower.  Finished products
 include excise duty and royalty wherever applicable.
 
 (iii) Stock in process is valued at weighted average cost or net
 realisable value, whichever is lower. It is valued at weighted average
 cost where the finished products in which these are to be incorporated
 are expected to be sold at or above the weighted average cost.
 
 (iv) Stores and spares and other material for use in production of
 inventories are valued at weighted average cost or net realisable
 value, whichever is lower. It is valued at weighted average cost where
 the finished products in which they will be incorporated are expected
 to be sold at/or above cost.
 
 (v) Surplus / Obsolete Stores and Spares are valued at cost or net
 realisable value, whichever is lower.
 
 (vi) Surplus / Obsolete Capital Stores, other than held for use in
 construction of a capital asset, are valued at lower of cost or net
 realisable value.
 
 (vii) Renewable Energy Certificates (RECs) are valued at cost on First
 in First out (FIFO) basis or net realizable value, whichever is lower.
 
 1.04 Depreciation / Amortisation
 
 (a) Depreciation on Fixed Assets other than those mentioned below is
 provided in accordance with the rates as specified in Schedule XIV of
 the Companies Act, 1956, on straight line method (SLM) on pro-rata
 basis (monthly pro-rata for bought out assets).
 
 (i) Assets costing upto Rs. 5,000/- are depreciated fully in the year of
 capitalisation.
 
 (ii) Bunk Houses are amortised on assumption of five years life.
 
 (iii) Oil and Gas Pipelines including other related facilities are
 depreciated @ 3.17% per annum on SLM basis based on useful life of 30
 years.
 
 (iv) Computers at the residence of the employees are depreciated @
 23.75% per annum on SLM basis. Furniture, Electric Equipments and
 Mobiles provided for the use of employees are depreciated @ 15% per
 annum on SLM basis.
 
 (v) Cost of the leasehold land not exceeding 99 years is amortised over
 the lease period.
 
 (vi) Depreciation due to price adjustment in the original cost of fixed
 assets is charged prospectively.
 
 (vii) Capital expenditure on the assets (enabling facilities), the
 ownership of which is not with the Company, is charged off to Revenue.
 
 (viii) Software / Licences are amortised in 5 years on straight line
 method.
 
 (ix) Cost of the Right of Use (ROU) is amortized considering life of
 RoU as 99 years.
 
 (x) After impairment of assets, if any, depreciation is provided on the
 revised carrying amount of the assets over its remaining useful life.
 
 (b) Capital assets except gas pipelines related facilities installed at
 the consumers premises on the land whose ownership is not with the
 company, has been depreciated on SLM basis in accordance with the rates
 as specified in Schedule XIV of the Companies Act, 1956.
 
 1.05 Revenue recognition
 
 (i) Sales are recognized on transfer of significant risks and rewards
 of ownership to the buyer, which generally coincides with the delivery
 of goods to customers.  Sales include excise duty but exclude value
 added tax. Any retrospective revision in prices is accounted for in the
 year of such revision.
 
 (ii) Income from Consultancy/Contract Services, if any, is recognized
 based on Proportionate Completion Method.
 
 (iii) Dividend income is accounted for when the right to receive it is
 established.
 
 (iv) Claims (including interest on delayed realization from customers)
 are accounted for, when there is no significant uncertainty that the
 claims are realizable.
 
 (v) Liability in respect of MGO of Natural gas is not provided for
 where the same is secured by MGO recoverable from customers.
 Payments/receipts during the year on account of MGO are adjusted on
 receipt basis.
 
 (vi) Minimum charges relating to transportation of LPG are accounted
 for on receipt basis.
 
 (vii) Prepaid expenses and prior period expenses/income upto Rs.
 5,00,000/- in each case are charged to relevant heads of account of the
 current year.
 
 1.06 Fixed Assets
 
 (a) Fixed Assets are valued at historical cost on consistent basis and
 are net of refundable taxes & levies wherever applicable. All costs
 relating to acquisition of fixed assets till commissioning of such
 assets are capitalized. In the case of commissioned assets where final
 payment to the Contractors is pending, capitalization is made on
 provisional basis, including provisional liability pending approval of
 Competent Authority, subject to necessary adjustment in cost and
 depreciation in the year of settlement.
 
 (b) Machinery spares, which can be used only in connection with an item
 of fixed asset and their use is expected to be irregular, are
 capitalised with the cost of that fixed asset and are depreciated fully
 over the remaining useful life of that asset.
 
 1.07 Intangible Assets
 
 Intangible assets like software, licenses and right-of-use of land
 including sharing of ROU with other entities which are expected to
 provide future enduring economic benefits are capitalized as Intangible
 Assets.
 
 1.08 Capital Work in Progress
 
 (a) Crop compensation is accounted for under Capital Work-in-Progress
 on the basis of actual payments/estimated liability, as and when work
 commences where ROU is acquired.
 
 (b) The capital work in progress includes material in Transit/ value of
 materials / equipment / Services, etc. received at site for use in the
 projects.
 
 (c) Pre-project expenditure relating to Projects which are considered
 unviable / closed is charged off to Revenue in the year of
 declaration/closure.
 
 1.09 Expenses Incurred During Construction Period
 
 All revenue expenditure incurred during the year, which is exclusively
 attributable to acquisition / construction of fixed assets, is
 capitalized at the time of commissioning of such assets.
 
 1.10 Foreign Currency Translation
 
 (i) Transactions in foreign currency are initially accounted at the
 exchange rate prevailing on the transaction date.
 
 (ii) Monetary items (such as Cash, Receivables, Loans, Payables, etc.)
 denominated in foreign currencies, outstanding at the year end, are
 translated at exchange rates (BC Selling Rate for Payables and TT
 Buying Rate for Receivables) prevailing at year end.
 
 (iii) Non monetary items (such as Investments, Fixed Assets, etc),
 denominated in foreign currencies are accounted at the exchange rate
 prevailing on the date of transaction(s).
 
 (iv) Any gains or loss arising on account of exchange difference either
 on settlement or on translation is adjusted in the Statement of Profit
 & Loss except in case of long term foreign currency monetary items
 relating to acquisition of depreciable capital asset in which case they
 are adjusted to the carrying cost of such assets and in other cases,
 accumulated in Foreign Currency Monetary item Translation Difference
 Account in the financial statements and amortized over the balance
 period of such long terms asset or liability, by recognition as income
 or expenses in each of such period.
 
 (v) In respect of derivative contracts, gain/losses on settlement and
 losses on re-statement (by marking them to market) at the balance sheet
 date are recognised in the statement of Profit & Loss.
 
 1.11 Grants
 
 In case of depreciable assets, the cost of the assets is shown at gross
 value and grant thereon is taken to Capital Reserve which is recognised
 as income in the statement of Profit and Loss over the useful life
 period of the asset.
 
 1.12 Investments
 
 Investments are classified into current and non-current investments.
 Current investments are stated at lower of cost or market value.
 Non-current investments are stated at cost and provision for diminution
 in value is made only if such decline is other than temporary in the
 opinion of management.
 
 1.13 Employees Benefits
 
 (i) All short term employee benefits are recognized at the undiscounted
 amount in the accounting period in which they are incurred.
 
 (ii) The Company''s contribution to the Provident Fund is remitted to a
 separate trust established for this purpose based on a fixed percentage
 of the eligible employee''s salary and debited to statement of Profit
 and Loss. Further, the company makes provision as per actuarial
 valuation towards any shortfall in fund assets to meet statutory rate
 of interest in the future period, to be compensated by the company to
 the Provident Fund Trust.
 
 (iii) Employee Benefits under Defined Benefit Plans in respect of leave
 encashment, compensated absence, post retirement medical scheme, long
 service award and other terminal benefits are recognized based on the
 present value of defined benefit obligation, which is computed on the
 basis of actuarial valuation using the Projected Unit Credit method.
 Actuarial liability in excess of respective plan assets is recognized
 during the year.
 
 (iv) Provision for gratuity as per actuarial valuation is funded with a
 separate trust.
 
 1.14 Borrowing Cost
 
 Borrowing cost of the funds specifically borrowed for the purpose of
 obtaining qualifying assets and eligible for capitalization along with
 the cost of the assets, is capitalized up to the date when the asset is
 ready for use after netting off any income earned on temporary
 investment of such funds.
 
 1.15 Taxes on Income
 
 Provision for current tax is made as per the provisions of the Income
 Tax Act, 1961.  Deferred Tax Liability / Asset resulting from ''timing
 difference'' between book profit and taxable profit is accounted for
 considering the tax rate and laws that have been enacted or
 substantively enacted as on the Balance Sheet date. Deferred Tax Asset,
 if any, is recognized and carried forward only to the extent that there
 is virtual certainty that the asset will be realized in future.
 
 1.16 R&D Expenditure
 
 All expenditure, other than on capital account, on research and
 development are debited to statement of Profit and Loss.
 
 1.17 Impairment
 
 The Carrying amount of assets are reviewed at each Balance Sheet date.
 In case there is any indication of impairment based on Internal /
 External factors, an Impairment loss is recognized wherever the
 carrying amount of an asset exceeds its recoverable amount.
 
 1.18 Provisions, Contingent Liabilities, Contingent Assets & Capital
 Commitments
 
 (i) Provisions involving substantial degree of estimation in
 measurement are recognized when there is a present obligation as a
 result of past events and it is probable that there will be an outflow
 of resources. Contingent Assets are neither recognized nor disclosed in
 the financial statements. Contingent liabilities exceeding Rs.5 Lacs in
 each case are disclosed by way of notes to accounts except when there
 is remote possibility of any outflow in settlement.
 
 (ii) Estimated amount of contracts remaining to be executed on capital
 accounts are disclosed in each case above Rs.5 Lacs.
 
 1.19 Exploration and Development Costs:- i) The Company follows
 Successful Efforts
 
 Method for accounting of Oil & Gas exploration and production
 activities, which includes:-
 
 a.  Survey Costs are recognized as revenue expenditure in the year in
 which these are incurred.
 
 b.  Cost of exploratory wells is carried as ''Exploratory wells in
 progresses''. Such exploratory wells in progress are capitalized in the
 year in which the Producing Property is created or is written off in
 the year when determined to be dry / abandoned.
 
 c.  Cost of all exploratory wells in progress is debited to statement
 of Profits and Loss except of those wells for which there are
 reasonable indications of sufficient quantity of reserves and the
 enterprise is making sufficient progress assessing the reserves and the
 economic and operating viability of the project.
 
 ii) Capitalization of Producing Properties
 
 a) Producing Properties are capitalized as completed wells / producing
 wells when the wells in the area / field are ready to commence
 commercial production on establishment of proved developed oil and gas
 reserves.
 
 b) Cost of Producing Properties includes cost of successful exploratory
 wells, development wells, initial depreciation of support equipments &
 facilities and estimated future abandonment cost.
 
 iii) Depletion of Producing Properties
 
 Producing Properties are depleted using the Unit of Production Method
 (UOP). The depletion or unit of production charged for all the
 capitalized cost is calculated in the ratio of production during the
 year to the proved developed reserves at the year end.
 
 iv) Production cost of Producing Properties
 
 Company''s share of production costs as indicated by Operator consists
 of pre well head and post well head expenses including depreciation and
 applicable operating cost of support equipment and facilities..
 
 1.20 OTHERS
 
 (i) Liquidated Damages / Price Reduction Schedule, if any, are
 accounted for as and when recovery is effected and the matter is
 considered settled by the Management.  Liquidated damages / Price
 Reduction Schedule, if settled, after capitalization of assets are
 charged to revenue if below Rs. 50 lacs in each case, otherwise adjusted
 in the cost of relevant assets.
 
 (ii) Insurance claims are accounted for on the basis of claims admitted
 by the insurers.
 
Source : Dion Global Solutions Limited
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