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National Aluminium Company

BSE: 532234|NSE: NATIONALUM|ISIN: INE139A01034|SECTOR: Aluminium
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Accounting Policy Year : Mar '18

1.1 Basis of preparation

The financial statements of the Company have been prepared in accordance with Ind AS and relevant provisions of the Companies Act, 2013. The financial statements have been prepared on historical cost basis, except for certain financial instruments that are measured at fair values at the end of each reporting period, as explained in the accounting policies below.

All assets and liabilities have been classified as current or non-current as per Company’s operating cycle and other criteria set out in Schedule-III of the Companies Act 2013. Based upon the nature of business, the Company has ascertained a 12 month operating cycle for the purpose of current or non-current classification of assets and liabilities.

1.2 Use of estimates

These financial statements have been prepared using estimates and assumptions, wherever necessary, in conformity with the recognition and measurement principles of Ind AS.

Estimates and underlying assumptions are reviewed on an ongoing basis and revisions, if any, in such estimates are accounted for in the year of revision.

Key sources of estimation uncertainty, which may cause a material adjustment to the carrying amounts of assets and liabilities are stated in Note No.4.

1.3 Investments in associates and joint ventures

An associate is an entity over which the Company has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies.

A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the joint arrangement. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require unanimous consent of the parties sharing control.

Investment in associate and joint ventures are measured at cost in accordance with Ind AS 109 - Financial Instruments.

Investment in associate and joint ventures are subject to impairment wherever there is indication of negative reserve in the accounts of JV Companies. However, such impairment is limited to the value of investment.

1.4 Property, Plant and Equipment

Property, plant and equipment, other than freehold lands, held for use in the production and/or supply of goods or services, or for administrative purposes, are stated at cost, less accumulated depreciation and accumulated impairment losses. Freehold lands, unless impaired, are stated at cost.

1.4.1 Initial Measurement

The initial cost comprises purchase price, non-refundable purchase taxes, other expenditure directly attributable to bringing the assets to its location and condition necessary for it to be capable of operating in the manner intended by the management, borrowing cost, if any, incurred, and the initial estimates of the present value of any asset restoration obligation or obligatory decommissioning and dismantling costs. Expenditure incurred on development of freehold land is capitalized as part of the cost of the land.

In case of self-constructed assets, cost includes the costs of all materials used in construction, direct labour, allocation of overheads and directly attributable borrowing costs, if any.

Spare parts having unit value of more than Rs.5 lakh, held for use in the production and/or supply of goods or services and are expected to be used during more than one period are recognised as Property, Plant and Equipment. Spares of critical nature and irregular in use, which can be identified to a particular equipment and having unit value more than Rs.1 lakh is also recognised as Property, Plant and Equipment.

1.4.2 Subsequent expenditure

Expenditure on major inspection/maintenance or repairs including cost of replacing the parts of assets and overhaul costs where it is probable that future economic benefits associated with the expenditure will be available to the Company over a period of more than one year, are capitalised and the carrying amount of the identifiable parts so replaced is derecognised.

1.4.3 Capital work-in-progress

Assets in the course of construction are included under capital work-in-progress and are carried at cost, less any recognised impairment loss. Such capital work-in-progress, on completion, is transferred to the appropriate category of property, plant and equipment.

Expenses for assessment of new potential projects incurred till investment decisions are charged to revenue. Expenditure incurred for projects after investment decisions are accounted for under capital work in progress and capitalized subsequently.

1.4.4 Depreciation and amortisation

Depreciation on assets are provided on a straight-line basis over their useful life, either as prescribed under Schedule II of the Companies Act, 2013 or, wherever considered necessary, determined on the basis of technical estimations carried out by the Management.

Component of an item of Property, Plant and Equipment with a cost that is significant in relation to the total cost of that item, is depreciated separately if its useful life differs from that of the asset. The Company has chosen a benchmark of Rs.1 Crore as significant value for identification of a separate component except ‘Pot Relining’ which is considered as a component of each ‘Electrolytic Pot’ due to its inherent nature and useful life.

The residual value of plant and machinery, vehicles, mobile equipment and earth moving equipment, railway facilities, rolling stock and residential quarters are maintained at 5% of the original cost and for all other assets, the residual value is considered as Nil.

The estimated useful lives are reviewed at each year end and the effect of change, if any, is accounted for prospectively.

For the purpose of depreciation of assets, useful lives of -

(a) Immovable property, plant and equipment at bauxite mines is up to the lease period of the mines.

(b) Captive thermal power generation plant namely Captive Power Plant (CPP) is considered to be 30 years;

(c) Steam Power Plant (SPP) is considered to be 25 years.

(d) Red Mud Ponds and Ash Ponds at Alumina Refinery and Ash Ponds at CPP are based on their estimated remaining useful lives evaluated on the basis of technical estimates made periodically.

(e) Assets laid on leasehold land excluding assets of bauxite mines are considered to be lower of balance lease period or the useful life of the asset.

Assets laid on land not owned by the Company are depreciated over a period of five years from the date on which the asset is capable of operating in the manner intended by the management unless a longer / shorter life can be justified.

Individual Assets costing Rs.10,000/- or less are depreciated fully in the year in which they are put to use.

Property, Plant and Equipment other than mentioned above are subject to the following useful lives.

1.4.5 De-recognition of assets

An item of Property, Plant and Equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the use of the asset. Any gain or loss arising on the disposal/de-recognition is recognised in the statement of profit and loss.

1.4.6 Stripping costs

Stripping costs of surface mining is recognised as an asset when they represent significantly improved access to ore, provided all the following conditions are met:

(a) it is probable that the future economic benefit associated with the stripping activity will be realised;

(b) the component of the ore body for which access has been improved can be identified; and

(c) the costs relating to the stripping activity associated with the improved access can be reliably measured.

The stripping cost incurred during the production phase is added to the existing “stripping cost asset” to the extent the current period stripping ratio exceeds the planned stripping ratio.

The “stripping cost asset” is subsequently depreciated on a unit of production basis over the life of the identified component of the ore body that become more accessible as a result of the stripping activity and is then stated at cost less accumulated depreciation and impairment loss, if any.

1.5 Intangible Assets

1.5.1 Intangible assets acquired separately

Intangible assets acquired are reported at cost less accumulated amortisation and impairment loss, if any. Intangible assets having finite useful life are amortised over their estimated useful lives. The estimated useful life and amortisation method are reviewed at the end of each annual reporting period, and the effect of any changes in estimate is accounted for on a prospective basis.

1.5.2 Internally-generated intangible assets - research and development expenditure

Expenditure on research activities, except capital expenditure considered as Property, Plant and Equipment, is recognised as an expense in the period in which it is incurred.

An internally-generated intangible asset arising from development is recognised if and only if all the conditions stipulated in “Ind AS 38 -Intangible Asset” are met.

1.5.3 Mining Rights

The costs of mining rights include amounts paid towards Net Present Value (NPV) and upfront money as determined by the regulatory authorities.

Cost of mining rights are amortised over the total estimated remaining commercial reserves of mining property and are subject to impairment loss.

1.5.4 Mines Development Expenses

Expenditure incurred for mines development prior to commercial production i.e., primary development expenditure other than land, buildings, plant and equipment is capitalised until the mining property is capable of commercial production.

1.5.5 User Rights

Amount of expenditure incurred in a cluster project, having future economic benefits with exclusive use of co-beneficiaries but without physical control on the assets, are capitalised as user rights.

1.5.6 Software

Operating software acquired separately (RDBMS, Sybase, ERP/SAP) are capitalised as software.

1.5.7 License and Franchise

Amount of expenditure incurred for obtaining license for use of technology is capitalised under the head “License and Franchise”.

1.5.8 De-recognition of intangible assets

An intangible asset is derecognised on disposal, or when no future economic benefits are expected from its use. Gains or losses arising from disposal/de-recognition are recognised in the statement of profit and loss.

1.5.9 Amortisation

The basis of amortisation of intangible assets is as follows:

(a) Licenses in the nature of technical know-how for processing plants which are available for the useful life of the respective processing plants are amortised over a period of ten years.

(b) Software classified as intangible assets carries a useful life of 3 years and are amortised over that period.

(c) Mining Rights and Mines Development Expenses are amortised over the period of availability of reserves.

(d) User Right for cluster projects is amortised over a period of 10 years from the date of commissioning.

1.6 Impairment of tangible and intangible assets

At the end of each reporting period the carrying amounts of tangible and intangible assets are reviewed to determine whether there is any indication that the assets have suffered an impairment loss. If any such indication exists, the recoverable amount (i.e. higher of the fair value less cost to sell and the value-in-use) of the asset is estimated to determine the extent of impairment loss. When it is not possible to estimate the recoverable amount of an individual asset, the recoverable amount of the cash-generating unit (CGU) to which the asset belongs is estimated. If the estimated recoverable amount of the CGU is less than its carrying amount, the carrying amount of the CGU is reduced to its recoverable amount and the difference between the carrying amount and recoverable amount is recognised as impairment loss in the statement of profit or loss.

1.7 Functional & Foreign Currencies

Items included in the financial statements are measured using the currency of the primary economic environment i.e. Indian Rupee in which the Company operates.

In preparing the financial statements, transactions in foreign currencies i.e currencies other than the entity’s functional currency are recognised at the rates of exchange prevailing at the dates of the transactions. At the end of each reporting period, monetary items denominated in foreign currencies are translated at the rates prevailing at that date.

Exchange differences on monetary items are recognised in the statement of profit and loss in the period in which they arise.

1.8 Provisions and contingencies

1.8.1 Provisions

Provisions are recognised when there is a present obligation (legal or constructive) as a result of a past event and it is probable (“more likely than not”) that it is required to settle the obligation, and a reliable estimate can be made of the amount of the obligation.

The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the balance sheet date, taking into account the risks and uncertainties surrounding the obligation.

Where a provision is measured using the estimated cash outflows to settle the present obligation, its carrying amount is the present value of those cash outflows.

1.8.2 Restoration, rehabilitation and decommissioning

An obligation to incur restoration, rehabilitation and environmental costs arises when environmental disturbance is caused by the development or ongoing production of a mine and other manufacturing facilities. The Company has recognised the obligated restoration, rehabilitation and decommissioning liability as per statutory mandate.

Net present value of such costs are provided for and a corresponding amount is capitalised at the commencement of each project. These costs are charged to the statement of profit or loss over the life of the asset by way of depreciation and unwinding of the discounted liability. The cost estimates are reviewed periodically and are adjusted to reflect known developments which may have an impact on the cost estimates or life of operations. The cost of the related asset is adjusted for changes in the provision due to factors such as updated cost estimates, changes in lives of operations, new disturbance and revisions of discount rates. The adjusted cost of the asset is depreciated prospectively over the lives of the assets to which they relate. The unwinding of the discount is shown as finance and other cost in the statement of profit or loss.

1.8.3 Environmental liabilities

Environmental liabilities are recognised when the Company becomes obliged, legally or constructively to rectify environmental damage or perform remedial work.

1.8.4 Legal Obligations

Provision is recognised once it has been established that the Company has a present obligation based on consideration of the information which becomes available up to the date of reporting.

1.8.5 Contingent Liabilities

Contingent liabilities are possible obligations that arises from past events, the existence of which would be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Company or a present obligation but payment is not probable or the amount cannot be measured reliably. Contingent liabilities are disclosed in the financial statements unless the possibility of any outflow in settlement is remote.

1.8.6 Contingent Assets

Contingent assets are not recognised in the financial statement, but are disclosed where inflow of economic benefits is probable.

1.9 Leases

At the inception of a lease, the lease arrangement is classified as either a finance lease or an operating lease, based on the substance of the lease arrangement.

1.9.1 Assets taken on finance lease

Financial leases are those that transfer substantially all the risks and rewards incidental to ownership of the asset to the lessee.

Finance leases are capitalised at the commencement of lease, at the lower of the fair value of the property or the present value of the minimum lease payments. The corresponding liability to the lessor is included in the balance sheet as a finance lease obligation.

Lease payments are apportioned between finance charges and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly against income over the period of the lease.

1.9.2 Assets taken on operating lease

Leases other than finance leases are operating leases, and the leased assets are not recognised in the Company’s balance sheet. Upfront lease payments, if any, made under operating leases are apportioned and recognised in the statement of profit and loss over the term of the lease. Rent and maintenance charges paid for assets/facilities taken on operating leases are charged to revenue in the period in which they arise.

1.10 Inventories

Inventory of raw material, including bulk material such as coal and fuel oil are valued at the lower of cost net of tax credit wherever applicable and net realisable value.

Stores and spares other than those meeting the criteria for recognition as Property, Plant and Equipment are valued at cost net of tax credit wherever applicable.

Stores and spares (other than major spares considered as Property, Plant and Equipment) held but not issued for more than 5 years are valued at 5% of the cost.

Materials and other supplies held for use in the production (other than considered as non-moving) are not written down below cost, if the finished products in which they will be incorporated are expected to be sold at or above cost.

Cost of raw materials, stores and spares as stated above are determined on moving weighted average price.

Inventories of finished goods, semi-finished goods, intermediary products and work-in-process including process scrap are valued at lower of cost and net realisable value. Cost is generally determined at moving weighted average price of materials, appropriate share of labour and related overheads. Net realisable value is the estimated selling price in the ordinary course of business available on the reporting date less estimated cost necessary to make the sale.

Inventory of scraps internally generated are valued at net realisable value.

1.11 Trade receivable

Trade receivables are amounts due from customers for goods sold or services performed in the ordinary course of business. If the outstanding is due for payment within a period 12 months or less from the reporting date, they are classified as current assets otherwise as non-current assets.

Trade receivables are measured at their transaction price unless it contains a significant financing component or pricing adjustments embedded in the contract.

1.12 Financial Instruments

Financial assets and liabilities are recognised when the Company becomes a party to the contractual provisions of the instrument. Except for trade receivables and payables, financial assets and liabilities are initially measured at fair value. Transaction cost that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value measured on initial recognition of financial asset or financial liabilities.

1.12.1 Financial assets

a. Cash or Cash Equivalent:

The Company considers all short-term bank deposits having a maturity period of three months or less as cash & cash equivalent. Term deposits in Bank with a maturity period of more than 3 months are considered as other Bank Balance.

b. Financial assets at amortised cost:

Financial assets, including trade receivables where it contains significant financing component, are classified as subsequently measured at amortised costs and are measured accordingly using effective interest method if the financial assets are held within a business model whose objective is to hold these assets in order to collect contractual cash flows and the contractual terms of the financial assets give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

c. Financial assets at Fair value through Other Comprehensive Income (OCI)

Financial assets are classified as subsequently measured at fair value through other comprehensive income if these financial assets are held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets and the contractual terms of the financial assets give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

d. Financial assets at Fair value through Profit or loss

Financial assets are classified as subsequently measured at fair value through profit or loss unless it is classified as subsequently measured at amortised cost or at fair value through other comprehensive income. Transaction costs directly attributable to the acquisition of financial assets and liabilities at fair value through profit or loss are immediately recognised in the statement of profit or loss.

1.12.2 Financial liabilities

Trade payables are measured at their transaction price unless it contains a significant financing component or pricing adjustments embedded in the contract.

Financial liabilities, including trade payables where it contains significant financing component, are subsequently measured at amortised cost using effective interest method.

1.12.3 De-recognition of financial assets

Financial assets are derecognised only when the contractual rights to the cash flows from the asset expires, or when substantially all the risks and rewards of ownership of the assets are transferred to another entity.

1.12.4 Impairment of financial assets

At each reporting date, assessment is made whether the credit risk on a financial instrument has increased significantly or not since initial recognition.

If the credit risk on a financial instrument has not increased significantly since initial recognition, the loss allowance is measured for that financial instrument at an amount equal to 12 month expected credit losses. If the credit risk on that financial instrument has increased significantly since initial recognition, the loss allowance is measured for a financial instrument at an amount equal to the lifetime expected credit losses.

The amount of expected credit losses (or reversal) that is required to adjust the loss allowance at the reporting date is recognised as an impairment gain or loss in the statement of profit and loss.

1.12.5 De-recognition of financial liability

Financial liabilities are derecognised when, and only when, the obligations are discharged, cancelled or expired.

In the case of retention for liquidated damages, if on finalization/closure of contract, liquidated damage is leviable, the amount retained is written back and recognized as income except capital contracts where liquidated damage is directly attributable to escalation/increase in the cost of the asset. In such case, the retention amount is adjusted against cost of the asset.

1.12.6 Off-setting financial instruments

Financial assets and liabilities are offset and the net amount reported in the balance sheet, when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis or realise the asset and settle the liability simultaneously. The legally enforceable right must not be contingent on future events and must be enforceable in the normal course of business.

1.13 Derivatives

Derivative instruments such as forward foreign exchange contracts are recognised at fair value at the date the derivative contracts are entered into and are re-measured at the end of each reporting period. The resulting gain or loss is recognised in statement of profit or loss immediately.

1.14 Borrowing cost

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets are added to the cost of those assets, until such time as the assets are substantially ready for their intended use. All other borrowing cost is recognised in profit or loss in the period in which they are incurred.

1.15 Accounting for government grants

Government grants are recognised when there is reasonable assurance that the conditions attached to them will be complied and that the grants will be received.

Government grants related to assets whose primary condition is that the Company should purchase, construct or otherwise acquire non-current assets are recognised in the balance sheet by setting up the grant as deferred income and are transferred to profit or loss on a systematic basis over the useful life of the related assets.

Government grants related to income are recognised as income on a systematic basis over the periods necessary to match them with the costs for which they are intended to compensate.

1.16 Employee Benefits

1.16.1 Short-term employee benefits

A liability is recognised for benefits accruing to employees in respect of wages and salaries, short term compensated absences etc. in the period the related service is rendered at the undiscounted amount of the benefits expected to be paid.

1.16.2 Post-employment and long term employee benefits

1.16.3 Defined contribution plans

A defined contribution plan is plan under which fixed contributions are paid to a separate entity. Contributions to defined contribution retirement benefit plans are recognised as an expense when employees have rendered service entitling them for such contributions.

1.16.4 Defined benefit plans

For defined benefit plans, the cost of providing benefits is determined through actuarial valuation using the Projected Unit Credit Method, carried out at each balance sheet date. Re-measurement gains and losses of the net defined benefit liability are recognised immediately in other comprehensive income. The service cost, net of interest on the net defined benefit liability, is treated as an expense.

Past service cost is recognised as an expense when the plan amendment or curtailment occurs or when any related restructuring costs or termination benefits are recognised,

The retirement benefit obligation recognised in the balance sheet represents the present value of the defined benefit obligation as reduced by the fair value of plan assets.

1.16.5 Other long-term employee benefits

Liabilities recognised in respect of other long-term employee benefits are measured at the present value of the estimated future cash outflows in respect of services provided by employees up to the reporting date. The expected costs of these benefits are accrued over the period of employment using the same accounting methodology as used for defined benefit retirement plans. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are charged or credited to the statement of profit and loss in the period in which they arise. These obligations are valued annually by independent actuaries.

1.17 Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable. Revenues are reduced by the estimated rebates and other similar allowances.

1.17.1 Sales of Goods

Revenue is recognised when all the following criteria are satisfied:

(a) significant risks and rewards of ownership has been transferred to the customer;

(b) there is no continuing management involvement with the goods usually associated with ownership, nor effective control over the goods sold has been retained;

(c) the amount of revenue can be measured reliably; and

(d) it is probable that the economic benefits associated with the transaction will flow to the Company.

1.17.2 Sale of Energy

Sale of wind power is recognised on the basis of energy transmitted to DISCOMs at the price notified by respective authorities.

Sale of power from captive power plant is considered on the basis of quantity injected to state GRID excluding wheeling to Refinery but including inadvertent energy injection, at the price notified by appropriate authority.

Revenue from sale of energy is recognised if -

(a) the amount of revenue can be measured reliably;

(b) it is probable that the economic benefits associated with the transaction will flow to the Company; and

(c) recovery of the consideration is assured reasonably.

1.17.3 Income from dividend and interest

1.17.3.1 Dividend

Dividend income from investments is recognised when the right to receive the dividend is established.

1.17.3.2 Interest

Interest income from a financial asset is recognised when it is probable that the economic benefits will flow to the Company and the amount of income can be measured reliably. Interest income is accrued on a time proportion basis, by reference to the principal outstanding and effective interest rate.

1.17.4 Income from Incentives from Government Agencies

Incentives from government agencies in the nature of duty draw back and Merchandise Export from India Scheme (MEIS) on exports and incentives on generation of renewable sources of energy are recognised as per the relevant statute on compliance of the conditions provided thereunder.

1.18 Income Taxes

Tax expense represents the sum of current tax and deferred tax.

1.18.1 Current taxes

Current tax expense is based on taxable profit for the year as per the Income Tax Act,1961. Current tax liabilities (assets) for the current and prior period are measured at amounts expected to be paid (or recovered) using the tax rates and tax laws that have been enacted or substantively enacted by the end of reporting period and includes any adjustment to tax payable in respect of previous years.

1.18.2 Deferred taxes

Deferred tax expense or income is recognised on temporary difference between the carrying amount of assets and liabilities in the financial statements and the corresponding tax base used in computation of taxable profits.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates and tax laws that have been enacted or substantively enacted by the end of the reporting period. Tax relating to items recognised directly in other comprehensive income forms part of the statement of comprehensive income.

The carrying amount of deferred tax asset is reviewed at the end of each reporting period and adjusted to the extent it has become probable that sufficient taxable profits will be available to allow the asset to be recovered

1.19 Exceptional items

Exceptional items are items of income and expenses within profit or loss from ordinary activities but of such size, nature or incidence whose disclosure is felt necessary for better explanation of the financial performance achieved by the Company.

1.20 Cash flow statement

Cash flow statement is prepared in accordance with indirect method prescribed in Ind AS 7 ‘Statement of Cash Flows’.

1.21 Restatement of material error / omissions

Errors and omissions is construed to be material for restating the opening balances of assets and liabilities and equity if the sum total effect of earlier period income / expenses exceeds Rs.50 crore.

Source : Dion Global Solutions Limited
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