i) Basis of accounting and preparation of financial statements
The financial statements of the Company have been prepared on accrual
basis under the historical cost convention in accordance with the
Generally Accepted Accounting Principles in India (Indian GAAP) to
comply with the Accounting Standards notified under Section 211(3C) of
the Companies Act, 1956 and the relevant provisions thereof.
ii) use of estimates
The preparation of the financial statements in conformity with Indian
GAAP requires the management to make estimates and assumptions that
affect the reported amount of assets and liabilities (including
contingent 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 the estimates are recognised
in the period in which the results are known /materialised.
Inventories are valued at lower of cost (on weighted average basis) and
net realisable value after providing for obsolescence and other losses,
where considered necessary. Cost includes all charges in bringing the
goods to the point of sale including octroi and other levies, transit
insurance and receiving charges. Finished goods and work in progress
include apportionment of fixed and variable overheads.
iv) Cash flow statement
Cash flows are reported using the indirect method, whereby profit /
(loss) before extraordinary items and tax is adjusted for the effects
of transactions of non-cash nature and any deferrals or accruals of
past or future cash receipts or payments. The cash flows from
operating, investing and financing activities of the Company are
segregated based on the available information.
v) Depreciation and amortisation
Depreciation has been provided for on the straight line method (SLM) as
per the rates prescribed in Schedule XIV to the Companies Act, 1956,
except in respect of the following assets:
- Vehicles, furniture and computers are depreciated at an annual rate
of 20%, 10% and 30% respectively to bring it in line with the useful
life of the assets.
- Railway wagons procured under Wagon Investment Scheme (WIS) are
depreciated at the rate of 10% per annum on SLM basis.
- Mining leases in proportion to actual quantity of ore extracted there
- Amounts paid for renewal of forest clearances of owned mining leases
over the operating period of lease.
- Individual items of assets costing upto Rs 5,000 are fully depreciated
in the year of acquisition.
Depreciation is charged from the month of the date of purchase in the
case of acquisitions made during the year. In respect of assets sold,
depreciation is provided up to the month prior to the date of sale.
Intangible assets are amortised over their estimated useful life.
Expenses on implementation of Enterprise Resource Planning - SAP are
amortised over thirty six months.
vi) Revenue recognition
Sale of goods
Revenue is recognised when significant risks and rewards of ownership
of the goods sold are transferred to the customer and the commodity has
been delivered to the shipping agent/customer. Revenue represents the
invoice value of goods and services provided to third parties net of
discounts, sales tax/value added tax and adjustments arising on
Income from services
Revenue in respect of contracts for services is recognised on
completion of services.
Interest income is recognised on a time proportion basis by reference
to the principal outstanding and at the interest rate applicable.
Dividend income is recognised when the right to receive dividend is
vii) Tangible fixed assets
Fixed assets, except for the leasehold mine at Karnataka, are carried
at historical cost (net of available Central and State VAT credit) less
accumulated depreciation / amortisation and impairment losses, if any.
Costs include expenses incidental to the installation of assets and
attributable borrowing and financing costs incurred upto the date the
asset is ready for its intended use.
The iron ore reserves of the leased mine located in Karnataka were
valued and shown as fixed assets by erstwhile A. Narrain Mines Ltd.
(ANML). The Company continues to show the value of the said mining
lease as fixed assets after merger of the said ANML. The Company''s
other mining leases having ore reserves, however, are not valued.
Amounts paid to government authorities towards renewal of forest
clearances in respect of owned mining leases are capitalized as a part
of mining leases.
Machinery spares which can be used only in connection with an item of
fixed asset and whose use is expected to be irregular are capitalised
and depreciated over the useful life of the principal item of the
Capital work in progress
Projects under which assets are not ready for their intended use and
other capital work in progress are carried at cost, comprising direct
cost, related incidental expenses and attributable interest.
viii) intangible assets
Intangible assets are carried at cost less accumulated amortisation and
impairment losses, if any. The cost of an intangible asset comprises
its purchase price and any directly attributable expenditure on making
the asset ready for its intended use and net of any trade discounts and
ix) Foreign currency transactions and translations
Transactions in foreign currencies are recorded at exchange rates
prevailing on the date of the transaction. Year end balances of
monetary assets and liabilities are translated at the year end rates.
Exchange difference arising on restatement or settlement is charged to
the Statement of Profit and Loss.
x) Foreign currency forward contracts
The Company enters into forward derivative financial instruments to
hedge its exposure to foreign currency. The Company does not hold
derivative financial instruments for speculative purposes. Derivative
financial instruments are initially recorded at their fair value on the
date of the derivative transaction and are re-measured at their fair
value at subsequent balance sheet dates.
Changes in the fair value of derivatives that are designated and
qualify as fair value hedges are recorded in the Statement of Profit
Changes in the fair value of derivatives that are designated and
qualify as cash flow hedges are recorded in Reserves and Surplus.
Amount deferred to Reserves and Surplus are recycled in the Statement
of Profit and Loss in the period when the hedged item is recognised in
the Statement of Profit and Loss.
Derivative financial instruments that do not qualify for hedge
accounting are marked to market at the balance sheet date and gains or
losses are recognised in the Statement of Profit and Loss immediately.
Hedge accounting is discontinued when the hedging instrument expires or
is sold, terminated or exercised, or no longer qualifies for hedge
accounting. Any cumulative gain or loss on the hedging instrument
recognised in Reserves and Surplus is kept in reserves and surplus
until the forecast transaction occurs. If a hedged transaction is no
longer expected to occur, the net cumulative gain or loss recognised in
Reserves and Surplus is transferred to the Statement of Profit and Loss
for the year.
xi) Government grants, subsidies and export incentives
Government grants and subsidies are recognised when there is reasonable
assurance that the Company will comply with the conditions attached to
them and the grants / subsidy will be received.
Export benefits are accounted for in the year of exports based on
eligibility and when there is no uncertainty in receiving the same.
Long term investments are carried individually at cost less provision
for diminution, other than temporary, in the value of investments, if
any. Current investments are carried individually, at lower of cost and
xiii) Employee benefits
Short term employee benefits
The undiscounted amount of short-term employee benefits expected to be
paid in exchange for the services rendered by employees are recognised
during the year when the employees render the service.
Long term employee benefits Defined contribution plans:
The Company''s contribution to the provident fund and pension fund paid
/ payable during the year is debited to the Statement of Profit and
Loss. The shortfall in provident fund, if any, between the return
guaranteed by the statute and actual earnings of the Fund is provided
for by the Company and contributed to the Fund. The net actuarial
liability of the Company''s obligation for interest rate guarantee has
been determined at the year end based on an independent actuarial
valuation and the shortfall, if any, recognised in the Statement of
Profit and Loss.
The Company has a defined contribution plan for certain categories of
employees, wherein it annually contributes a predetermined proportion
of employee''s salary to an insurance company which administers the
fund. The Company recognises such contributions as an expense over the
period of services rendered.
Defined benefit plans:
The Company accounts for the net actuarial liability of its obligations
for gratuity benefits based on an independent actuarial valuation
determined on the basis of the projected unit credit method carried as
at the year end. Based on the above determined obligation, the Company
makes contribution to funds managed by insurance companies. Actuarial
gains and losses are immediately recognised in the Statement of Profit
The liability in respect of compensated absence for employees is
determined on the basis of an independent actuarial valuation carried
out at the end of the year and differential liability recognised as
expense in the Statement of Profit and Loss.
xiv) Borrowing costs
Borrowing costs include interest, amortisation of ancillary costs
incurred and exchange differences arising from foreign currency
borrowings to the extent they are regarded as an adjustment to the
interest cost. Borrowing costs attributable to the acquisition or
construction of assets requiring a substantial period of time are
All other borrowing costs including exchange differences on foreign
currency loans to the extent regarded as an adjustment to the interest
costs are charged to Statement of Profit and Loss and included under
xv) Segment reporting
The Company is in the business of mining and sale of iron ore and
manufacture and sale of metallurgical coke and pig iron. All of the
Company''s establishments are located in one country i.e. India. The
revenues from other than sale of iron ore, metallurgical coke and pig
iron are either incidental to the above three businesses or of non-
recurring nature. Therefore the Company operates in three business
Segment revenue, segment expenses, segment assets and segment
liabilities have been identified to segments on the basis of their
relationship to the operating activities of the segment. Revenue,
expenses, assets and liabilities which relate to the Company as a whole
and are not allocable to segments on reasonable basis, have been
included under Unallocated revenue / expenses / assets /
xvi) taxes on income
The Company''s income taxes include taxes on the Company''s taxable
profits, adjustment attributable to earlier periods and changes in
deferred taxes. Valuation of all tax liabilities/receivables are
carried at current amounts and in accordance with the enacted tax laws
and in the case of deferred taxes, at rates that have been
Deferred tax is calculated to correspond to the tax effect arising when
final tax is determined. Deferred tax corresponds to the net effect of
tax on all timing differences which occur as a result of items being
allowed for income tax purposes during a period different from when
they were recognised in the financial statements.
xvii) Impairment of assets
The carrying amounts of fixed assets are reviewed for impairment, if
events or changes in circumstances indicate that the carrying value of
an asset may not be recoverable. If there are indicators of impairment,
an assessment is made to determine whether the asset''s carrying value
exceeds its recoverable amount. Whenever the carrying value of an asset
exceeds recoverable amount, impairment is charged to the Statement of
Profit and Loss.
xviii) Provisions, contingent liabilities and contingent assets
A provision is recognised when the Company has a present obligation as
a result of a past event and it is probable that an outflow of
resources will be required to settle the obligation in respect of which
a reliable estimate can be made. Provisions (excluding retirement
benefits) are not discounted to their present value and are determined
based on best estimate required to settle the obligation at the balance
sheet date. A contingent liability is disclosed unless the possibility
of an outflow of resources embodying economic benefits is remote. A
contingent asset is neither recognised nor disclosed.