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
 uncertain.
 
 (b) Annual recurring charges of amount up to Rs. 0.10 Millions each for
 overlapping period.  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. Revenuein 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
 lUC/Roaming/MOU, cases involving suspension of revenue realisation 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 Mobile Services (GSM), 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
 connection.
 
 (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
 the company.
 
 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 items.
 
 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
 main system.
 
 (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.
 
 v.  Depreciation
 
 (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 Tesidual value at the
 end of the life of the assets.
 
 3.  Inventories
 
 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
 
 5.  Investments
 
 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.