1. Accounting Convention:
The financial statements have been prepared to comply in all material
respects with the Accounting Standards notified by Companies
(Accounting Standards) Rules, 2006 and the relevant provisions of the
Companies Act, 1956. The financial statements have been prepared under
the historical cost convention on an accrual basis except otherwise
stated. The accounting policies have been consistently applied by the
Company.
Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent liabilities at the date of the
financial statements and the results of operations during the reporting
period. Although these estimates are based upon management''s best
knowledge of current events and actions, actual results could differ
from these estimates.
2. Fixed Assets:
Fixed assets are stated at cost less accumulated depreciation and
impairment losses if any. Cost comprises the purchase price and any
attributable cost of bringing the asset to its working condition for
its intended use. Borrowing costs relating to acquisition of fixed
assets which take substantial period of time to get ready for their
intended use are also included to the extent they relate to the period
till such assets are ready to be put to use.
3. Depreciation:
Depreciation is provided using the Straight Line Method as per the
useful lives of the assets estimated by the management or at the rates
prescribed under schedule XIV of the Companies Act, 1956, whichever is
higher.
In respect of assets acquired upto 31st March, 1993, the specified
period has been recomputed by applying to the original cost, the
revised rates as per Schedule XIV as per Government Notification dated
16-12-93, and depreciation charge calculated by allocating the
unamortized value as per books of account over the remaining part, if
any, of the recomputed period.
In respect of equipment of IT and PKI Projects, they are depreciated at
the rate of 9.5% per annum which is based on useful life of such assets
estimated by the management.
Furniture exceeding Rs. 5,000/- provided to employees is depreciated
fully in the year of purchase.
In respect of assets acquired for giving on lease, the depreciation is
provided at flat rates equally spread over the tenure of lease
agreement or at the rates specified in Schedule XIV of the Companies
Act, 1956, whichever is higher.
The core engine, an integral part of Captive Power Plant, needs
replace- ment at the end of every three years and so the replacement
amount is capitalized and is depreciated over its useful life of three
years.
4. Impairment:
The carrying amounts of assets are reviewed at each balance sheet date
if 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. The recoverable amount is
the greater of the asset''s net selling price and value in use. In
assessing value in use, the estimated future cash flows are discounted
to their present value at the weighted average cost of capital.
After impairment, depreciation is provided on the revised carrying
amount of the asset over its remaining useful life. A previously
recognized impairment loss is increased or reversed depending on
changes in circumstances. However, the carrying value after reversal is
not increased beyond the carrying value that would have prevailed by
charging usual depreciation if there was no impairment.
5. Intangible Assets:
Goodwill is amortized over the period of 5 years commencing from the
financial year in which the amalgamation is effected and accounted for.
Software is amortized over its estimated useful life of six years.
License acquired and used along with and directly related to the plant
and machinery is amortized over the estimated useful life of the
related plant and machinery.
Research costs are expensed as incurred. Development expenditure
incurred on an individual project is carried forward when its future
recoverability can reasonably be regarded as assured.
6. Leases: Finance Lease:
Assets given under a finance lease are recognized as a receivable at an
amount equal to the net investment in the lease. Lease rentals are
apportioned between principal and interest on the IRR method. The
principal amount received reduces the net investment in the lease and
interest is recognized as revenue. Initial direct costs such as legal
costs, brokerage costs, etc. are recognized immediately in the Profit
and Loss Account.
Operating Lease:
Assets subject to operating leases are included in fixed assets. Lease
income is recognized in the Profit and Loss Account on a straight-line
basis over the lease term. Costs, including depreciation are recognized
as an expense in the Profit and Loss Account. Initial direct costs such
as legal costs, brokerage costs, etc. are recognized immediately in the
Profit and Loss Account.
7. Investments:
Investments that are readily realizable and intended to be held for not
more than a year are classified as current investments. All other
investments are classified as long-term investments. Current
investments are carried at lower of cost and fair value determined on
investment category basis. Long-term investments are carried at cost.
However, provision for diminution in value is made to recognize a
decline other than temporary in the value of the investments.
8. Inventories:
Inventories are valued as follows: (A) At plant:
1 Stores & Spares (including coal)
At weighted average cost.
2 Raw Materials and Finished Goods and Stock-in-Process
At Lower of Weighted Average Cost or Net Realisable Value. Annual cost
is computed on full absorption costing method including material cost
and conversion costs.
3 Fertilizers of sub- standard quality
At Lower of Weighted Average Cost or Net Realisable Value as estimated
by the Company. Annual cost is computed on full absorption costing
method including material cost and conversion costs.
(B) At Field:
1 Finished Goods
At Lower of Weighted Average Cost or Net Realisable Value. Annual cost
is computed on full absorption costing method including material cost
and conversion costs. Cost of field stocks includes freight to the
destination.
2 Fertilizers of sub- standard quality
At Lower of Weighted Average Cost or Net Realisable Value as estimated
by the Company.
Net realizable value is the estimated selling price in the ordinary
course of business, less estimated costs of completion and estimated
costs necessary to make the sale.
9. Foreign Currency Transactions:
Initial Recognition:
Foreign currency transactions are recorded in the reporting currency,
by applying to the foreign currency amount the exchange rate between
the reporting currency and the foreign currency at the date of the
transaction.
Conversion:
Foreign currency monetary items are reported using the closing rate.
Non-monetary items which are carried in terms of historical cost
denominated in a foreign currency are reported using the exchange rate
at the date of the transaction; and non-monetary items which are
carried at fair value or other similar valuation denominated in a
foreign currency are reported using the exchange rates that existed
when the values were determined.
Exchange Differences:
The net gain or loss on account of exchange rate differences arising on
settlement of foreign currency transactions are recognized as income or
expenses of the period in which they arise except on liability relating
to fixed assets acquired within India arising out of transactions
entered on or before March 31, 2004 are added to the cost of such
assets in line with old AS-11.
Forward Exchange Contracts not intended for trading or speculation
purposes:
The premium or discount arising at the inception of forward exchange
contracts is amortized as expense or income over the life of the
contract. Exchange differences on such contracts are recognized in the
statement of profit and loss in the year in which the exchange rates
change. Any profit or loss arising on cancellation or renewal of
forward exchange contract is recognized as income or as expense for the
year.
10. Revenue Recognition:
Revenue is recognized to the extent that it is probable that the
economic benefits will flow to the Company and the revenue can be
reliably measured.
a. Sale of Goods:
Revenue is recognized when the significant risks and rewards of
ownership of the goods have passed to the buyer. Sales, net of sales
tax and discounts, comprise of sale of goods and services, excise duty
and claims preferred on the Government of India for retention price
reimbursement on fertilizers and admissible claims for change in
retention price on account of variation in the costs. The excise duty
collected on sales is shown by way of further deduction from sales.
Urea and ANP Product Subsidy:
Urea Subsidy under the New Pricing Scheme-III (extension) and ANP
Subsidy under Nutrient Based Subsidy (NBS) Scheme w.e.f. 01-04-2010 is
allowed by the Government of India (GoI) for the quantity received at
the destination, as per the rate prescribed by GoI, at the time of
dispatch in case of Urea and at the time of receipt in case of ANP.
Urea Subsidy is further adjusted for input price escalation/
de-escalation as estimated by the management based on the prescribed
norms. The Company accounts for the same on sales quantity basis. Urea
and ANP Freight Subsidy:
Freight Subsidy is recognized for the quantity received at the
destination based on the rates approved by the Government of India in
case of Urea and on the normative rates approved by the Government of
India or the actual freight whichever is lower in case of ANP.
b. Other Income:
Interest:
Revenue is recognized on a time proportion basis taking into
account the amount outstanding and the rate applicable.
Dividends:
Revenue is recognized on actual receipt basis.
Other Income:
The amounts receivable from various agencies are accounted on accrual
basis to the extent it is possible to ascertain the income with
reasonable accuracy.
Insurance claims:
Revenue is recognized on actual receipt basis.
11. Government Grants:
Government Grant is recognized when there is reasonable assurance that
the conditions attached to them will be complied with. Government Grant
received against the cost of fixed asset is credited to the gross value
of the respective fixed asset in arriving at its book value. The grant
is thus recognized in the profit and loss statement over the useful
life of the respective depreciable fixed asset by way of a reduced
depreciation charge.
12. Borrowing Costs:
Interest and other costs in connection with the borrowing of the funds
to the extent related/ attributed to the acquisition/ construction of
qualifying assets are accumulated and capitalized upto the date when
such assets are ready for their intended use. Other borrowing costs are
charged to Profit and Loss Account.
13. Export Benefits:
Export benefits under Duty Exemption Advance License Scheme, Duty
Exemption Pass Book Scheme and Duty Drawback Scheme are accounted for
in the year of export of goods.
14. Retirement Benefits:
a. Retirement benefits in the form of Provident Fund and Pension Fund
is a defined contribution scheme and the contributions are charged to
the Profit and Loss Account of the year when the contributions to the
respective funds are due. There are no other obligations other than the
contribution payable to the respective trusts.
b. Gratuity liability and Post employment Medical Benefit liability
are defined benefit obligations and are provided for on the basis of
actuarial valuation made at the end of each financial year on project
unit credit method.
c. Short term compensated absences are provided for on basis of
estimates. Long term compensated absences are provided for based on
actuarial valuation on project unit credit method.
d. Actuarial gains / losses are immediately taken to profit and loss
account and are not deferred.
15. Taxation:
Tax expense comprises of current tax, wealth tax and deferred tax.
Current income tax is measured at the amount expected to be paid to the
tax authorities in accordance with the Indian Income Tax Act. Deferred
income tax reflects the impact of current year timing differences
between taxable income and accounting income for the year and reversal
of timing differences of earlier years. Deferred tax is measured based
on the tax rates and the tax laws enacted or substantively enacted at
the Balance Sheet date. Deferred tax assets are recognized 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 realized. In situations where the company has carried forward
tax losses, all deferred tax assets are recognized only if there is
virtual certainty supported by convincing evidence that they can be
realized against future taxable profits.
The carrying amount of deferred tax assets are reviewed at each balance
sheet date. The Company writes down the carrying amount of a deferred
tax asset to the extent that it is no longer reasonably certain or
virtually certain as the case may be, that sufficient future taxable
income will be available against which such deferred tax assets can be
realized.
16. Provisions:
A provision is recognized when an enterprise has a present obligation
as a result of past event; it is probable that an outflow of resources
will be required to settle the obligation, in respect of which a
reliable estimate can be made. Provisions are not discounted to its
present value and are determined based on best estimate required to
settle the obligation at the balance sheet date. These are reviewed at
each balance sheet date and adjusted to reflect the current best
estimates.
17. Earnings Per Share:
Basic earnings per share are calculated by dividing the net profit or
loss for the period attributable to equity shareholders by the weighted
average number of equity shares outstanding during the period. Partly
paid equity shares are treated as a fraction of an equity share to the
extent that they were entitled to participate in dividends relative to
a fully paid equity share during the reporting period. For the purpose
of calculating diluted earnings per share, the net profit or loss for
the period attributable to equity shareholders and the weighted average
number of shares outstanding during the period are adjusted for the
effects of all dilutive potential equity shares.
18. Cash and Cash Equivalents:
Cash and cash equivalents in balance sheet comprise cash at bank and in
hand and fixed deposits with banks.
19. Segment Reporting Policies: Identification of segments:
The Company''s operating businesses are organized and managed separately
according to the nature of products and services provided, with each
segment representing a strategic business unit that offers different
products. Majority of the Company''s products are sold within India and
hence geographical segment is not identified. There are no intersegment
transfers.
Allocation of Common Costs:
To the extent the costs can be directly identified, they are allocated
to the related segment. Common allocable costs are allocated to each
segment according to the relative production tonnage, sales tonnage/
value and other related basis.
Unallocated items:
Other segment includes Information Technology activity and general
corporate income and expense items which are not allocated to any
business segment.
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