A. Basis of Preparation of Financial Statements
The financial statements are prepared under the historical cost
convention, except for certain fixed assets which are revalued, in
accordance with the generally accepted accounting principles in India
and the provisions of the Companies Act, 1956.
B. use of Estimates
The preparation of financial statements requires estimates and
assumptions to be made that affect the reported amount of assets and
liabilities on the date of the financial statements and the reported
amount of revenues and expenses during the reporting period. Difference
between the actual results and estimates are recognised in the period
in which the results are known/ materialised.
C. Own Fixed Assets
Fixed Assets are stated at cost net of recoverable taxes and includes
amounts added on revaluation, less accumulated depreciation and
impairment loss, if any. All costs, including financing costs till
commencement of commercial production, net charges on foreign exchange
contracts and adjustments arising from exchange rate variations
attributable to the fixed assets are capitalised.
D. Leased Assets
a) Operating Leases: Rentals are expensed with reference to lease terms
and other considerations.
b) (i) Finance leases prior to 1st April, 2001: Rentals are expensed
with reference to lease terms and other considerations.
(ii) Finance leases on or after 1st April, 2001: The lower of the fair
value of the assets and present value of the minimum lease rentals is
capitalised as fixed assets with corresponding amount shown as lease
liability. The principal component in the lease rental is adjusted
against the lease liability and the interest component is charged to
Profit and Loss account.
c) However, rentals referred to in (a) or (b) (i) above and the
interest component referred to in (b) (ii) above pertaining to the
period upto the date of commissioning of the assets are capitalised.
d) All assets given on finance lease are shown as receivables at an
amount equal to net investment in the lease. Initial direct costs in
respect of lease are expensed in the year in which such costs are
incurred. Income from lease assets is accounted by applying the
interest rate implicit in the lease to the net investment.
E. Intangible Assets
Intangible Assets are stated at cost of acquisition net of recoverable
taxes less accumulated amortisation / depletion. All costs, including
financing costs till commencement of commercial production, net charges
on foreign exchange contracts and adjustments arising from exchange
rate variations attributable to the intangible assets are capitalised.
F. Depreciation and Amortisation
Depreciation on fixed assets is provided to the extent of depreciable
amount on written down value method (WDV) at the rates and in the
manner prescribed in Schedule XIV to the Companies Act, 1956 over their
useful life except, on fixed assets pertaining to refining segment and
SEZ units, depreciation is provided on Straight Line method (SLM) over
their useful life; on fixed bed catalyst with a life of 2 years or
more, depreciation is provided over its useful life; on fixed bed
catalysts having life of less than 2 years, 100% depreciation is
provided in the year of addition; on additions or extensions forming an
integral part of existing plants, including incremental cost arising on
account of translation of foreign currency liabilities for acquisition
of fixed assets and insurance spares, depreciation is provided as
aforesaid over the residual life of the respective plants; premium on
leasehold land is amortised over the period of lease; technical know
how is amortised over the useful life of the underlying assets and
computer software is amortised over a period of 5 years; on intangible
assets - development rights, depletion is provided in proportion of oil
and gas production achieved vis-a-vis the proved reserves (net of
reserves to be retained to cover abandonment costs as per the
production sharing contract and the Government of India''s share in the
reserves) considering the estimated future expenditure on developing
the reserves as per technical evaluation; intangible assets - others
are amortised over the period of agreement of right to use, provided in
case of jetty the aggregate amount amortised to date is not less than
the aggregate rebate availed by the Company; on amounts added on
revaluation, depreciation is provided as aforesaid over the residual
life of the assets as certified by the values on assets acquired
under finance lease from 1st April 2001, depreciation is provided over
the lease term.
G. Impairment of Assets
An asset is treated as impaired when the carrying cost of asset exceeds
its recoverable value. An impairment loss is charged to the Profit and
Loss Account in the year in which an asset is identified as impaired.
The impairment loss recognised in prior accounting period is reversed
if there has been a change in the estimate of recoverable amount.
H. Foreign Currency Transactions
(a) Transactions denominated in foreign currencies are recorded at the
exchange rate prevailing on the date of the transaction or that
approximates the actual rate at the date of the transaction.
(b) Monetary items denominated in foreign currencies at the year end
are restated at year end rates. In case of items which are covered by
forward exchange contracts, the difference between the yearend rate
and rate on the date of the contract is recognised as exchange
difference and the premium paid on forward contracts is recognised over
the life of the contract.
(c) Non monetary foreign currency items are carried at cost.
(d) In respect of branches, which are integral foreign operations, all
transactions are translated at rates prevailing on the date of
transaction or that approximates the actual rate at the date of
transaction. Branch monetary assets and liabilities are restated at the
year end rates.
(e) Any income or expense on account of exchange difference either on
settlement or on translation is recognised in the Profit and Loss
account except in case of long term liabilities, where they relate to
acquisition of fixed assets, in which case they are adjusted to the
carrying cost of such assets.
Current investments are carried at lower of cost and quoted/fair value,
computed category wise. 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.
Items of inventories are measured at lower of cost and net realisable
value after providing for obsolescence, if any. Cost of inventories
comprises of cost of purchase, cost of conversion and other costs
including manufacturing overheads incurred in bringing them to their
respective present location and condition. Cost of raw materials,
process chemicals, stores and spares, packing materials, trading and
other products are determined on weighted average basis. By-products
are valued at net realisable value.
K. Revenue Recognition
Revenue is recognized only when it can be reliably measured and it is
reasonable to expect ultimate collection. Revenue from operations
includes sale of goods, services, sales tax, service tax, excise duty
and sales during trial run period, adjusted for discounts (net), Value
Added Tax (VAT) and gain / loss on corresponding hedge contracts.
Dividend income is recognized when right to receive is established.
Interest income is recognized on time proportion basis taking into
account the amount outstanding and rate applicable.
L. Excise Duty / Service Tax and Sales Tax / Value Added Tax
Excise duty / Service tax is accounted on the basis of both, payments
made in respect of goods cleared / services provided as also provision
made for goods lying in bonded warehouses. Sales tax / Value added tax
paid is charged to Profit and Loss account.
M. Employee Benefits
(i) Short-term employee benefits are recognised as an expense at the
undiscounted amount in the Profit and Loss account of the year in which
the related service is rendered.
(ii) Post employment and other long term employee benefits are
recognised as an expense in the Profit and Loss account for the year in
which the employee has rendered services. The expense is recognised at
the present value of the amounts payable determined using actuarial
valuation techniques. Actuarial gains and losses in respect of post
employment and other long term benefits are charged to the Profit and
N. Employee Separation Costs
Compensation to employees who have opted for retirement under the
voluntary retirement scheme of the Company is charged to the Profit and
Loss account in the year of exercise of option.
O. Borrowing Costs
Borrowing costs that are attributable to the acquisition or
construction of qualifying assets are capitalised as part of the cost
of such assets. A qualifying asset is one that necessarily takes
substantial period of time to get ready for its intended use. All other
borrowing costs are charged to Profit and Loss account.
P. Financial Derivatives and Commodity Hedging Transactions
In respect of derivative contracts, premium paid, gains / losses on
settlement and losses on restatement are recognised in the Profit and
Loss account except in case where they relate to the acquisition or
construction of fixed assets, in which case, they are adjusted to the
carrying cost of such assets.
Q. Accounting for Oil and Gas Activity
The Company has adopted Full Cost Method of accounting for its Oil and
Gas activity and all costs incurred in acquisition, exploration and
development are accumulated considering the country as a cost centre.
Oil and Gas Joint Ventures are in the nature of Jointly Controlled
Assets. Accordingly, assets and liabilities as well as income and
expenditure are accounted on the basis of available information on line
by line basis with similar items in the Company''s financial statements,
according to the participating interest of the Company.
R. Provision for Current and Deferred Tax
Provision for current tax is made after taking into consideration
benefits admissible under the provisions of the Income-tax Act, 1961.
Deferred tax resulting from timing difference between taxable and
accounting income is accounted for using the tax rates and laws that
are enacted or substantively enacted as on the balance sheet date.
Deferred tax asset is recognised and carried forward only to the extent
that there is a virtual certainty that the asset will be realised in
S. Premium on Redemption of bonds / Debentures
Premium on redemption of bonds / debentures, net of tax impact, are
adjusted against the Securities Premium Account.
T. Provisions, Contingent Liabilities and Contingent Assets
Provisions involving substantial degree of estimation in measurement
are recognized when there is a present obligation as a result of past
events and it is probable that there will be an outflow of resources.
Contingent Liabilities are not recognised but are disclosed in the
notes. Contingent Assets are neither recognized nor disclosed in the