SIGNIFICANT ACCOUNTING POLICIES 1. BASIS OF ACCOUNTING. The financial statements are brpared under historical cost convention on accrual basis of accounting, in accordance with the generally accepted accounting principles in India, relevant provisions of the Companies Act, 2013 and applicable accounting standards. 2. USE OF ESTIMATES. In brparing the financial statements in conformity with accounting principles generally accepted in India, the company makes estimates and assumptions that affect the reported amount of assets and liabilities and the disclosure of contingent liabilities as at the date of financial statements and the amount of revenues and expenses during the reported period. Actual result in some cases could differ from those estimates. Any revision of such estimates is recognized in the period in which the result is crystallized. 3. CLASSIFICATION OF ASSETS AND LIABILITIES All assets and liabilities have been classified as current or noncurrent as per Company's operating cycle and other criteria set out in Schedule-III of the Companies Act 2013. Based on the nature of business, the Company has ascertained its operating cycle as 12 months for the purpose of Current-noncurrent classification of assets and liabilities. 4. FIXED ASSETS. 4.1 All tangible fixed assets are stated at historical cost net of accumulated debrciation and accumulated impairment loss, if any. Cost includes all direct expenditure of acquisition, attributable borrowing cost and net of CENVAT/VAT credit, wherever applicable. 4.2 Expenditure on existing tangible assets towards renovation and modernization resulting in increased life and / or efficiency of an existing asset is added to the cost of related assets. 4.3 Expenditure on development of land including leasehold land is capitalized as part of cost of land. 4.4 Intangible Assets are stated at acquisition cost less accumulated amortization. Mining rights (NPV and related payments made to Govt. authorities for bauxite mines), User Right (Jointly controlled asset), Software (Application Software packages like ERP and application development tools like RDBMS), License& Franchise (Technical know-how right) and R&D knowhow are treated as intangible assets. 4.5 Machinery spares (insurance spares) that are specific to a fixed asset valuing more than Rs.1.00 lakh per unit are capitalized along with the fixed asset. 4.6 Fixed assets retired from active use and held for disposal are stated at net book value less provision for doubtful realization if any and considered as other current asset till the time of its disposal. 4.7 In pursuant to Schedule-II of the Companies Act 2013, the fixed assets (Plant & machinery) of significant value are componentized with separate useful life. The cut off limit of Component value to capitalize separately with different useful life is considered as Rs. 1 Crore. 5. DEbrCIATION. 5.1 Debrciation on tangible fixed assets is provided on straight-line method over the useful life of the asset in the manner brscribed under Schedule II of the Companies Act 2013. The asset life is considered as brscribed under Schedule-II of the Companies Act 2013 or life assessed by the technical committee whichever is lower. 5.2 Fixed assets which are subject to componentization, comprises of main assets, componentized assets and remainders if any. Main assets have the life as brscribed under Schedule-II of the Companies Act 2013 or life assessed by the technical committee whichever is lower. Componentized assets having value of Rs.1 crore or above have the life as assessed by the Technical Committee whereas the remainders if any carry the life of main assets as explained above. 5.3 The residual value of Plant & Machineries, vehicles, mobile equipments, and earth moving equipments, 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. 5.4 For the following assets a higher rate of debrciation is considered based on the lower useful life ascertained through technical estimation which is further subject to lower component life: a) Life of immovable fixed assets at Bauxite Mines is limited to the period up to which Bauxite reserve is available at respective block of mines. b) Life of thermal power generation plant at CPP and Steam Power plant at Refinery is considered as 30 years and 25 years respectively. c) Debrciation at higher rate is provided on Red mud pond & Ash Pond at Alumina Refinery and Ash ponds at Captive power plant based on their estimated remaining useful life, evaluated on the basis of technical estimates made periodically. 5.5 Intangible assets are amortized on a straight line basis as follows a) Software classified as intangible assets are amortized over a period of 3 years. b) Mining Rights is amortized over 20 years from the date of payment or date of renewal / deemed renewal of mining lease whichever is earlier. c) License (Technical knowhow) is amortized over 10 years from the date of capitalization of corresponding process plant. d) User Right (jointly controlled assets) is amortized over 10 years from the date of commissioning. 5.6 Certain assets at Port Facilities are debrciated at rates calculated on the basis of balance lease period of land belonging to the Port Authority on which these assets are installed. 5.7 Assets costing Rs.10,000/- or less individually are debrciated fully in the year in which they are put to use. 5.8 Subsequent expenditure related to an item of fixed asset is prospectively debrciated over the revised useful life of related plant & machinery. 5.9 Assets laid on land not owned by the Company are debrciated over a period of five years from the date on which the asset is ready for put to use. 5.10 Debrciation on value adjustment is provided prospectively. 6. BORROWING COST. 6.1 General and specific borrowing costs attributable to the acquisition or construction of a qualifying asset are capitalized as part of the cost of that asset until such time the assets are ready for their intended use. 6.2 Other borrowing costs are recognized as expenses in the period in which these are incurred. 7. IMPAIRMENT. The carrying amount of cash generating units is reviewed at each Balance sheet date where there is any indication of impairment based on internal/external indicators. An impairment loss is recognized in the statement of profit and loss where the carrying amount exceeds the recoverable amount of the cash generating units. An impairment loss is reversed if there is change in the recoverable amount and such loss either no longer exists or has decreased. 8. INVESTMENTS. Investments that are readily realizable and are intended to be held for not more than one year from that date, on which such investments are made are classified as current investments. All other investments are classified as long term investments. Current investments are stated at cost or market value whichever is lower. Long-term investments are carried at cost, after providing for diminution in value, if it is of a permanent nature. 9. INVENTORY. 9.1 Inventory of raw material, stores and spares are valued at cost net of CENVAT / VAT credit wherever applicable. Cost is determined on moving weighted average price on real time basis. 9.2 Stores and spares other than insurance spares held but not issued for more than 5 years are valued at 5% of the cost. 9.3 Shortage of coal up to 1% of the receipt quantity is treated as normal loss and beyond 1% is treated as abnormal loss. 9.4 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. 9.5 Inventories of finished goods, semi-finished goods, intermediary products and work in process including process scrap except anode butts and rejects are valued at lower of cost and net realizable value. Cost is generally determined at moving weighted average price of materials on real time basis, appropriate share of labour and related overheads. Net realizable value is the estimated selling price in the ordinary course of business less estimated cost necessary to make the sale. 9.6 Scrap of various nature internally generated is valued at estimated net realizable value. 10. GOVERNMENT GRANTS. 10.1 Fixed assets acquired out of financial grant from Government are shown at cost by crediting the grant-in-aid received to Subsidy Reserve. 10.2 Grants related to revenue are recognized as revenue over the period to which these are related. 11. FOREIGN CURRENCY TRANSACTIONS. 11.1 All foreign currency transactions are recorded by applying the exchange rate as on the date of transactions 11.2 Monetary assets and liabilities in foreign currency are restated at year-end exchange rates. Exchange difference on restatement is recognized in the statement of Profit & Loss. 12. FORWARD EXCHANGE CONTRACT. In respect of forward exchange contracts relating to firm commitment and highly probable forecast transactions, loss due to exchange difference is recognized in the statement of profit & loss in the reporting period in which the exchange rate changes. Forward exchange contracts outstanding at the year end on account of firm commitment/ highly probable forecast transactions are marked to market and the losses if any are recognized in the statement of profit & loss and gains are ignored. 13. REVENUE RECOGNITION. 13.1 Sales: a) Alumina & Aluminium : Sales in the domestic market are recognized at the time of dispatch of materials to the buyers. Export sales are recognized on issue of Bill of Lading. Domestic Sales include excise duty and are net of rebate and price concessions. b) Renewable Power: Sale of wind power is recognized on the basis of power transmitted to DISCOMs at the price notified by respective authorities. Solar power generated is consumed for captive use in office & townships and hence not recognized as separate item of income. c) Sale of Thermal Power : Sale of power from CPP is considered on the basis of quantity injected to state GRID excluding wheeling to refinery but including inadvertent power sale at the price notified by appropriate authority. 13.2 Receivables/ Incentives: a) Claims and interest receivables are accounted for in the statement of Profit and Loss based on certainty of their realization. Interest income on term deposits is recognized on a time proportion basis taking in to account the amount outstanding and the rate applicable. b) Export incentives i.e Duty draw back & Focus marketing license are recognized on accrual basis on the shipping quantity as per BOL/ export invoice. c) Income from Renewable Energy Certificates (REC) is recognized on the basis of power billed to DISCOMs at the weighted average of quoted price of recognized power exchanges on the last trading day of the reporting period. d) Generation Based Incentive (GBI) is recognized on the invoiced quantity at the applicable rate as per scheme. e) If there is uncertainty in realization, revenue recognition is postponed. 14. LONG TERM EMPLOYEE BENEFITS. 14.1 Defined Contribution Plan: Contributions towards Provident Funds & Pension Scheme are charged to the statement of Profit and Loss for the period as and when the contributions to the Funds are due. 14.2 Defined Benefit Plan: The provisions/liabilities towards gratuity, accrued leave, long service awards, post retirement medical and settling- in benefits, future payments to the legal heirs of deceased employees under the NEFFARS scheme, are made based on the actuarial valuation as at the end of the year and charged to statement of Profit and loss after considering actuarial gains/losses. 14.3 Expenditure on voluntary retirement compensation is charged off in the year in which it is incurred. 15. PRIOR PERIOD /brPAID ITEMS. Income/ Expenditure relating to prior period and brpaid expenses not exceeding Rs. 5 lakh in each case is treated as income/ expenditure for the current year. 16. EXPENDITURE ON NEW PROJECTS. Expenses on account of new potential projects incurred till investment decision, are charged to revenue. Expenditure incurred thereafter in case of successful projects are accounted for under capital-work-in progress and capitalized subsequently. 17. EXPENDITURE ON RESEARCH AND DEVELOPMENT. Expenditure incurred during research phase is charged to revenue when no intangible asset arises from such research. Development expenditure except capital nature is charged to statement of Profit and Loss in the year incurred after setting of incidental income, if any. 18. EXCEPTIONAL ITEMS. Exceptional items are the items of income and expenses within profit or loss from ordinary activities of such size, nature or incidence whose disclosure is felt necessary. 19. TAX EXPENSES. Tax expenses for the period, comprising of current tax and deferred tax are included in the determination of net profit or loss for the period. 19.1 Current tax is measured at the amount expected to be paid to tax authorities in accordance with the brvailing taxation laws. 19.2 Deferred Tax expense or benefit is recognized on timing difference being the difference between taxable incomes and accounting income that originate in one period and are capable of reversal in one or more subsequent periods. Deferred tax assets and liabilities are measured using the tax rates and tax laws that have been enacted or substantively enacted by the Balance Sheet date. 20. JOINT VENTURES. 20.1 Interest in a jointly controlled entity has been accounted for as an investment in accordance with Accounting Standard (AS) 13, Accounting for investments. However necessary disclosure is made in line with Accounting Standard (AS) 27, Financial Reporting of interests in Joint ventures. 20.2 Interest in a jointly controlled asset is classified and disclosed separately. 21. PROVISIONS AND CONTINGENT LIABILITIES & CONTINGENT ASSETS. 21.1 A provision is recognized when there is brsent obligation as a result of a past event and it is probable that an out flow of resources will be required to settle the obligation and in respect of which reliable estimate can be made. These are reviewed at end of each year and adjusted to reflect the best current estimate. 21.2 Provision is made /written back in respect of balances on account of sums payable/receivable for more than 3 years, in respect of parties other than Govt. Dept./ Govt. Companies. In case of Govt. Dept./ Govt. Companies, the same is made on case to case basis depending upon the merit of the case. 21.3 Disclosure for contingent liability is made when there is a possible obligation or a brsent obligation that may, but probably will not require any outflow of resources. 21.4 No provision is recognized or disclosure for contingent liability is made, when there is a possible obligation or a brsent obligation and the likelihood of outflow of resources is remote. 21.5 Contingent assets are neither recognized nor disclosed in the financial statements. Notes to the Financial Statements Note No. 1. Renewable Purchase Obligation (RPO): As per the provisions of Odisha Electricity Regulatory Commission (OERC) notification, Nalco, being an obligated entity has the obligation to generate power equal to 6.5% (Previous year 6%) of its total consumption from renewable sources comprising of 4.45% (Previous year 4.20%) from Co- generation, 0.25% (Previous Year 0.20%) from Solar renewable source and 1.80% (brvious year 1.60%) from Non solar renewable source. a) The company has fulfilled the Co-generation obligation for the year 2014-15 through generation of power from Steam & Power Plant at Refinery Plant. b) The company has also fulfilled its Non solar obligation (through wind power generation) for the current year and part obligation for brvious years. Cumulative Non solar obligation as on 31.3.2015 is Rs.4.21 Crore (brvious year Rs.15.54 crore) towards 28,080 (brvious year 1, 03,656 ) numbers of Non-solar REC. c) Due to non-fulfillment of the obligation to generate required quantum of power from renewable source of Solar the company has provided cumulative liability up to 31.3.2015 for Rs.14.22 crore (brvious year Rs.24.98 Crore) towards 40,637 ( brvious year 26,855) numbers of Solar REC valued @ Rs.3,500 (brvious year Rs.9,300) per certificate. Note No. 2. Settlement of Disputed Electricity Duty and Interest thereon During the year, there was out of court settlement by the Company with Govt of Odisha with regards to disputed Electricity duty, Interest on unpaid Electricity Duty and Electricity duty on Transmission and Transformation loss. As per settlement, the unpaid electricity duty in respect to auxiliary consumption and differential duty is fully paid amounting to Rs. 520.02 crore after adjustment of Electricity duty on Transmission and Transformation loss of an amount of Rs. 38.81 Crore. Out of the Interest liability on the unpaid electricity duty and interest earned on FD/ Escrow (deposited as per court order) up to the date of settlement amounting to Rs. 355.08 Crore, an amount of Rs. 352.11 Crore has been paid leaving Rs. 2.97 crore to be paid subsequently. After the settlement, the excess amount provided in the accounts over and above the settled amount is written back, thereby increasing the profit by Rs. 196.82 Crore (current year Rs. 48.40 crore and earlier years Rs. 148.42 Crore). The expenditures for earlier years it is treated as exceptional items (Ref Note 30). Note No 3. Asset Componentization: In pursuant to Schedule-II of the Companies Act, 2013, the fixed assets (Plant & machinery) of significant value are componentized with separate useful life. The cut off limit of component value to capitalize separately with different useful life is considered as Rs. 1 Crore and above in each case except Hydrate process at Alumina Refinery and thermal power generation plant at CPP. For Hydrate process the componentization under each sub process is based on % of its constituent elements and for Thermal power generation plant at CPP, the componentization is based on broad billing break up by the equipment provider M/s BHEL. Note No 4. Effect of schedule-II-Transitional provision In accordance with Schedule-II of the Companies Act, 2013, the company has revised the useful life of the fixed assets. As per the transitional provision the company has adjusted Rs.160.46 crore towards carrying amount of assets where the remaining useful life is nil to opening balance of Reserve & Surplus and deferred tax liability by Rs.105.92 crore and Rs.54.54 Crore respectively. Apart from the above, due to revision of useful life of the fixed assets in compliance to Schedule-II of the Companies Act, 2013, on account of lower debrciation, profit for the year increased by Rs 130.13 crore. Note No.5. CSR Expenditure In terms of Sec 135 of the Companies Act, 2013, the CSR obligation of the Company for the year 2014-15 works out to to Rs.20.14 crore, the Company has spent Rs.19.09 crore (includes capital expenditure of Rs. 0.83 Crore towards renewable energy) on various CSR activities leaving an obligation of Rs.1.05 crore to be spent in the succeeding years which has been provided in Accounts. Note No 6. Utkal E Coal Block Utkal E Coal Block was allotted to Nalco by Govt. of India. The Company has paid Rs. 91.57 Crore to M/s Odisha Industrial Development Corporation for acquisition of land and other Govt. Agencies for development of infrastructural facilities. Besides the company has spent Rs. 34.75 Crore towards infrastructural development expenses for Utkal E Coal Block. The process of alienation of land in the name of Nalco is yet to be completed. Pursuant to The Coal Mines (Special Provisions) ordinance, 2014 issued by GOI dated 21st October 2014, consequent upon de-allocation of Utkal E Coal Block, the amount of Rs. 34.75 crore spent on development of infrastructure expenses till the date of de-allocation has been put under claim with Government of India. Such expenditure incurred after the date of de-allocation is charged to revenue. The company has applied for reallocation of Utkal E Coal Block in its favour and the matter is being pursued with Government of India. Note No.7 . Dividend for the year: 1 The Company has paid interim dividend of Rs.1.25 per equity share of Rs.5/- each for the year 2014-15 (brvious year Rs.1.10 per equity share of Rs.5/- each). 2 The provision for final dividend of Rs.0.50 per equity share of Rs.5/- each is made for the year 2014-15 (brvious year Rs.0.40 per equity share of Rs.5/- each) . 3 Total dividend for the year 2014-15 works out to Rs.1.75/- per equity share of Rs.5/- each (brvious year Rs.1.50 per equity share of Rs.5/- each).Total amount of proposed dividend for the year 2014-15 is Rs.451.02 crore (brvious year Rs.386.59 crore). 8 Change in Accounting Policy/ Practice: a) Increase in the minimum asset value for 100% debrciation in the year of acquisition from Rs.5,000 to Rs.10,000 in each case. The above change in accounting policy has led to increase in the debrciation expenditure for the current year by an amount of Rs.4.27 Crore. b) Life of Intangible Assets License (RTA technical knowhow) has been changed from 18 years to 10 years. Besides, life of 220 KV switching station (jointly controlled Assets) earlier considered as tangible fixed assets to be amortized over 5 years has been changed as Intangible assets (User License) to be amortized over 10 years. The above change in accounting policy has led to net increase in the debrciation expenditure for the current year by an amount of Rs.0.17 Crore. Note No.9. Regrouping of brvious year's figures: Previous year's figures have been regrouped/rearrange wherever necessary to make them comparable. |