The financial statements have been prepared in conformity with
generally accepted accounting principles to comply in all material
respects with the notified Accounting Standards(AS) under Companies
(Accounting Standard) Rules 2006 and the relevant provisions of the
Companies Act 1956(the Act”).The financial statements have been
prepared under the historical cost convention, on an accrual basis. The
accounting policies have been consistently applied by the Company and
are consistent with those used in the previous year except for the
change in accounting policy explained in 2 below.
Presentation and disclosure of financial statements
During the year ended 31 March 2012, the revised Schedule VI notified
under the Act has become applicable to the company, for preparation and
presentation of its financial statements. The adoption of revised
Schedule VI does not impact recognition and measurement principles
followed for preparation of financial statements. However, it has
significant impact on presentation and disclosures made in the
All assets and liabilities have been classified as current or
non-current as per criteria set out in the revised Schedule
VI notified under the Act which are as under:
Based on the nature of products and the time taken between the
acquisition of assets or processing and their realization in cash and
cash equivalents, company has ascertained its operating cycle. The
Normal operating cycle as determined by the Company is 6 months.
The threshold for classification as current or non-current assets is
determined either by the realization of such assets within the normal
operating cycle or if such asset is expected to be realized within
twelve months after the reporting date. Thus classification of an asset
either current or non-current has been made applying the criteria of
realization of such assets within a period of 12 months after the
Where assets have been fully provided for as doubtful, the same are
classified as non-current.
Similarly in case of liabilities the same is classified as current
where it is expected to be settled within 12 months after reporting
date and where the company does not have an unconditional right to
defer settlement of the liability for at least twelve months after
2. Change in Accounting Policy
Adjustment of exchange variance on translation
/settlement of long term monetary items
Government of India has issued an amendment to Accounting Standard -11
(Revised) giving an option to Companies which had earlier not exercised
the option to adjust the exchange differences to the cost of asset in
respect of long term foreign currency items for transactions commencing
from 01 -4-2011. Consequently, company has exercised the option of
adjusting such exchange variances to the cost of the asset. The impact
of the same is given separately in Note no. 49 to the Financial
3. Use of Estimates: ''
The preparation of the financial statements in conformity with the
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amount of assets and
liabilities and disclosure of contingent liabilities as 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.
Any revisions to accounting estimates are recognized prospectively when
revised, in current and future periods.
4. Fixed Assets
4.1 Fixed assets comprise of tangible assets and intangible assets, and
are stated at their original cost of acquisition (net of Cenvat and
VAT) less accumulated depreciation/ amortization and impairment loss.
Cost for this purpose includes all costs attributable for bringing the
asset to its present location and condition. Assets held for disposal,
are stated at lower of net book value and net estimated realizable
4.2 The Government/Institutional grants of capital nature are adjusted
to the gross block of relevant Fixed Assets.
4.3 From accounting periods commencing on after 01-4-2011, the Company
adjusts exchange differences on translation / settlement of long term
monetary items pertaining to the acquisition of a depreciable asset to
the cost of the asset and depreciates the same over the remaining life
of the asset.
Depreciation on Fixed Assets other than on intangible assets (software
applications) is provided for under STRAIGHT LINE METHOD (SLM) at the
prescribed in Schedule XIV to the Companies Act, 1956. Depreciation on
additions/deductions to Gross Block is calculated on pro-rata basis
from the date of such additions/and up to the date of such deductions.
Intangible assets (software applications) are amortized over their
respective individual estimated useful lives on a STRAIGHT-LINE BASIS,
pro-rata from the date the asset is available to the Company for its
use. Management estimates the useful life of software applications
identified as intangible assets as three years. Any expenses incurred
on intangible assets upto Rs. 1 lakh in each case are being charged off
in the year of incurrence.
Leasehold land is amortized equally over the lease period pro-rata from
the month the asset is available to the Company.
Depreciation on Catalyst capitalized upon commissioning is provided on
the estimated useful life as technically assessed.
Depreciation on railway wagons purchased is provided on its estimated
Impairment of Assets:
The carrying amounts of assets are reviewed at each Balance Sheet date
for identifying an impairment based on internal/external factors. Loss
on impairment is provided to the extent the carrying amount of assets
exceeds its recoverable amount. Recoverable amount is the higher of an
asset''s net selling price and its value in use. After recognition of
impairment loss, the revised carrying amount less residual value of the
impaired asset would be depreciated on systematic basis over its
remaining useful life. A previously recognized loss on impairment is
increased or reversed depending on the change in the 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.
6. Expenditure during Construction (EDC)
All pre-operative costs (net of income) incidental to new projects
undertaken are accumulated as EDC and apportioned appropriately among
the various plants/facilities during the year of capitalization.
7. 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 up to the date when
such assets are ready for their intended use. All other borrowing costs
are charged to statement of Profit and Loss.
Exchange variation on foreign currency borrowing to the
extent they are considered as borrowing costs are capitalized up to the
date when such assets are ready for their intended use.
8. Foreign Currency Transactions
Transactions in Foreign currency are recorded in the reporting currency
by applying the currency rate as at the date of transaction.
Monetary assets and liabilities denominated in foreign currency are
translated at the rates of exchange prevalent on the Balance Sheet
In respect of transactions covered by forward exchange contracts the
difference between the contract rate and the spot rate on the date of
the contract is recognized in the Statement of Profit and Loss over the
period of the contract.
Exchange differences arising on long-term foreign currency monetary
items related to acquisition of a fixed asset are capitalized and
depreciated over the remaining useful life of the asset. For this
purpose, the company treats a foreign currency monetary items as
long-term foreign currency monetary item, if it has a term of 12
months or more at the date of its obligation.
All other exchange differences (gains or losses) are recognized in the
Statement of Profit & Loss in the period in which they arise.
Current Investments are valued at lower of cost and fair value. Long
term investments are stated at cost and provision is made for any
diminution in such value, which is other than temporary in nature.
10.1 Assessment of Inventory
Raw Materials, Intermediary Products, By- Products and Finished
Products inside factory premises are assessed by survey method on a
date as close as possible to the Balance Sheet date and the shortages
/excesses in the quantities as compared to book stocks are adjusted in
the books. Finished goods and other inventory stored outside the
factory premises are taken as per warehousing certificates and third
party confirmation respectively.
10.2 Mode of Valuation
Inventory is valued at lower of cost and net realizable value except in
case of by-products, which are valued at, net realizable value. Gases
and slurries, if any, in pipelines at different stages of process are
not valued as the same is not practicable.
10.3 Basis of Cost:
10.3.1 The cost of manufactured finished goods, bought out products and
intermediary products are arrived at based on weighted average cost.
Bifurcation of cost of joint products is made on technical estimates.
10.3.2 Cost of raw materials, petroleum products, packing materials,
stores and spares, and loose tools is determined on weighted average
10.3.3 Used loose tools are treated as consumed and hence not valued.
10.3.4 Project surplus stores and spares of old plants not in use are
brought in the books at nominal estimated value/technical estimate or
carried in memorandum records.
10.3.5 Provision is made in respect of raw materials, packing
materials, stores and spares and petroleum products, wherever
appropriate, based on technical estimates, to reflect the impact of
obsolescence, damage or other diminution in value.
10.4 Measurement of Cost / Realizable Value
10.4.1 Cost of Purchases
Cost of purchase includes duties, taxes (net of those recoverable)
freight and other expenses net of trade discounts, rebates and price
10.4.2 Cost of Manufactured goods
Cost of Manufactured Goods comprises of direct cost, variable
production overheads and fixed production overheads on absorption
costing method. Catalysts issued are charged off over their estimated
useful lives as technically assessed. Variable production overheads are
allocated based on actual production. Variable overheads related to
movement of finished products are allocated based on actual dispatches.
Fixed overheads are allocated based on higher of the actual production
level or normal production level. Average freight incurred is included
in valuing stocks in field warehouses and in transit.
10.4.3 Cost of Traded Fertilizers
It comprises of Cost of Purchases as defined under 10.4.1 plus bagging,
handling and transportation costs incurred to bring the material in its
present location and condition.
10.4.4 Net Realizable Value
Price of urea is administered by the Government of India by which
selling price is fixed for the buyer. The net realizable value for
manufactured urea is taken at retention price (selling price net of
dealers'' margin plus subsidy from Government of India) net of variable
selling and distribution cost. Net realizable value of off-spec urea is
taken at 40% of MRP excluding subsidy.
The net realizable value of phosphatic and potassic fertilizers is
taken at the applicable selling prices expected to be realized, net of
dealers'' margin and variable selling and distribution costs plus the
concession as fixed/to be fixed by Government. Net realizable value of
off-spec phosphatic and potassic fertilizers is taken at selling price
net of dealers'' margin and estimated cost of re- processing including
transportation cost to factory. The net realizable value of off spec
bought out fertilizers is at 30% of MRP excluding subsidy.
The Net realizable value of imported Urea is the selling price and
other entitled compensation as contracted with the Government net of
variable selling and distribution cost.
The net realizable value of off-spec imported Urea is taken at 40% of
MRP excluding subsidy.
Average freight incurred on dispatches from silo/factory/ port to
godown is reduced for arriving at the net realizable value in respect
of stocks of fertilizers in silo/factory/port.
The net realizable value of non-fertilizer products is taken at the
year-end lowest selling prices net of variable selling and distribution
11. Trade receivables, other debts, loans and advances are provided
for as doubtful upon review on case to case basis.
Subsidy receivable from Government overdue over 3 years are provided
for as doubtful.
Assets acquired on leases wherein a significant portion of the risks
and rewards of ownership are retained by the lessors are classified as
operating leases. Lease rentals paid for such leases are recognized as
an expense as per the lease terms which is more representative of the
time pattern of the benefit.
Rental income on leases is accounted for an accrual basis in accordance
with the terms of the contract. This is more representative of the time
pattern in which benefit derived from the use of the leased asset is
Provision for Current Income Tax is made in accordance with the Income
Tax Act 1961.
Deferred Tax resulting from timing difference” between book profit
and taxable profit for the year is accounted for using the tax rates
and laws that have been enacted or substantially enacted as on the
balance sheet date. The deferred tax asset is recognized and carried
forward only to the extent that there is a reasonable certainty that
the assets will be adjusted in future and for unabsorbed depreciation
or carry forward of losses where there is a virtual certainty of their
adjustment in future.
14. Cash and Cash Equivalents
Cash and cash equivalents in the cash flow statement comprises of cash
in hand , cash at bank and short term investments with an original
maturity of three months or less.
15. Employee Benefits
15.1 Contribution to Provident Fund is accounted for on accrual basis.
The Provident Fund contributions are made to a Trust administered by
the Company. The interest rate payable to the members of the Trust
shall not be lower than statutory rate of interest declared by the
Central Government under the Employees Provident Funds and
Miscellaneous'' Provisions Act, 1952 and shortfall, if any, shall be
made good by the Company. Such shortfall on account of interest, if
any, is recognized in the Statement of Profit and Loss.
15.2 Company''s defined Contribution made to its Superannuation scheme
is charged off to Statement of Profit and Loss on accrual basis.
15.3 Employee benefits under Defined Benefit plans
comprising of gratuity, leave encashment on retirement, Post retirement
medical benefits and long term service award are recognized based on
the present value of Defined Benefit Obligation based on actuarial
valuation carried out as on the date of the Balance Sheet. The
actuarial valuation is done as per Projected Unit Method.
15.4 Actuarial gains and losses are recognized in full in the Statement
of Profit and Loss for the period in which they occur. Past service
cost is recognized immediately to the extent that the benefits are
already vested. The retirement benefit obligation recognized in the
Balance Sheet represents the present value of the defined benefit
obligation as adjusted for unrecognized past service cost, and as
reduced by the fair value scheme of assets, wherever applicable.
16. Earnings per Share (EPS)
Basic earnings per share is calculated by dividing net profit or loss
after tax for the year attributable to equity shareholders by the
weighted average number of equity shares outstanding during the year.
For the purpose of calculating diluted EPS, net profit or loss after
tax for the year attributable to equity shareholders are divided by the
weighted average number of equity shares outstanding during the year
and are adjusted for the effects of all dilutive potential equity
17. Research and Development Expenditure
Revenue Expenditure on Research and Development activity is recognized
separately and charged to Statement of Profit and Loss.
18. Revenue Recognition
18.1 Sales are recognized on an accrual basis when all significant
risks and rewards of ownership are transferred to the buyer and the
Company retains no effective control of the goods transferred.
18.2 Gross Sales (net of returns) include excise duty, wherever
18.3 Subsidy income is accounted on the quantity sold during the year.
18.4 Recognition of Subsidy is generally made on the basis of in
principle recognition/approval/ settlement of claims from Government of
India /Fertilizer Industry Co-ordination Committee.
18.5 Other Income is recognized on an accrual basis.
18.6 Dividend income is recognized when right to receive dividend is
18.7 Interest Income is recognized when no significant uncertainty as
to its realization exists and is accounted on time proportion basis at
18.8 Scrap, salvaged/waste materials and sweepings are accounted for on
18.9 Insurance and other miscellaneous claims are recognized on
receipt/acceptance of claim. Contractual pass through incentives,
benefits, etc. are recognized on receipt basis.
18.10 Debits/Credits Relating to Prior period Income and expenditure
pertaining to earlier period and up to Rs. 1,00,000/- in each case, are
not being classified as relating to prior period”.
18.11 Prepaid Expenses
Individual expense up to Rs.25,000 is not considered in classifying
19. Contingent Liabilities and Provisions
Claims against the Company not acknowledged as debts relating to normal
business transactions and show cause notices and demands disputed by
the Company are treated as Contingent Liabilities after careful
evaluation of facts. Provision in respect of contingent liabilities if
any, is made when it is probable that a liability may be incurred and
the amount can be reasonably estimated.
A provision is recognized when the Company has a present obligation as
a result of past event; it is probable that 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 estimate.