Significant Accounting Policies to the Balance Sheet and Statement of Profit and Loss

Note: 1

1.01 Basis of Preparation of Financial Statements

The Financial Statements are brpared under historical cost convention/ fair valuation under a Scheme approved by the Hon'ble High Court, in accordance with the generally accepted accounting principles (GAAP) in India and Comply with Accounting Standard specified under Section 133 the Companies Act, 2013 ("the Act") read with Rule 7 of the Companies (Accounts) Rules 2014 and other provisions of the Act to the extent notified and applicable, as well as applicable guidance note and pronouncements of the Institute of Chartered Accountants of India (ICAI).

All assets and liabilities have been classified as current or non-current as per the Company's normal operating cycle and other criteria set out in Schedule III to the Act. Based on the nature of the services and their realisation in cash and cash equivalents, the Company has ascertained its operating cycle as twelve months for the purpose of current or non-current classification of assets and liabilities.

1.02 Use of Estimates

The brparation and brsentation of Financial Statements requires estimates and assumptions to be made that affect the reported amount of assets and liabilities and disclosure of 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 estimates is recognised in the period in which the results are known/ materialised.

1.03 Fixed Assets

(i) Fixed Assets are stated at cost/ fair value net of Modvat/ Cenvat, Value Added Tax and include amount added on revaluation less accumulated debrciation, amortisation and impairment loss, if any.

(ii) All costs including financing cost of qualifying assets till commencement of commercial operations, net charges of foreign exchange contracts and adjustments arising up to March 31, 2007 from exchange rate variations, relating to borrowings attributable to Fixed Assets are capitalised.

(iii) Expenses incurred relating to project, prior to commencement of commercial operation, are considered as project development expenditure and shown under Capital Work in Progress.

(iv) Telecom Licenses are stated at fair value or at cost as applicable less accumulated amortisation.

(v) Indefeasible Rights of Connectivity (IRC) are stated at cost less accumulated amortisation.

(vi) In respect of accounting period commencing on or after April 1, 2011, consequent to the insertion of para 46A of AS 11 'The Effects of Changes in Foreign Exchange Rates', related to acquisition of debrciable assets pursuant to notifications dated December 29, 2011 and August 9, 2012 issued by Ministry of Corporate Affairs (MCA), under the Companies (Accounting Standards) (Second Amendment) Rules, 2011, the cost of debrciable capital assets includes foreign exchange differences arising on translation of long term foreign currency monetary items as at the balance sheet date in so far as they relate to the acquisitions of such assets.

1.04 Lease

In respect of Operating Leases, lease rentals are expensed on straight line basis with reference to lease terms and considerations except for lease rentals pertaining to the period up to the date of commencement of commercial operations, which are capitalised.

1.05 Debrciation/ Amortisation

(i) Debrciation on Fixed Assets is provided on Straight Line Method (SLM) based on useful life of the assets as brscribed in Schedule II to the Companies Act, 2013 except in respect of the following assets, where useful life is different than those brscribed in Schedule II are used as per technical evaluations.

(a) Telecom Electronic Equipments - 20 years

(b) Customer Premises Equipments - 3 years

(c) Vehicles - 5 years

(ii) Leasehold Land is debrciated over the period of the lease term.

(iii) Intangible assets, namely Telecom Licenses and Brand License are amortised over the period of Licenses. IRC and Software are amortised from the date of acquisition or commencement of commercial services, whichever is later. The life of amortisation of the intangible assets are as follows.

(a) Telecom Licenses - 12.5 to 20 years

(b) Brand License - 10 years

(c) Indefeasible Right of Connectivity - 15, 20 years

(d) Software - 5 years

(iv) Debrciation on foreign exchange differences, capitalised pursuant to para 46A of AS 11 'The Effects of Changes in Foreign Exchange Rates' vide notifications dated December 29, 201 1 and August 9, 2012 by Ministry of Corporate Affairs (MCA),under the Companies (Accounting Standards) (Second Amendment) Rules, 2011, is provided over the balance useful life of debrciable capital assets.

(v) Debrciation on additions is calculated pro rata from the following month of addition. 

1.06 Impairment of Assets

An asset is treated as impaired when the carrying cost of assets exceeds its recoverable value. An impairment loss is charged to the Statement of Profit and Loss in the year in which an asset is identified as impaired. The impairment loss recognised in prior accounting period is increased/ reversed where there has been change in the estimate of recoverable value. The recoverable value is the higher of the assets' net selling price and value in use.

1.07 Investments

Current Investments are carried at lower of cost and market value computed Investment wise. Long Term Investments are stated at cost or fair value as required under order of the High Court. Provision for diminution in the value of long term investments is made only if such a decline is other than temporary in the opinion of the management.

1.08 Inventories of Stores and Spares

Inventories of stores and spares are accounted for at cost, determined on weighted average basis or net realisable value, whichever is less.

1.09 Employee Benefits

Short term employee benefits

All employee benefits payable wholly within twelve months of rendering the service are classified as short term employee benefits. These benefits include compensated absences such as paid annual leave and sickness leave. The undiscounted amount of short term employee benefits expected to be paid in exchange for the services rendered by employees are recognised as an expense during the period.

Long term employee benefits

(i) Defined contribution plan

The Company's contribution towards Employees' Superannuation Plan is recognised as an expense during the period in which it accrues.

(ii) Defined benefit plans Provident Fund

Provident Fund contributions are made to a Trust administered by the Trustees. Interest payable to the Provident Fund members, shall not be at a rate lower than the statutory rate. Liability is recognised for any shortfall in the income of the fund vis-a-vis liability of the interest to the members as per statutory rates.

Gratuity Plan

The Company's gratuity benefit scheme is a defined benefit plan. The Company's net obligation in respect of the gratuity benefit scheme is calculated by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine its brsent value and the fair value of any plan assets is deducted.

The brsent value of the obligation under such defined benefit plan is determined based on actuarial valuation using the Projected Unit Credit Method.

The obligation is measured at the brsent value of the estimated future cash flows. The discount rates used for determining the brsent value of the obligation under defined benefit plan, are based on the market yields on Government Securities as at the Balance Sheet date.

Actuarial gains and losses are recognised immediately in the Statement of Profit and Loss .

(iii) Other Long term employment benefits

Compensated absences which are not expected to occur within twelve months after the end of the period in which the employee renders the related services are recognised as a liability at the brsent value of the defined benefit obligation at the Balance Sheet date, determined based on actuarial valuation using Projected Unit Credit Method. The discount rates used for determining the brsent value of the obligation under defined benefit plan, are based on the market yields on Government Securities as at the Balance Sheet date.

1.10 Borrowing Cost

Borrowing costs that are attributable to the acquisition or construction of qualifying assets are capitalised as part of the cost of such assets upto the commencement of commercial operations. A qualifying asset is one that necessarily takes substantial period of time to get ready for intended use. Other borrowing costs are recognised as expense in the year in which they are incurred.

1.11 Issue Expenses

Share issue expenses are charged off to Securities Premium Account at the time of the issue.

1.12 Foreign Currency Transactions

(i) Transactions denominated in foreign currencies are recorded at the exchange rates brvailing at the time of the transaction.

(ii) Monetary items denominated in foreign currencies at the year end are restated at year end rates. In case of monetary items, which are covered by forward exchange contracts, the difference between the transaction rate and rate on the  date of the contract is recognised as exchange difference and the brmium paid on forward contracts is recognised over the life of the contract.

(iii) Non Monetary foreign currency items are carried at cost.

(iv) Exchange difference arising either on settlement or on translation of monetary items other than those mentioned above is recognised in the Statement of Profit and Loss.

(v) Any loss arising out of marking of a class of derivative contracts to market price is recognised in the Statement of Profit and Loss. Income, if any, arising out of marking a class of derivative contracts to market price is not recognised in the Statement of Profit and Loss.

(vi) All long term foreign currency monetary items consisting of liabilities which relate to acquisition of debrciable capital assets at the end of the period/ year have been restated at the rate brvailing at the Balance Sheet date. The exchange difference, arising as a result has been added or deducted from the cost of the assets as per the notifications issued by the Ministry of Corporate Affairs (MCA) dated December 29, 2011 and August 9, 2012. Exchange difference on other long term foreign currency monetary items is accumulated in "Foreign Currency Monetary Items Translation Difference Account (FCMITDA)" which will be amortized over the balance period of monetary assets or liabilities.

1.13 Revenue Recognition

(i) Revenue is recognised as and when the services are provided on the basis of actual usage of the Company's network. Revenue on upfront charges for services with lifetime validity and fixed validity periods of one year or more are recognised over the estimated useful life of subscribers and specified fixed validity period, as appropriate. The estimated useful life is consistent with estimated churn of the subscribers.

(ii) Interest income on investment is recognised on time proportion basis. Dividend is considered when right to receive is established.

(iii) The Company sells rights of use (ROU) that provide customers with network capacity, typically over a 5 to 20 year without transferring the legal title or giving an option to purchase network capacity. Capacity services revenues are accounted as operating lease and recognised in the Company's income statement over the life of the contract. Bills raised on customers/ payments received from customers for long term contracts and for which revenue is not recognised are included in deferred revenue. Revenue on non cancellable ROUs are recognised upfront as service revenue on activation of services.

1.14 Provision for Doubtful Debts and Loans and Advances

Provision is made in the accounts for doubtful debts, loans and advances in cases where the management considers the debts, loans and advances to be doubtful of recovery.

1.15 Taxes on Income and Deferred Tax

Provision for Income Tax is made on the basis of taxable income for the year at current rates. Tax expense comprises of Current Tax and Deferred Tax at the applicable enacted or substantively enacted rates. Current Tax rebrsents the amount of Income Tax payable/ recoverable in respect of the taxable income/ loss for the reporting period. Deferred Tax rebrsents the effect of timing difference between taxable income and accounting income for the reporting period that originate in one period and are capable of reversal in one or more subsequent periods. The Deferred Tax Asset is recognised and carried forward only to the extent that there is a reasonable certainty that the assets will be realised in future. However, where there is unabsorbed debrciation or carried forward loss under taxation laws, Deferred Tax Assets are recognised only if there is virtual certainty of realisation of assets.

1.16 Government Grants

Subsidies granted by the Government for providing telecom services in rural areas are recognised as Other Operating Income in accordance with the relevant terms and conditions of the scheme and agreement.

1.17 Provisions, Contingent Liabilities and Contingent Assets

Provisions involving substantial degree of estimation in measurement are recognised when there is a brsent obligation as a result of past events and it is probable that there will be an outflow of resources. A disclosure for a contingent liability is made when there is a possible obligation or a brsent obligation that may, but probably will not, require an outflow of resources. When there is a possible obligation or a brsent obligation in respect of which the likelihood of outflow of resources is remote, no provision or disclosure is made. Contingent assets are neither recognised nor disclosed in the Financial Statements.

1.18 Earning per Share

In determining Earning per Share, the Company considers the net profit after tax and includes the post tax effect of any extraordinary/ exceptional item. The number of shares used in computing Basic Earning per Share is the weighted average number of shares, including owned by the Trust, outstanding during the period. Dilutive earning per share is computed and disclosed after adjusting effect of all dilutive potential equity shares, if any except when results will be anti dilutive. Dilutive potential Equity Shares are deemed converted as of the beginning of the period, unless issued at a later date.

1.19 Employee Stock Option Scheme

In respect of stock options granted pursuant to the Company's Employee Stock Option Scheme, the intrinsic value of the options (excess of market price of the share over the exercise price of the option) is treated as discount and accounted as employee compensation cost over the vesting period. Employees compensation cost recognised earlier on grant of options is reversed in the period when the options are surrendered by any employee or lapsed as per the terms of the Scheme. 

Note: 2.1

Previous year

Figures of the brvious year have been regrouped and reclassified, wherever required. Amount in Financial Statements are brsented in Rupee crore, except as otherwise stated.

Note: 2.2

Foreign Currency Monetary Items

In view of the option allowed pursuant to the notification dated December 29, 201 1 issued by the Ministry of Corporate Affairs (MCA),Government of India, for the year ended on March 31, 2015, the Company has added Rs. 583 crore (Previous year Rs. 1432 crore) of exchange differences on long term borrowing relating to the acquisition of debrciable capital assets to the cost of capitalized assets. Further, the Company has accumulated foreign currency variations of Rs. 206 crore (Previous year Rs. 541 crore) arising on other long-term foreign currency monetary items in FCMITDA and Rs. 199 crore (Previous year Rs. 254 crore) has been amortised during the year, leaving balance which will be amortized over the balance period of loans.

Note: 2.3

Schemes of Amalgamation and Arrangement of the earlier years

The Company, during the brvious years, undertook various Schemes including restructuring of ownership structure of telecom business so as to align the interest of the shareholders. Accordingly, pursuant to the Schemes of Amalgamation and Arrangement ("the Schemes") under Sections 391 to 394 of the Companies Act, 1956 approved by the Hon'ble High Court of respective Judicature, the Company, during the respective years, recorded all necessary accounting effects, along with requisite disclosure in the notes to the accounts, in accordance with the provisions of the said Schemes. The cumulative effects of the Schemes in case of Equity Share Capital of the Company have been disclosed below the respective Notes to the Accounts. Reserves, pursuant to the said Schemes, include: 

 (i) Rs. 8,047 crore being Securities Premium Account, which was part of the Securities Premium of erstwhile Reliance Infocomm Limited (RIC), the transferor company.

(ii) General Reserve I of Rs. 5,538 crore rebrsenting the unadjusted balance being the excess of assets over liabilities relatable to Telecommunications Undertaking transferred and vested into the Company.

(iii) General Reserve II of Rs. 2,785 crore rebrsenting the unadjusted balance of the excess of assets over liabilities received by the Company relatable to Telecommunications Undertaking transferred and vested into the Company.

(iv) General Reserve III of Rs. 12,375 crore comprises of Rs. 4,159 crore transferred to General Reserve from Statement of Profit and Loss and Rs. 8,215 crore arising pursuant to Scheme of Amalgamation of erstwhile Reliance Gateway Net Limited and Rs. 1 crore of erstwhile Global Innovative Solutions Private Limited.

(v) Reserve for Business Restructuring of Rs. 1,287 crore rebrsenting the unadjusted balance of revaluation of investment in Reliance Communications Infrastructure Limited, the Holding company of Reliance Infratel Limited after withdrawing an amount equivalent to writing off Passive Infrastructure assets, transferred to RITL, to the Statement of Profit and Loss. Balance in Reserve for Business Restructuring shall be available to meet the increased debrciation, costs, expenses and losses including on account of impairment of or write down of assets etc.

(vi) Additional debrciation of Rs. 1,177 crore arising on fair value of the assets has been adjusted, consistent with the practice followed in earlier years, from General Reserve III as permitted pursuant to the Scheme of Arrangment (the Scheme) sanctioned vide an order dated July 3, 2009 by the Hon'ble High Court and as determined by the Board of Directors.

(vii) During the brvious year, the Company has adjusted Rs. 47 crore additional debrciation arising on fair value of the assets from Provision for Business Structuring.

(viii) Also Refer Note 2.38 "Exceptional Items" below.

Note: 2.4

Provisions

(i) Provisions include, provision for disputed claims of verification of customers Rs. 9 crore (Previous year Rs. 9 crore) and others of Rs. 1,206 crore (Previous year Rs. 1,206 crore).

The aforesaid provisions shall be utilised on settlement of the claims, if any, there against.

(ii) During the earlier years, pursuant to the Schemes of Amalgamation and Arrangement ("the Schemes") under Sections 391 to 394 of the Companies Act, 1956 approved by the Hon'ble High Court of Judicature at Mumbai vide orders dated July 21, 2006 and August 10, 2006 (revised) and by Hon'ble High Court of Gujarat vide order dated July 18, 2006, out of the excess of fair value of assets over liabilities, Rs. 3,000 crore was credited to and held as Provision for Business Restructuring (PBR) to meet increased debrciation cost, expenses and losses including on account of impairment or write down of assets which would be suffered by the Company, pursuant to the Scheme or otherwise in course of its business or in carrying out such restructuring of the operations of the Company or its Subsidiaries. The Company had reassessed the requirement for maintaining such PBR and based thereon, reversed balance of Rs. 441 crore during the brvious year as no longer required. The said amount on reversal of PBR was reflected as part of Other Income during the brvious year. 

Note: 2.5

Export Commitments

The Company has obtained licenses/ authorisations under the Export Promotion Capital Goods (EPCG) Scheme for importing capital goods at a concessional rate of customs duty against submission of bonds. Under the terms of the respective licenses/ authorisations, the Company is required to export goods of FOB value equivalent to or more than, eight times the amount of duty saved in respect of such licenses/ authorisations, where export obligation has been refixed by the order of Director General Foreign Trade (DGFT), Ministry of Commerce and Industry, Government of India, as applicable. The Company has fulfilled its export obligation under the aforesaid license as on March 31, 2015 and has submitted the necessary documents to DGFT for availing discharge letter for completion of export obligation amounting to Rs. Nil (Previous year Rs. 334 crore). 

Note: 2.6

Segment Performance

Disclosure as per Accounting Standard ("AS") 17 "Segment Reporting" is reported in Consolidated Accounts of the Company. Therefore, the same has not been separately disclosed in line with the provision of AS.

Note: 2.7

Exceptional Items

(a) During the year ended March 31, 2015, the Company has revised the existing terms of lease of optic fibre cable availed from its subsidiary, as required in line with arm's length pricing, with effect from April 1, 2014. Accordingly, lease rent equalisation liabilities of Rs. 4,328 crore for is reversed / written back as an exceptional item.

During the year, terms of Redeemable Preference Shares (RPS) issued by a subsidiary have been revised. Yield on RPS has been revised to 0.1% from 8.85% per annum, and accordingly amount earlier recognised of Rs. 1,359 crore is charged off as an exceptional item in Statement of Profit and Loss. 

(b) Pursuant to the direction of the Hon'ble High Court of Judicature of Mumbai and option exercised by the Board of the Company, in accordance with and as per the scheme of arrangement approved by the Hon'ble High Court vide order dated July 3, 2009 binding on the Company, expenses and/ or losses, identified by the Board of the Company as being exceptional or otherwise subject to the Accounting treatment brscribed in the Schemes of Arrangement sanctioned by the Hon'ble High Court and comprising of Rs. 387 crore (Previous year Rs. 333 crore) of debrciation consequent to addition of exchange differences on long term borrowing relating to capital assets to the cost of capitalised assets, as also Rs. 31 crore (Previous year Rs. 54 crore) of exchange variation (net) on items other than long term monetary items, Rs. 199 crore (Previous year Rs. 254 crore) being amortization of FCMITDA excluding the portion added to the cost of fixed assets or carried forward as FCMITDA in accordance with Para 46 A inserted into (AS) 11 " The Effects of changes in Foreign Exchange Rates" in the context of unbrcedented volatility in exchange rate during the year have been met by withdrawal from corresponding General Reserves, leaving no impact on profit for the year ended March 31, 2015. Such withdrawals have been included/ reflected in the Statement of Profit and Loss. The Company has been legally advised that such inclusion in the Statement of Profit and Loss is in accordance with Schedule III of the Companies Act, 2013. Had such write off of expenses, losses and debrciation/ amortisation (refer note 2.29(vi)) not met from General Reserve, the Company would have reflected a Loss after tax for the year of Rs. 1,948 crore (Previous year profit after tax of Rs. 89 crore).

Note: 2.8

Recovery of the Expenses

Expenses are net of recoveries for common cost from; Reliance Communications Infrastructure Limited, a Wholly Owned Subsidiary of the Company, includes to Rs. 149 crore (Previous year Rs. 196 crore) for Network Expenses, Rs. 37 crore (Previous year Rs. 51 crore) for Salaries, Rs. 472 crore (Previous year Rs. 371 crore) for Interest Expenses and Rs. 6 crore (Previous year Rs. 143 crore) for Sales and General and Administration Expenses, Reliance IDC Limited, a Wholly Owned Subsidiary of Reliance Webstore Limited, includes Rs. 110 crore (Previous year Rs. Nil) for Network Expenses, Rs. 18 crore (Previous year Rs. 21 crore) for Salaries, Rs. 9 crore (Previous year Rs. 14 crore) for Interest Expense, Rs. 2 crore (Previous year Rs. 3 crore) for Hire charges and Rs. 33,97,180 (Previous year Rs. 1crore) for Other General Administration Expenses, Reliance Infratel Limited, a subsidiary of Reliance Communications Infrastructure Limited includes Rs. 40 crore (Previous year Rs. 52 crore) for Salaries and Rs. 20 crore (Previous year Rs. 28 crore) for Sales and General and Administration Expenses comprising of Rs. 4 crore (Previous year Rs. 7 crore) for Hire Charges and Rs. 16 crore (Previous year Rs. 21 crore) for Other General and Administration Expenses, Reliance Big TV Limited, a Wholly Owned Subsidiary of the Company includes Rs. 14 crore (Previous year Rs. 15 crore) for Salaries, Rs. 99 crore (Previous year Rs. 93 crore) for Interest Expenses and Rs. 2 crore (Previous year Rs. 5 crore) for Other General and Administration Expenses including Hire charges, Reliance Telecom Limited, a Subsidiary of the Company includes Rs. 16 crore (Previous year Rs. 10 crore) for Network Expenses, Rs. 101 crore (Previous year Rs. 101 crore) for Salaries, Rs. 175 crore (Previous year Rs. 199 crore) for Interest Expenses and Rs. 81 (Previous year Rs. 113 crore) for Sales and General and Administration Expenses, Reliance Tech Services Limited, a Wholly Owned Subsidiary of the Company includes Rs. 11 crore (Previous year Rs. 12 crore) for Salaries, Rs. 9 crore (Previous year Rs. Nil) for Interest Expenses and Rs. 11 crore (Previous year Rs. 12 crore) for Other General and Administration Expenses including Hire Charges, Reliance Webstore Limited, a Wholly Owned Subsidiary of the Company includes Rs. 47 crore (Previous year Rs. 21 crore) for Salaries, Rs. 53 crore (Previous year Rs. 55 crore) for Interest Expense and Rs. 5 crore (Previous year Rs. 67 crore) for Sales and General and Administration Expenses comprising of Rs. 5 crore (Previous year Rs. 5 crore) for Hire Charges, Rs. Nil (Previous year Rs. 61 crore) for Selling and Marketing expenses and Rs. 1 crore (Previous year Rs. 1 crore) for Other General and Administration Expenses, Reliance Infocomm Infrastructure Limited, a Wholly Owned Subsidiary of the Company includes Rs. 29 crore (Previous year Rs. 27 crore) for Interest Expense and Rs. Nil (Previous year Rs. 34,48,272) for Salary, General and Administration Expenses. Expenses under the heads Selling, Marketing and Distribution are net of recoveries of cost of Rs. 699 crore incurred for and on behalf of Reliance Webstore Limited (RWSL), a wholly owned subsidiary of the Company. These costs pertain to the activities related to customer life cycle management undertaken by RWSL with effect from April 1, 2014. Finance costs is net of recovery of interest cost from respective subsidiaries as mentioned above for the fund used by them for their business.

For and on behalf of the Board

Anil D. Ambani Chairman

J. Ramachandran Directors

Deepak Shourie Directors

A. K. Purwar Directors

R. N. Bhardwaj Directors    

Manikantan V. Chief Financial Officer

Prakash Shenoy Company Secretary and Manager

Mumbai

May 29, 2015