NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31st MARCH 2015 Company Overview Bharat Petroleum Corporation Limited referred to as "BPCL' or "the Corporation" was incorporated on 3rd November, 1952. BPCL is a Government of India Enterprise listed on Bombay Stock Exchange Limited and National Stock Exchange of India Limited. The Corporation is engaged in the business of refining of crude oil and marketing of petroleum products. It has refineries at Mumbai and Kochi, LPG bottling plants and Lube blending plants. The Corporation's marketing infrastructure includes vast network of Installations, Depots, Retail Outlets, Aviation Service Stations and LPG distributors. 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES BASIS FOR brPARATION The financial statements of the Corporation have been brpared in accordance with generally accepted accounting principles in India (Indian GAAP). The Corporation has brpared these financial statements to comply in all material respects with the accounting standards brscribed under Section 133 of the Companies Act, 2013 ('Act') read with Rule (7) of the Companies (Accounts) Rules, 2014 and other provisions of the Act (to the extent notified). The financial statements have been brpared on an accrual basis (unless otherwise stated) and under historical cost convention. The accounting policies are consistent with those used in brvious year except for the policy in respect of the debrciation of Fixed Assets referred to in para 1.5.1. 1.1 USE OF ESTIMATES The brparation of financial statements requires the management of the Corporation to make certain estimates and assumptions that affect the amounts reported in the financial statements and notes thereto. Differences, if any, between actual amounts and estimates are recognised in the period in which the results are known. 1.2 FIXED ASSETS 1.2.1. TANGIBLE FIXED ASSETS a) Fixed Assets are stated at cost net of accumulated debrciation. b) Subsequent expenditure related to an item of fixed asset is added to its book value only if it increases the future benefits from the existing asset beyond its brviously assessed standard of performance. c) First time procurement cost of catalyst is capitalized along with the project cost and the cost of subsequent replacements are charged off in the year of issuance to consumption. d) Expenditure on assets, other than plant and machinery, LPG cylinders and brssure regulators, not exceeding Rs. 1,000 per item are charged to revenue. e) Machinery spares that are specific to a fixed asset are capitalised along with the fixed asset. Replacement of such spares is charged to revenue. f) Land acquired on lease where period of lease exceeds 99 years is treated as freehold land. g) Expenditure during construction period: Direct expenses including borrowing cost incurred during construction period on capital projects are capitalised. Indirect expenses of the project group which are allocated to projects costing Rs. 5 crores and above are also capitalised. Crop compensation expenses incurred in the process of laying pipelines are capitalised as part of pipeline cost. Expenditure incurred during construction period on projects like electricity transmission lines, roads, culverts etc. the ownership of which is not with the Corporation are charged to revenue in the accounting period of incurrence of such expenditure. 1.2.2. INTANGIBLE ASSETS a) Intangible assets are carried at cost less accumulated amortization. b) Cost of Right of Way which is perpetual and absolute in nature is amortised over a period of 99 years and in other cases, over its estimated useful life. c) Expenditure incurred for creating/acquiring other intangible assets of Rs. 0.50 Crore and above, from which future economic benefits will flow over a period of time, is amortised over the estimated useful life of the asset or five years, whichever is lower, from the time the intangible asset starts providing the economic benefit. In other cases, the expenditure is charged to revenue in the year the expenditure is incurred. 1.3 IMPAIRMENT OF ASSETS The values of tangible and intangible assets of respective Cash Generating Units are reviewed by the management for impairment at each Balance Sheet date, if events or circumstances indicate that the carrying values may not be recoverable. If the carrying value is more than higher of net selling price of the asset or brsent value of estimated future cash flows, the difference is recognized as an impairment loss. 1.4 BORROWING CO S TS Borrowing costs that are attributable to the acquisition or construction of qualifying assets are capitalized as a part of the cost of such assets till the month in which the asset is ready for use. All other borrowing costs are charged to revenue. 1.5 DEbrCIATION 1.5.1. Debrciation on fixed assets is provided on the straight line basis, over the useful lives of assets (after retaining the residual value of upto 5% ) as brscribed by the Schedule II of the Act, except in following cases: a) Premium paid for acquiring leasehold land for lease period not exceeding 99 years, is amortised over the period of lease. b) Plant & Machinery at Retail Outlets (other than Storage tanks and related equipments) are debrciated over a useful life of 15 years based on the technical assessment. c) Computer equipments are debrciated over a period of 4 years and Mobile phones are debrciated over a period of 3 years based on internal assessment. Furniture, other than computer equipments and mobile phones, provided at the residence of management staff are debrciated over a period of 7 years as per internal assessment. d) Fixed assets costing not more than Rs. 5,000 each are debrciated at 100 percent in the year of acquisition except LPG Cylinders and Pressure Regulators which are debrciated over a useful life of 15 years based on the technical assessment. 1.5.2. Debrciation is charged on addition / deletion on pro-rata monthly basis including the month of addition / deletion. 1.6 INVESTMENTS 1.6.1. Current investments are valued at lower of cost or fair value determined on an individual investment basis. 1.6.2. Long-term investments are valued at cost. Provision for diminution in value is made to recognise a decline, other than of temporary nature, in the value of such investments. 1.7 INVENTORY 1.7.1. Inventories are stated at cost or net realisable value, whichever is lower. Cost is determined on weighted average basis (determined on periodical basis as appropriate) and comprises of expenditure incurred in the normal course of business in bringing inventories to their brsent location including appropriate overheads apportioned on a reasonable and consistent basis. 1.7.2. The net realizable value of finished goods and stock-in-trade are based on the inter-company transfer prices and final selling prices (applicable at the location of stock) for sale to oil companies and retail consumers respectively. For the purpose of stock valuation, the proportion of sales to oil companies and retail sales are determined on all India basis and considered for stock valuation at all locations. 1.7.3. The cost of Stock-in-Process is determined at raw material cost plus cost of conversion. 1.7.4. Obsolete, slow moving, surplus and defective stocks are identified at the time of physical verification of stocks and where necessary, provision is made for such stocks. REVENUE RECOGNITION 1.8.1. Revenue is recognised when, sufficient risks and rewards incidental to ownership are transferred to the customer, it can be reliably measured and it is reasonable to expect ultimate collection. 1.8.2. Sales rebrsents invoiced value of goods supplied net of trade discounts, and include applicable excise duty, surcharge and other elements as are allowed to be recovered as part of the price but excludes VAT / Sales Tax. Further, it includes other elements allowed by the Government from time to time. 1.8.3. Claims including subsidy on LPG and SKO from Government of India are booked on in principle acceptance thereof on the basis of available instructions/clarifications subject to final adjustments after necessary audit, as stipulated. 1.8.4. Other claims are booked when there is a reasonable certainty of recovery. Claims are reviewed on a periodical basis and if recovery is uncertain, provision is made in the accounts. 1.8.5. Income from sale of scrap is accounted for on realisation. 1.8.6. Dividend income is recognized when the Corporation's right to receive the dividend is established. 1.8.7. Interest income is recognized on a time proportion basis taking into account the amount outstanding and the applicable interest rate. 1.9. CLASSIFICATION OF INCOME/EXPENSES 1.9.1. Expenditure on Research, other than capital expenditure, is charged to revenue in the year in which the expenditure is incurred. 1.9.2. Income/expenditure upto Rs. 0.05 crore in each case pertaining to prior year(s) is charged to the current year. 1.9.3. Prepaid expenses upto Rs. 0.05 crore in each case, are charged to revenue as and when incurred. 1.9.4. Deposits placed with Government agencies/ local authorities which are perennial in nature are charged to revenue in the year of payment. 1.10. EMPLOYEE BENEFITS 1.10.1. Contributions to defined contribution schemes such as Pension, Superannuation, Provident Fund, etc. are charged to the Statement of Profit and Loss as and when incurred. 1.10.2. The Corporation also provides for retirement / post-retirement benefits in the form of gratuity, leave encashment, post retirement benefits and other long term benefits. Such defined benefits are charged to the Statement of Profit and Loss based on valuations made by independent actuary using the Projected Unit Credit Method, as at the Balance Sheet date. 1.10.3. Expenditure on account of Voluntary Retirement Scheme are charged to Statement of Profit and Loss as and when incurred. 1.11. DUTIES ON BONDED STOCKS 1.11.1. Customs duty on Raw materials/Finished goods lying in bonded warehouse are provided for at the applicable rates except where liability to pay duty is transferred to consignee. 1.11.2. Excise duty on finished stocks lying at manufacturing locations is provided for at the assessable value applicable at each of the locations based on end use. 1.12. FOREIGN CURRENCY & DERIVATIVE TRANSACTIONS 1.12.1. Transactions in foreign currency are accounted in the reporting currency at the exchange rate brvailing on the date of transaction. 1.12.2. Monetary items denominated in foreign currency are converted at exchange rates brvailing on the date of Balance Sheet. 1.12.3. Foreign Exchange differences arising at the time of translation or settlement are recognised as income or expense in the Statement of Profit and Loss either as Profit or Loss on Foreign Currency transactions and translations or Finance Cost, as the case may be. 1.12.4. However, foreign exchange differences on long term foreign currency monetary items relating to acquisition of debrciable assets are adjusted to the carrying cost of the assets and debrciated over the balance life of the asset and in other cases, if any, accumulated in "Foreign Currency Monetary Item Translation Difference Account" and amortised over the balance period of the asset or liability. 1.12.5. Premium/discount arising at the inception of the forward exchange contracts to hedge foreign currency risks are amortised as expense or income over the life of the contract. Exchange differences on such contracts are recognised in the Statement of Profit and Loss. 1.12.6. Gains / losses arising on settlement of Derivative transactions entered into by the Corporation to manage the commodity price risk and exposures on account of fluctuations in interest rates and foreign exchange are recognised in the Statement of Profit and Loss. Provision for losses in respect of outstanding contracts as on Balance Sheet date is made based on mark to market valuations of such contracts. 1.13. GOVERNMENT GRANTS 1.13.1. When the grant relates to an expense item or debrciable fixed assets, it is recognized as income over the periods necessary to match them on a systematic basis to the costs, which it is intended to compensate. Grants relating to debrciable fixed assets are reflected as Capital Grants under Reserves & Surplus in Balance Sheet and recognised in the Statement of Profit and Loss on a systematic and rational basis over the useful life of the asset. 1.13.2. Government grants of the nature of promoters' contribution or relating to non-debrciable assets are credited to Capital Reserve in Balance Sheet. 1.14. PROVISIONS, CONTINGENT LIABILITIES AND CAPITAL COMMITMENTS 1.14.1. A provision is recognized when the Corporation has a brsent obligation as a result of past events; it is probable that an outflow of resources will be required to settle the obligation and in respect of which a reliable estimate can be made. 1.14.2. Contingent Liabilities are not recognized but are disclosed in the Notes. Contingent liabilities are disclosed in respect of possible obligations that arise from past events but their existence is confirmed by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Corporation. 1.14.3. Capital commitments and Contingent liabilities disclosed are in respect of items which exceed Rs. 0.05 crore in each case. 1.15. TAXES ON INCOME 1.15.1. Provision for current tax is made after taking into consideration benefits admissible under the provisions of the Income Tax Act, 1961. 1.15.2. Deferred tax resulting from "timing differences" between book and taxable profit is accounted for using the tax rates and laws that have been enacted or substantively enacted as on the Balance Sheet date. 1.15.3. The deferred tax asset is recognized and carried forward only to the extent that there is a reasonable certainty that the assets will be realized in future. However, in respect of unabsorbed debrciation or carry forward losses, the deferred tax asset is recognized and carried forward only to the extent that there is a virtual certainty that the assets will be realized in future. 1.15.4. The carrying amount of deferred tax assets and unrecognized deferred tax assets are reviewed at each Balance Sheet date. 1.16. EARNINGS PER SHARE Basic earnings per share are calculated by dividing the net profit or loss for the period attributable to equity share holders (after deducting brference dividends, if any, and attributable taxes) by the weighted average number of equity shares outstanding during the period. For the purpose of calculating diluted earnings per share, the net profit or loss for the period attributable to equity shareholders and the weighted average number of shares outstanding during the period are adjusted for the effect of all dilutive potential equity shares. 1.17. CASH AND CASH EQUIVALENTS Cash and cash equivalents include cash at bank and on hand. The Corporation considers all highly liquid investments with a remaining maturity at the date of purchase of three months or less and that are readily convertible to known amounts of cash to be cash equivalents. 1.18. CLASSIFICATION OF ASSETS AND LIABILITIES AS CURRENT AND NON-CURRENT: All assets and liabilities are classified as current or non-current as per the Corporation's normal operating cycle (determined at 12 months) and other criteria set out in Schedule III of the Act. 1.19. ACCOUNTING FOR LEASES For operating leases, rentals are expensed with reference to lease terms and other relevant considerations. 1.20. CASH FLOW Cash flows are reported using the indirect method, whereby net profit before tax is adjusted for the effects of transactions of a non-cash nature, any deferrals or accruals of past or future operating cash receipts or payments and item of income or expenses associated with investing or financing cash flows. The cash flows from operating, investing and financing activities are segregated. 3. Figures of the brvious year have been regrouped wherever necessary, to conform to current period brsentation. For and on behalf of the Board of Directors As per our attached report of even date For and on behalf of Sd/- S. VARADARAJAN Chairman and Managing Director CNK & ASSOCIATES LLP Chartered Accountants FR No.: 101961W HARIBHAKTI & CO. LLP Chartered Accountants FR No.: 103523W Sd/- P. BALASUBRAMANIAN Director (Finance) S.V. KULKARNI Company Secretary HIMANSHU KISHNADWALA Partner Membership No. 37391 Sd/- CHETAN DESAI Partner Membership No. 17000 Place : Mumbai Dated : 28th May, 2015 |