SENSEX NIFTY India | Accounting Policy > Oil Drilling And Exploration > Accounting Policy followed by GAIL India - BSE: 532155, NSE: GAIL

GAIL India

BSE: 532155|NSE: GAIL|ISIN: INE129A01019|SECTOR: Oil Drilling And Exploration
Jul 21, 16:01
-1.65 (-0.44%)
VOLUME 62,753
Jul 21, 15:58
-2.15 (-0.57%)
VOLUME 2,433,270
Mar 15
Accounting Policy Year : Mar '16
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, 2013 including Accounting Standards as specified
 under section 133 of the Companies Act 2013, read with Rule ''7'' of the
 Companies (Accounts) Rule 2014.
 1.02 Use of Estimates
 The preparation of financial statements requires judgments, estimates
 and assumptions which affect the reported amount of assets,
 liabilities, revenues and expenses of the reporting period and
 disclosure of contingent liabilities. The difference between the actual
 results and estimates are recognized in the period in which the results
 are known or materialized.
 1.03 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 of
 the asset.
 1.04 Fixed Assets
 A.  Tangible Assets
 (a) Tangible Fixed Assets are stated 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 respective fixed asset and are depreciated
 fully over the remaining useful life of that asset.
 (c) Technical know-how / license fee incurred at the time of
 procurement asset are capitalized as part of the underlying asset.
 B.  Intangible Assets
 Intangible assets like software, licenses and right-of-use (ROU) of
 land including sharing of ROU with other entities which are expected to
 provide future enduring economic benefits are capitalized as Intangible
 Assets and are stated at their cost of acquisition.
 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 Construction Stores including
 Material in Transit/ 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/
 (d) All revenue expenses incurred during Construction Period, which are
 exclusively attributable to acquisition / construction of fixed assets,
 are capitalized at the time of commissioning of such assets.
 1.06 Exploration and Development Costs
 i) The Company follows Successful Efforts Method for accounting of Oil
 & Gas exploration and production activities carried out through Joint
 Ventures in the nature of Production Sharing Contracts (PSC) with
 respective host government and various body corporates for exploration,
 development 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
 progress'' under Capital Work in Progress. Such exploratory wells in
 progress are capitalized in the year in which the Producing Property is
 created. Such costs are 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.
 1.07 Foreign Currency Transaction
 (a) Transactions in foreign currency are initially accounted at the
 exchange rate prevailing on the transaction date.
 (b) Monetary items 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.
 (c) Non-monetary items, denominated in foreign currencies are accounted
 at the exchange rate prevailing on the date of transaction(s).
 (d) 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 where they are
 adjusted to the carrying cost of such assets. In other cases exchange
 difference is accumulated in Foreign Currency Monetary item
 Translation Difference Account in the financial statements and
 amortized over the balance period of respective long terms asset or
 liability, by recognition as income or expenses in each of such period.
 (e) Premium /discount arising at the inception of the forward contracts
 entered into to hedge foreign currency risk are amortized as expense /
 income over the life of the contract. Outstanding forward contracts as
 at the reporting date are restated at the exchange rate prevailing on
 that date. Exchange difference on such contracts where rate to long
 term foreign currency monetary items are adjusted in carrying cost of
 related asset.
 In respect of other derivative contracts entered into, to hedge Foreign
 Currency and Interest rate risk, gain / losses on settlement and losses
 on restatement (by marking them to market) at the Balance Sheet date
 are recognised in the Statement of profit & loss.
 1.08 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 its intended use after netting off any income earned on
 temporary investment of such funds. Other borrowing costs are
 recognized as expense during the year of incurrence.
 1.09 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.
 1.10 Inventories
 (a) Stock of Liquefied Natural Gas (LNG) and Natural Gas in pipelines
 is valued at cost on First in First out (FIFO) basis or net realizable
 value, whichever is lower.
 (b) Raw materials and finished goods are valued at weighted average
 cost or net realizable value, whichever is lower. Finished goods
 include excise duty and royalty wherever applicable.
 (c) 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 goods in which these are to be incorporated are
 expected to be sold at or above the weighted average cost.
 (d) 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 goods in which they will be incorporated are expected to
 be sold at/or above cost.
 (e) Surplus / Obsolete Stores and Spares are valued at cost or net
 realisable value, whichever is lower.
 (f) 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.
 (g) Imported LNG in transit is valued at CIF value or net realizable
 value whichever is lower.
 (h) Renewable Energy Certificates (RECs) are valued at cost on First ir
 First out (FIFO) basis or net realizable value, whichever is lower.
 1.11 Revenue recognition
 (a) 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.
 (b) Income from Consultancy/Contract Services, if any, is recognized
 based on percentage Completion Method.
 (c) Dividend income is accounted for when the right to receive is
 (d) Claims (including interest on delayed realization from customers)
 are accounted for, when there is significant certainty that the claims
 are realizable.
 (e) Liability in respect of Minimum Guaranteed Off take (MGO) of
 Natural gas is not provided for where the same is secured by MGC
 recoverable from customers. Payments/receipts during the year on
 account of MGO are adjusted on receipt basis.
 (f) Minimum charges relating to transportation of LPG are accounted for
 on receipt basis.
 (g) Prepaid expenses and prior period expenses/income up to Rs. 5 lacs
 in each case are charged to relevant heads of account of the current
 1.12 Depreciation / Amortisation
 A.  Tangible Assets
 Depreciation on Tangible Fixed Assets is provided in accordance with
 the manner and useful life as specified in Schedule II of the Companies
 Act, 2013, on straight line method (SLM) on pro-rata basis (monthly
 pro-rata for bought out assets), except for the assets as mentioned
 below where different useful life has been taken on the basis of
 external / internal technical evaluation:
 (ii) Cost of the leasehold land is amortised over the lease period
 except perpetual leases.
 (iii) Depreciation due to price adjustment in the original cost of
 fixed assets is charged prospectively.
 (iv) Capital expenditure on the assets (enabling facilities), the
 ownership of which is not with the Company, is charged off to Revenue.
 B.  Intangible Assets
 (i) Intangible assets are amortised on Straight Line Method (SLM) over
 the useful life not exceeding five years from the date of
 (ii) Cost of the Right of Use (ROU) is amortized considering life of
 RoU as 99 years.
 (iii) After impairment of assets, if any, depreciation is provided on
 the revised carrying amount of the assets over its remaining useful
 C.  Capital assets 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 useful life as specified m Schedule
 II of the Companies Act, 2013.
 1.13 Employees Benefits
 (a) All short term employee benefits are recognized at the undiscounted
 amount in the accounting period in which they are incurred.
 (b) 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.
 (c) 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. Actuarial gains / losses are recognized in the
 Statement of Profit and Loss.
 (d) Liability for gratuity as per actuarial valuation is funded with a
 separate trust.
 1.14 Impairment
 The Carrying amount of cash generating unit are reviewed at each
 Balance Sheet date. In case there is any indication of impairment based
 on Internal / External factors, impairment loss is recognized wherever
 the carrying amount of asset exceeds its recoverable amount.
 1.15 Provisions, Contingent Liabilities, Contingent Assets & Capital
 (a) Provisions involving substantial degree of estimation m 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.
 (b) Estimated amount of contracts remaining to be executed on capital
 accounts are disclosed in each case above Rs. 5 lacs.
 1.16 Taxes on Income
 Provision for current tax is made as per the provisions of the Income
 Tax Act, 1961. Minimum Alternate Tax (MAT) credit is recognized as an
 asset only when and to the extent there is convincing evidence that the
 Company will pay normal Income Tax during the specified period.
 Deferred Tax Liability / Asset resulting from ''timing difference''
 between book profit and taxable profit is accounted for considering the
 tax rate and tax 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.
 17 R&D Expenditure
 Revenue expenditure on Research and Development is charged to Statement
 of Profit and Loss in the year in which it is incurred.  Capital
 expenditure on Research and Development is capitalized m case the same
 qualifies as tangible asset.
 18 Cash Flow Statement
 Cash flow statement is prepared in accordance with the indirect method
 prescribed in Accounting Standard (AS) 3 on ''Cash Flow Statements''
 1.19 Others
 (a) 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.
 (b) Insurance claims are accounted for on the basis of claims admitted
 by the insurers.
Source :
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