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Moneycontrol.com India | Accounting Policy > Fertilisers > Accounting Policy followed by Gujarat Narmada Valley Fertilizers & Chemicals - BSE: 500670, NSE: GNFC
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Gujarat Narmada Valley Fertilizers & Chemicals
BSE: 500670|NSE: GNFC|ISIN: INE113A01013|SECTOR: Fertilisers
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« Mar 11
Accounting Policy Year : Mar '12
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 qualifying
 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 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
 replacement 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.
 Licence 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
 Statement of Profit and Loss.
 
 Operating Lease:
 
 Assets subject to operating leases are included in fixed assets.  Lease
 income is recognized in the Statement of Profit and Loss on a
 straight-line basis over the lease term. Costs, including depreciation,
 are recognized as an expense in the Statement of Profit and Loss.
 Initial direct costs such as legal costs, brokerage costs, etc. are
 recognized immediately in the Statement of Profit and Loss.
 
 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:
 
 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:
 
 a.  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.
 
 b.  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.
 
 c.  Exchange Differences:
 
 The net gain or loss on account of exchange rate differences arising on
 settlement or restatement of foreign currency transactions for foreign
 currency monetary items are recognized as income or expenses of the
 period in which they arise except exchange differences arising on
 long-term foreign currency monetary items related to acquisition of a
 fixed asset which are capitalized and depreciated over the remaining
 useful life of the asset. For this purpose, the Company treats a
 foreign currency monetary item as long-term foreign currency
 monetary item, if it has a term of 12 months or more at the date of
 its origination.
 
 d.  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, except the contracts
 which are long-term foreign currency monetary items, 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
 such forward exchange contract is recognized as income or as expense
 for the year. Any gain / loss arising on forward contracts which are
 long-term foreign currency monetary items is recognized in accordance
 with c. above.
 
 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 / VAT 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:
 
 Interes t:
 
 Revenue is recognized on a time proportion basis taking into account
 the amount outstanding and the rate applicable.  Dividends:
 
 Revenue is recognized when the right to receive the dividend is
 established.
 
 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 Statement of Profit and Loss.
 
 13.  Export Benefits:
 
 Export benefits under Duty Exemption Advance Licence 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
 are defined contribution schemes and the contributions are charged to
 the Statement of Profit and Loss of the year when the contributions to
 the respective funds are due. There are no other obligations other than
 the contributions 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 the 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 Statement of
 Profit and Loss and are not deferred.
 
 15.  Taxation:
 
 Tax expense comprises of current 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.
Source : Dion Global Solutions Limited
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