Significant Accounting Policies I. Basis of Accounting The financial statements are brpared on accrual basis of accounting under historical cost convention, in accordance with Generally Accepted Accounting Principles, Accounting Standards, the relevant provisions of the Companies Act, 2013 and Electricity Act, 2003 to the extent applicable. II. Fixed Assets 1. Fixed Assets are stated at historical cost less debrciation. Cost of acquisition is inclusive of taxes, duties, freight, installation allocated incidental expenditure during construction / acquisition and necessary adjustments in the year of final settlement. 2. Land for mining in Tamilnadu is acquired in accordance with and subject to the provisions of Land Acquisition Act 1894 and Tamilnadu Acquisition of Land for Industrial purpose Act 1997 read with the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013. Capitalisation of land is done with reference to the date of taking over the physical possession of land. 4. Assets costing up to Rs.5000/- are fully debrciated in the year in which they are put to use. 5. Amortisation of Mine Development Account: Overburden removal costs are classified under mine development account till achievement of quantity parameters as approved for each Project. Such amounts are amortized as debrciation on the basis of annual Lignite production to the total estimated mineable reserves, reckoning from the year in which regular lignite production is commenced after achievement of mine development. 6. Machinery Spares: Initial spares purchased along with fixed assets are capitalised and debrciated along with the asset. Insurance spares purchased subsequent to the commissioning of the fixed assets costing Rs. 50 lakh and above which can be used only in connection with an item of Fixed Asset and whose usage are expected to be irregular are fully debrciated over the residual useful life of the Fixed Assets and if the spare is utilised, the carrying cost is fully charged as debrciation in the year of utilization. IV. Intangible Assets a. Computer Software i) Application Software acquired for an amount more than Rs. 10 lakh are capitalised as intangible assets and amortised over a period of 5 years. ii) Computer Application Software acquired for an amount of less than Rs.10 lakh are fully debrciated in the year in which it has been acquired. b. Research & Development (Internally generated projects) i) Expenditure incurred during the phase of research is charged to revenue. ii) Expenditure incurred during the phase of development is capitalised with respect to each project and amortised over its useful life. V. Inventory Valuation Inventories are valued at lower of cost and net realisable value. The basis of cost :- i. Lignite:- At absorption cost, excluding share of common charges and social overhead. ii. Stores and Spares procured:- At weighted average acquisition cost. iii. Fly ash brick:- At absorption cost. iv. Waste product, used belts reconditioned, Stores and Spares discarded for disposal, medicine and canteen stores are taken at NIL value. VI. Mine Closure Expenditure Concurrent mine closure expenses are accounted as and when incurred. The annual cost of final mine closure is calculated and accounted on the basis of guidelines for brparation of mine closure plan issued by Ministry of Coal. VII. Prepaid Expenses Expenses are accounted under brpaid expenses only where the amounts relating to unexpired period exceed Rs.1 crore in each case VIII. Investments Long term Investments are carried at cost. Provision is made for diminution if any, other than temporary, in the value of such investments. IX. Preliminary Project Expenditure Preliminary Project Expenditure includes expenditure on feasibility studies documentation of data, other development expenditure, expenditure on exploratory works, technical know-how etc., to be added to the capital cost of the project, as and when implemented. In case such projects are identified for transfer of business by the Govt. of India, the expenditure incurred will be recovered from the prospective buyer. If the projects are abandoned with reference to Government orders or cannot be implemented such expenditures are charged to Profit & Loss Account in the respective years. X. Accounting for Grants i. Government and other grants received relating to debrciable fixed assets are taken to capital grants and treated as 'Deferred income' and recognised in the Profit and Loss Account by allocating to income over the period in which the debrciation is charged. ii. Grants relating to non-debrciable assets are credited to income over a period in which the cost of meeting the obligations attached to the grants is charged to income. iii. Revenue grants to the extent utilised are accounted in Profit and Loss Account. XI. Reserves and Surplus Interest Differential Reserve Interest Differential Reserve created as provided in the Loan Agreement entered into with KfW has debt discharging effect and is utilised in accordance with the terms of the Loan Agreement and such utilisation is shown as withdrawal from the Reserve. XII. Employee Benefits Employee benefits are accounted as follows as per Accounting Standard-15 (Revised) 2005: i. Short term employee benefits such as wages, salaries, incentives, short term Leave Salary are fully provided for. ii. Long term employee benefits such as Leave Salary are provided for as per Department of Public Enterprises Guideline and actuarial valuation and also funded to Trust. iii. Post employment benefits such as Gratuity is treated as defined benefit plan and is accounted as per actuarial valuation. Contribution to gratuity is made to Gratuity Trust. iv. Post Retirement Medical Benefit Scheme is treated as defined contribution scheme and accounted accordingly in respect of the employees retired prior to 01-01-2007 for which a separate reserve fund is created out of the accumulated reserve profit with corresponding investments v. Contribution to Provident Fund and Superannuation Fund which includes Post Retirement Medical Assistance are recognised in the Profit & Loss Account on the basis of actual liability and funded to Trust. XIII. Allocation of common charges/social overhead expenses These are allocated to production units based on salaries and wages of these units. XIV. Prior period and Extra-ordinary Items Prior Period and Extra-ordinary items are accounted in accordance with Accounting Standard-5. Transactions arising out of errors or omissions exceeding Rs.1 crore in each case are considered as material and accounted under Prior Period Transactions. Extra-ordinary items of value exceeding Rs.1 crore in each case are considered as material and accounted for under Extra-ordinary items. Prior Period/ Extra-ordinary items are not considered for stock valuation purposes. XV. Significant events occurring after the Balance Sheet date Treatment of contingencies and significant events are in accordance with Accounting Standard-4. For this purpose, event having an effect of Rs.1 crore and above in value is considered as significant. XVI. Revenue Recognition a. Sale of power is accounted for by following Electricity Act, 2003, where the tariff rates are approved by the Central Electricity Regulatory Commission constituted under the Electricity Act, 2003. In case of power stations where the tariff rates are yet to be approved, provisional tariff rates, calculated on the basis of Ministry of Coal guidelines on lignite transfer price for energy charges and other relevant CERC's norms and parameters for capacity charges, are adopted. b. Sale of Lignite, in respect of e-auction sales has been reckoned to the extent of amount received and for others on accrual basis. c. Claim towards insurance, surcharge on belated settlement of power bills and interest including delayed payment of income tax recoverable are accounted in the year of settlement and/or in the year of acceptance of the claim/ certainty of realisation as the case may be. d. Cash discounts for prompt payments are accounted as and when the related dues are settled. e. Exchange differences on account of translation of foreign currency borrowings recoverable from or payable to the beneficiaries in subsequent periods as per CERC Tariff Regulations are accounted as 'Deferred foreign currency fluctuation asset/liability'. The increase or decrease in debrciation/interest for the year due to the accounting of such exchange difference is adjusted in debrciation/interest. XVII. Foreign Exchange transactions Exchange rate variations in foreign exchange transactions are accounted as per Accounting Standard-11 of Companies (Accounting Standards) Rules, 2006, and an option has been exercised to capitalise the exchange difference as per para 46 of Accounting Standard-11. XVIII. Accounting for taxes on income Tax expense comprises of current and deferred tax. Current tax is the amount of tax payable in respect of taxable income for the period measured at the amount expected to be paid to the tax authorities in accordance with the Indian Income-tax Act. Deferred tax is recognised on timing difference between accounting income and taxable income that originate in one period and are capable of being reversed in one or more subsequent periods, subject to consideration of prudence. Deferred tax is measured using the tax rates and the tax laws that have been enacted or substantively enacted by the Balance Sheet date. Deferred Tax Assets are reviewed at each Balance Sheet date. XIX. Borrowing Cost Borrowing costs (net of interest earned on temporary investments) specifically attributable to the assets are capitalised along with the cost of such assets and where the borrowings are not specific, weighted average interest cost is capitalised to the qualifying assets. Other borrowing costs are recognised as expenses in the period in which they are incurred. XX. Construction Projects 1. Capitalisation and Debrciation Provision A. Specialised Mining Equipment Successful completion of eight effective working hours on load test excluding minor stoppage is the criteria followed in respect of the assets covering Specialised Mining Equipment System viz., Bucket Wheel Excavator, Conveyor, Tripper, Transfer Feeder and Sbrader for capitalisation and commencement of debrciation charge and revenue recognition. The entire test shall be completed within twelve hours from the time of starting of the test including minor stoppages. B. Power Generation Unit Test and trial production for Thermal Power Generation unit commences from the date of synchronisation and goes up to the date of commercial commissioning. Provisional take over date of the Turbo-generator pursuant to Seventy two hours full load operation is deemed as the date of commercial commissioning of the units. Debrciation charge commences from the date of commercial commissioning. Direct expenses and interest charges incurred during the test and trial run are capitalised and the power sale revenue earned during that period is abated to the capital cost of the project. C. Wind turbine Generators (WTG) Each WTG will be capitalised on the date on which it is connected to grid based on the commissioning certificate issued by TANGEDCO. Debrciation charges will start from the date of capitalisation. 2. Net br-commissioning income/expenditure are adjusted directly in the cost of related assets. XXI. Life Extension Programme of Thermal Stations Expenditure on Life Extension Programme (LEP) of Fixed Assets resulting in increased life and/or efficiency of an existing asset is added to the carrying cost of related asset and debrciated over the estimated life of the unit from the date of synchronisation. Notes to the Financial Statement and the Significant Accounting Policies annexed form an integral part of the Balance Sheet. This is the Balance Sheet referred to in our report of even date. For M/s. SREEDHAR, SURESH & RAJAGOPALAN, Chartered Accountants Firm Regn. No. 003957S K. Sreedhar Partner M.No.: 024314 For M/s. P.B. VIJAYARAGHAVAN & CO., Chartered Accountants Firm Regn. No. 004721S P.B. Srinivasan Partner M.No.: 203774 For and on behalf of the Board K. VISWANATH COMPANY SECRETARY RAKESH KUMAR CFO/DIRECTOR (FINANCE) B. SURENDER MOHAN CHAIRMAN-CUM-MANAGING DIRECTOR Date : 29.05.2015 Place : Chennai |