1. Basis of preparation of financial statements
i. The accounts are prepared under the historical cost convention
adopting the accrual method of accounting except the following items,
which are accounted for on cash basis:
(a) Interest income/liquidated damages, where realisability is
(b) Annual recurring charges of amount up to Rs. 0.10 Millions each for
ii. Revenue Recognition
(a) Revenue is recognized on accrual basis, including income from
subscribers whose disputes are pending resolution, and closure of the
subscribers'' line. Revenue in respect of service connection is
recognized when recoverability is established.
(b) Provision is made for wrong billing, disputed claims from
subscribers excluding operators covered under the agreements related to
IUC/Roaming/MOU, cases involving suspension of revenue realization due
to proceedings in Court and debtors outstanding for more than 3 years.
In respect of closed connections provision is made for outstanding for
more than 3 years along with spillover amount less than 3 years. In
case of Wireless Services (GSM & CDMA), the provision is made for dues,
which are more than 180 days.
(c) Activation charges recovered from the subscribers at the time of
new telephone connection is recognized as income in the year of
(d) Activation charges in case of Mobile Services (GSM) is recognized
as revenue on connection.
(e) Income from services includes income from leasing of infrastructure
to other service providers.
iii. The cost of stores and materials is charged to project or revenue
job at the time of issue. However, spill over items at the end of the
year lying at various stores are valued at weighted average method.
iv. The sale proceeds of scrap arising from maintenance & project works
are taken into miscellaneous income in the year of sale.
v. Bonus/ Exgratia is paid based on the productivity linked parameters
and it is to be provided accordingly subject to the profitability of
vi. Income from services pertaining to prior years is not disclosed as
prior period item. In respect of other income/expenditure, only cases
involving sums exceeding Rs. 0.10 Millions are disclosed as prior period
1.1 Employee Retirement Benefits
a) In respect of officials who are on deemed deputation from DOT and
other Govt. Departments, the provision for pension contribution is
provided at the rates specified in Appendix 2(A) to FR 116 and 117 of
FR. & SR. and provision for leave encashment is made @ 11% of pay as
specified in appendix 2(B) of F.R.116 and 117 of F.R. & S.R. Provision
of gratuity, in respect of these officers, is not required to be made.
b) In respect of others, provision is made as per Actuarial Valuation.
2. Fixed Assets
i. Fixed Assets are carried at cost less accumulated depreciation. Cost
includes directly related establishment expenses including employee
remuneration and benefits and other administrative expenses.
Establishment overheads and expenses incurred in units where project
work is also undertaken are allocated to capital and revenue based
either on time allocated or other attributable basis. Assets are
capitalized, as per the practices described below, to the extent
completion certificates have been issued, wherever applicable.
(a) Land is capitalized when possession of the land is taken. Value of
Leasehold Land is amortized over the period of lease.
(b) Building is capitalized to the extent it is ready for use.
(c) Apparatus & Plants principally consisting of Telephone Exchange
Equipments and Air Conditioning Plants are capitalized on commissioning
of the exchange. Subscribers Installations are capitalized as and when
the exchange is commissioned and put to use either in full or in part.
(d) Lines & Wires are capitalized as and when laid or erected to the
extent completion certificates have been issued.
(e) Cables are capitalized as and when ready for connection with the
(f) Vehicles and Other Assets are capitalized as and when purchased.
(g) Intangible assets include application software are capitalized when
ready for use, entry fees for one-time payment for 3G and BWA spectrum
are capitalized when the liability for the same is known.
ii. The fixed assets of the company are being verified by the
management at reasonable intervals i.e. once in every three years by
rotation. The physical verification of underground cables is done on
the basis of working of network and based on records available together
with a certificate from the technical officers.
iii. Expenditure on replacement of assets, equipments, instruments and
rehabilitation work is capitalized if it results in enhancement of
revenue earning capacity.
iv. Upon scrapping / decommissioning of assets, these are classified in
fixed assets at the lower of Net Book Value and Net Realisable Value
and the estimated loss, if any, is charged to Profit and Loss A/c.
(a) Depreciation is provided on Straight Line Method at the rates
prescribed in Schedule XIV to the Companies Act, 1956 except in respect
of Apparatus & Plant (including Air Conditioning System attached to
exchanges), which is depreciated at the rates based on technical
evaluation of useful life of these assets i.e. 9.5%, which is higher
than the rates prescribed in Schedule XIV to the Companies Act, 1956.
(b) 100 % depreciation is charged on assets of small value in the year
of purchase, other than those forming part of project, the cost of
which is below Rs..0.01 Millions in case of Apparatus & Plants, Training
Equipment & Testing Equipment and Rs..0.20 Millions for partitions.
(c) Intangible assets of entry fees for one time payment for 3G and BWA
Spectrum are depreciated over the period of license respectively i.e.
20/15 years. Application software is depreciated over the useful life
of the assets considered as 10 years and amortization is charged on
depreciable amount accordingly. There will be no residual value at the
end of the life of the assets.
Inventories being stores and spares are valued at cost or net
realizable value, whichever is lower. However, inventories held for
capital consumption are valued at cost.
4. Foreign Currency Transactions
Transactions in foreign currency are stated at the exchange rate
prevailing on the transaction date. Year-end balances of current assets
and liabilities are restated at the closing exchange rates and the
difference adjusted to Profit & Loss Account
Current investments are carried at the lower of cost & fair market
value. Long term Investments are stated at cost. Provision for
diminution in the value of long-term investments is made only if such a
decline is other than temporary in the opinion of the management.