I.  Fixed Assets
 
 1.  FixedAssets are stated at historical cost less depreciation. Cost
 of acquisition is inclusiveof taxes, duties, freight, installation and
 allocated incidental expenditure during construction/ acquisition and
 necessary adjustments in the year of final settlement.
 
 2.  Land for mining in Tamilnadu is acquired in accordance with and
 subject to the provisions of Land Acquisition Act, 1894 and Tamilnadu
 Acquisition of Land for Industrial Purpose Act, 1997.  Capitalisation
 of land is done with reference to the date of taking over the physical
 possession of land.
 
 2.  Fixed assets relating to Research and Development are depreciated
 in a like manner as ''any other fixed asset of the Company.
 
 3.  In the year of commissioning/retirement of assets, depreciation is
 calculated on pro-rata basis, based on the number of months for which
 asset has been put to use.
 
 4.  Assets costing upto Rs.5,000/- are fully depreciated in the year in
 which they are put to use.
 
 5.  Amortisation of Mine Development Account
 
 Overburden removal costs are classified under mine development account
 till achievement of quantity parameters as approved for each Project.
 Such amounts are amortised as depreciation on the basis of annual
 lignite production to the total estimated mineable reserves, reckoning
 from the year in which regular lignite production is commenced after
 achievement of mine development.
 
 6.  Machinery Spares
 
 Initial spares purchased along with fixed assets are capitalised and
 depreciated along with the asset. Insurance spares purchased subsequent
 to the commissioning of the fixed assets costing Rs.50 lakh and above
 which can be used only in connection with an item of fixed asset and
 whose usage are expected to be irregular are fully depreciated over the
 residual useful life of the fixed assets and if the spare is utilised,
 the carrying cost is fully charged as depreciation in the year of
 utilisation.
 
 III.  Intangible Assets
 
 a) Computer Software:
 
 Application Software acquired for an amount more than Rs.10 lakh are
 capitalised as intangible assets and amortised over a period of 5
 years.
 
 b) Research & Development (Internally generated Projects):
 
 I.  Expenditure incurred during the phase of research is charged to
 revenue.
 
 ii.  Expenditure incurred during the phase of development is
 capitalised with respect to each project and amortised over its useful
 life.
 
 V.  Mine Closure Expenditure
 
 Concurrent mine closure expenses are accounted as and when incurred.
 The annual cost of final mine closure is calculated and accounted on
 the basis of guidelines for preparation of mine closure plan issued by
 Ministry of Coal.
 
 VI.  Prepaid Expenses
 
 Expenses are accounted under prepaid expenses only where the amounts
 relating to unexpired period exceed Rs. 1 crore in each case.
 
 VII.  Investments
 
 Long term Investments are carried at cost. Provision is made for
 diminution, if any, other than temporary, in the value of such
 investments.
 
 VIII.  Preliminary Project Expenditure
 
 Preliminary Project Expenditure includes expenditure on feasibility
 studies documentation of data, other development expenditure,
 expenditure on exploratory works, technical know how etc., to be added
 to the capital cost of the project as and when implemented. In case
 such projects are identified for transfer of business by the Govt, of
 India, the expenditure incurred will be recovered from the prospective
 buyer. If the projects are abandoned with reference to Government
 orders or cannot be implemented such expenditures are charged to Profit
 & Loss Account in the respective years.
 
 IX.  Accounting for Grants
 
 I. Government and other grants received relating to depreciable fixed
 assets are taken to capital grants and treated as ''Deferred income'' and
 recognised in the Profit and Loss Account by allocating to income over
 the period in which the depreciation is charged.
 
 ii. Grants relating to non-depreciable assets are credited to income
 over a period in which the cost of meeting the obligations attached to
 the grants is charged to income.
 
 iii.  Revenue grants to the extent utilised are accounted in Profit and
 Loss Account.
 
 X.  Reserves and Surplus
 
 Interest Differential Reserve
 
 Interest Differential Reserve created as provided in the Loan Agreement
 entered into with KfW has debt discharging effect and is utilised in
 accordance with the terms of the Loan Agreement and such utilisation is
 shown as withdrawal from the Reserve.
 
 XI.  Employee Benefits
 
 Employee benefits are accounted as follows as per Accounting Standard
 15 (Revised) 2005.
 
 I. Short-term employee benefits such as wages, salaries, incentives,
 short-term EL and HPL are fully provided for.
 
 ii. Long-term employee benefits such as EL and HPL are provided for as
 per actuarial valuation and funded in SBI Life Insurance Corporation.
 
 iii.  Post employment benefits such as Gratuity is treated as defined
 benefit plan and is accounted as per actuarial valuation. Contribution
 to gratuity is made to L.I.C. Group , Gratuity Fund.
 
 iv. Post Retirement Medical Benefit Scheme is treated as defined
 contribution scheme and accounted accordingly.
 
 v. Contribution to Provident Fund Trust is recognised in Profit and
 Loss Account on the basis of actual liability.
 
 XII.  Allocation of common charges/social overhead expenses
 
 These are allocated to production units based on salaries and wages of
 these units.
 
 XIII.  Prior period and Extra-ordinary Items
 
 Prior Period and Extra-ordinary items are accounted in accordance with
 Accounting Standard-5.  Transactions arising out of errors or omissions
 exceeding Rs.1 crore in each case considered as material are accounted
 under Prior period transactions. Extra-ordinary items of value
 exceeding Rs.1 crore in each case are considered as material and
 accounted for under Extra-ordinary items. Prior period/Extra-ordinary
 items are not considered for stock valuation purposes.
 
 XIV.  Significant events occurring after the Balance Sheet date
 
 Treatment of contingencies and significant events are in accordance
 with Accounting Standard-4.  For this purpose, event having an effect
 of Rs.1 crore and above in value is considered as significant.
 
 XV.  Revenue Recognition
 
 a.  Sale of power is accounted for by following Electricity Act, 2003,
 where the tariff rates are approved by the Central Electricity
 Regulatory Commission constituted under the Electricity Act, 2003. In
 case of power stations where the tariff rates are yet to be approved,
 provisional tariff rates, calculated on the basis of Ministry of Coal
 guidelines on lignite transfer price for energy charges and other
 relevant CERC''s norms and parameters for capacity charges are adopted.
 
 b.  Clajm towards insurance, surcharge on belated settlement of power
 bills and interest on delayed payment of income tax recoverable are
 accounted in the year of settlement and /or intheyearof acceptance
 ofthe claim/certainty of realisation as the casemaybe.
 
 c.  Cash discounts for prompt payments are accounted as and when the
 related dues are settled.
 
 XVI.  Foreign Exchange transactions
 
 Exchange rate variations in foreign exchange transactions are accounted
 as per Accounting Standard-11 of Companies (Accounting Standards)
 Rules, 2006 and an option has been exercised to capitalise the exchange
 difference.
 
 XVII.  Accounting for taxes on income
 
 Tax expense comprises of current and deferred tax. Current tax is the
 amount of tax payable in respect of taxable income for the period
 measured at the amount expected to be paid to the tax authorities in
 accordance with the Indian Income-tax Act. Deferred tax is recognised
 on timing difference between accounting income and taxable income that
 originate in one period and are capable of being reversed in one or
 more subsequent periods, subject to consideration of prudence. Deferred
 tax is measured using the tax rates and the tax laws that have been
 enacted or substantively enacted by the Balance Sheet date. Deferred
 Tax Assets/Liabilities are reviewed at each Balance Sheet date.
 
 XVIII.  Borrowing Cost
 
 Borrowing costs (net of interest earned on temporary investments)
 specially attributable to the qualifying fixed assets are capitalised
 along with the cost of such assets and in general, weighted average
 interest cost is capitalised to the qualifying assets. Other borrowing
 costs are recognised as expenses in the period in which they are
 incurred.
 
 XIX.  Construction Projects
 
 1.  Capitalisation and Depreciation Provision
 
 A.  Specialised Mining Equipment
 
 Successful completion of eight effective working hours on load test
 excluding minor stoppage is the criteria followed in respect of the
 assets covering Specialised Mining Equipment System namely Bucket Wheel
 Excavator, Conveyor, Tripper, Transfer Feeder and Spreader for
 capitalisation and commencement of depreciation charge and revenue
 recognition. The entire test shall be completed within twelve hours
 from the time of starting of the test including minor stoppages.
 
 B.  Power Generation Unit
 
 Test and trial production for Thermal Power Generation unit commences
 from the date of synchronisation and goes up to the date of commercial
 commissioning. Provisional take over date of the Turbo-generator
 pursuant to seventy two hours full load operation is deemed as the date
 of commercial commissioning of the units. Depreciation charge commences
 from the date of commercial commissioning. Direct expenses and interest
 charges incurred during the test and trial run are capitalised and the
 power sale revenue earned during that period is abated to the capital
 cost of the project.