NOTES FORMING PART OF THE STANDALONE FINANCIAL STATEMENTS

NOTE 1: SIGNIFICANT ACCOUNTING POLICIES

1.1 Basis for brparation of financial statements:

The financial statements of the Company have been brpared in accordance with the Generally Accepted Accounting Principles in India (Indian GAAP) to comply with the Accounting Standards specified under Section 133 of the Companies Act, 2013 and the relevant provisions of the Companies Act, 2013 ("the 2013 Act") / Companies Act, 1956 ("the 1956 Act"), as applicable. The financial statements have been brpared on accrual basis under the historical cost convention. The accounting policies adopted in the brparation of the financial statements are consistent with those followed in the brvious year, unless otherwise stated.

1.2 Use of estimates:

The brparation of financial statements requires certain estimates and assumptions. These estimates and assumptions affect the reported amount of assets and liabilities on the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Difference between the actual result and estimates are recognized in the period in which the results are known / materialized.

1.3 Capital receipts:

(i) Grant received under the Accelerated Power Development and Reforms Programme (APDRP) of the Ministry of Power, Government of India, is treated as capital receipt and accounted as capital reserve.

(ii) Service line contributions received from consumers are treated as capital receipt and accounted as capital reserve.

1.4 Fixed assets: Tangible fixed assets:-

Fixed Assets are stated at cost of acquisition or construction less accumulated debrciation. Cost includes purchase price, taxes and duties, labour cost and other direct costs incurred up to the date the asset is ready for its intended use. Allocation of indirect expenses to capital account is done on the basis of technical evaluation by the management.

Intangible assets :-

Certain computer software costs are capitalized and recognized as intangible assets based on materiality, accounting prudence and significant benefits expected to flow therefrom for a period longer than one year.

1.5 Impairment of fixed assets:

Fixed assets are reviewed for impairment losses whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized for the amount by which the carrying amount of the assets exceeds its recoverable amount, which is the higher of an asset's net selling price and value in use.

1.6 Borrowing costs:

Borrowing costs comprising interest, finance charges etc. to the extent related / attributed to the qualifying assets, such as new projects and / or specific assets created in the existing business, are capitalized up to the date of completion and ready for their intended use. Other borrowing costs are charged to the statement of profit and loss in the period of their accrual.

1.7 Debrciation and amortization:

(i) Debrciation for the year is provided on additions / deductions of the assets during the period from / up to the month in which the asset is added / deducted.

(ii) Debrciation for the year has been shown after reducing the proportion of the amount of debrciation provided on assets created against the service line contribution, APDRP grant received and others.

(iii) In respect of fixed assets pertaining to Ahmedabad Power Plant (AMGEN), Ahmedabad Distribution and Surat Distribution, debrciation is provided on straight line method at the rates as per CERC regulations as applicable in the year of addition.

(iv) In respect of assets pertaining to Agra and Bhiwandi Distribution Circles, debrciation is provided on straight line method at the rates mentioned below, as provided in the Distribution Franchise Agreement which are higher than the effective rates brscribed under Schedule II to the Companies Act, 2013:

Transformers, Switchgears & Equipments 7.84%

Meters 12.77%

Distribution Systems - Overhead 7.84%

- Underground 5.27%

Others 7.84%

Vehicles 33.40%

Electrical fittings, Apparatus, Furniture & fixtures, Communication equipments and Office equipments 12.77%

(v) In respect of assets pertaining to SUGEN Power Plant (SUGEN), UNOSUGEN Power Plant (UNOSUGEN), DGEN Power Plant at Dahej SEZ (DGEN) and Dahej Distribution, debrciation is provided on straight line method considering the rates and the methodology provided in CERC (Terms and Conditions of Tariff) Regulations, 2014.

(vi) In respect of assets pertaining to Windmill (Jamnagar), debrciation is provided on straight line method at the rates and as per the methodology mentioned in CERC Order - CERC (Terms and Conditions for Tariff Determination from Renewable Energy Sources) Regulations, 2012 dated 27th March, 2012.

(vii) In respect of assets pertaining to GENSU Solar Power Plant (GENSU), debrciation is provided on straight line method at the rates and as per the methodology mentioned in GERC Order - GERC (Determination of Tariff for Procurement by the Distribution Licensees and others from Solar Energy Projects) dated 17th August, 2015.

(viii) In respect of assets pertaining to Cables unit, debrciation is provided on straight line method as per the useful life brscribed in Schedule II to the Companies Act, 2013.

(ix) Leasehold land is amortized over the lease period.

(x) Computer software costs are amortized over its useful life which is estimated at 3 years.

1.8 Investments:

Investments are classified into current and long term investments. Current investments are stated at the lower of cost and fair value. Long term investments are stated at cost less provision for diminution other than temporary, if any, in the value of such investments.

1.9 cash and cash equivalents:

Cash comprises cash on hand and demand deposits with banks. Cash equivalents are short term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to insignificant risk of changes in value.

1.10 Inventories:

Inventories of stores, spare parts, coal, fuel and loose tools are valued at weighted average cost and net realizable value, whichever is lower. Cost of inventories includes cost of purchase price, costs of conversion and other costs incurred in bringing the inventories to their brsent location and condition.

Inventories with respect to Cables unit are valued at lower of cost and net realizable value after providing for obsolescence and other losses, where considered necessary. Cost is determined on first-in-first-out (FIFO) basis and includes all charges in bringing the goods to the point of sale, including octroi and other levies, transit insurance and receiving charges. The cost of work-in-progress and finished goods is determined on full absorption costing method and comprises of raw materials and other direct costs and related production overheads and, where applicable, excise duty. Scrap is valued at net realisable value.

1.11 Revenue recognition:

(i) Revenue (income) is recognized when no significant uncertainty as to the measurability or collectability exists. Revenue recognized in excess of billing has been reflected under "Other Current Assets" as unbilled revenue. Further, in view of the uncertainties involved in the recoverability, the Company accounts for the quarterly fuel and power purchase price adjustment claims as and when allowed by the regulatory authorities and truing-up adjustment claims as and when billed to the consumers.

(ii) Sales with respect to Cables unit are recognised, net of returns and trade discounts, on transfer of significant risks and rewards of ownership to the buyer. Sales includes excise duty but excludes sales-tax and value added tax.

(iii) Gross proceeds from Certified Emission Reduction (CERs) is recognized when all the significant risks and rewards of ownership of CERs have been passed to the buyer, usually on delivery of the CERs.

(iv) Dividend is accounted when the right to receive payment is established.

(v) Interest on overdue receivables of energy bills, insurance, coal and other claims, casual income etc. are accounted on grounds of prudence, as and when recovered.

(vi) Revenue from cable laying services are recognised when the services are rendered and related costs are incurred.

1.12 Transactions in foreign currency:

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

(ii) Monetary items denominated in foreign currencies at the period end are restated at period end rates.

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

(iv) Exchange differences arising on settlement of monetary items or on reporting the company's monetary items at rates different from those at which they were initially recorded during the financial year are recognised as income or expense in the financial year in which they arise except for such adjustment of exchange difference arising on long term foreign currency monetary items in so far they related to the acquisition of a debrciable capital assets which are adjusted to the cost of the assets and debrciated over the remaining useful life of such assets.

(v) Forward exchange contracts are not intended for trading purposes. In case of forward exchange contracts, difference between the forward rate and the exchange rate on the date of transaction is recognised as expense or income over the life of the contract. Exchange differences on such contracts are recognised in the statement of profit and loss in the year in which the exchange rates change. Any profit or loss arising on cancellation or renewal of forward exchange contract is recognised as income or as expense for the year.

Annual Report 2015-16

1.13 Retirement and other employee benefits:

Retirement benefits in the form of provident fund, family pension fund and superannuation schemes, which are defined contribution schemes, are charged to the statement of profit and loss of the period in which the contributions to the respective funds accrue.

The Company has created employees group gratuity fund which has taken a group gratuity insurance policy from Life Insurance Corporation of India (LIC). Premium on the above policy as intimated by LIC is charged to the statement of profit and loss. The adequacy of balances available is compared with actuarial valuation obtained at the period-end and shortfall, if any, is provided for in the statement of profit and loss.

Provision for leave encashment is determined and accrued on the basis of actuarial valuation.

Actuarial gains and losses are immediately recognized in the statement of profit and loss and are not deferred.

1.14 Taxation:

Provision for current tax is made on the basis of estimated taxable income for the current accounting period and in accordance with the provisions of the Income Tax Act, 1961. Deferred tax resulting from "timing differences" between accounting and taxable profit for the period is accounted for using the tax rates and laws that have been enacted or substantively enacted as at the balance sheet date. Deferred tax asset ,on account of unabsorbed debrciation and carry forward losses are recognised only if there is virtual certainty supported by convincing evidences that there will be sufficient future taxable income available to realize the assets and on account of other asset is recognized and carried forward only to the extent that there is a reasonable certainty that sufficient future taxable income will be available against which such assets can be realized.

1.15 Earnings per share:

Basic earnings per share is computed by dividing the profit / (loss) after tax by the weighted average number of equity shares outstanding during the year. Diluted earnings per share is computed by dividing the profit / (loss) after tax as adjusted for dividend, interest and other charges to expense or income relating to the dilutive potential equity shares, by the weighted average number of equity shares considered for deriving basic earnings per share and the weighted average number of equity shares which could have been issued on the conversion of all dilutive potential equity shares. Potential equity shares are deemed to be dilutive only if their conversion to equity shares would decrease the net profit per share from continuing ordinary operations. Potential dilutive equity shares are deemed to be converted as at the beginning of the period, unless they have been issued at a later date.

1.16 Provisions, contingent liabilities and contingent assets:

A provision is recognised when the Company has a brsent obligation as a result of past events and it is probable that an outflow of resources will be required to settle the obligation in respect of which a reliable estimate can be made. Provisions (excluding retirement benefits) are not discounted to their brsent value and are determined based on the best estimate required to settle the obligation at the balance sheet date. These are reviewed at each balance sheet date and adjusted to reflect the current best estimates.

A possible obligation that arises from past events and the existence of which will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the enterprise are disclosed as contingent liability and not provided for. Such liability is not disclosed if the possibility of outflow of resources is remote.

Contingent assets are neither recognized nor disclosed in the financial statements.

1.17 Derivative contracts:

The Company enters into forward contracts in Copper and Aluminium to hedge itself against fluctuations in the prices of these commodities. The income / loss from these transactions is accrued at the time of settlement of the contract. Pursuant to the announcement on accounting for derivatives issued by the Institute of Chartered Accountants of India, the Company, in accordance with the principle of prudence as enunciated in Accounting Standard - 1, "Disclosure of Accounting Policies", provides for losses in respect of all outstanding derivative contracts at the balance sheet date by marking them to market. Any net unrealized gains arising on such marking to market are not recognized as income, until realised on grounds of prudence.

1.18 Leases :

(i) Operating: Lease of assets under which significant risks and rewards of ownership are effectively retained by the lessor are classified as operating leases. Lease payments under an operating lease are recognised as expense in the statement of profit and loss, on a straight-line or other systematic basis over the lease term.

(ii) Finance: Leased assets acquired on which significant risks and rewards of ownership effectively transferred to the Company are capitalized at lower of fair value and the brsent value of minimum lease payments. Such assets are debrciated / amortized over the period of lease or estimated life of such assets, whichever is less.

2. The Company's significant leasing arrangements, other than land, are in respect of residential flats, office brmises, plant and machinery and equipment taken on lease. The arrangements range between 11 months and 10 years generally and are usually renewable by mutual consent on mutually agreeable terms. Under these arrangements, generally refundable interest free deposits have been given. The Company has not entered into any material financial lease. The Company does not have any non-cancellable lease.

3. Segment reporting

The Company's primary business segment is Generation, Transmission and Distribution of Electricity. Based on the guiding principles given in Accounting Standard on "Segment Reporting" (AS-17), this activity falls within a single primary business segment and accordingly the disclosure requirements of AS-17 in this regard are not applicable. The Company's Cables business, in terms of revenue, results and assets employed, is not a reportable segment as per AS-17

4. Exceptional items

During brvious year (FY 2014-15) the Company has issued a sale order for the retired 100 MW Gas-based Combined Cycle Power Plant located at Vatva, Ahmedabad and consequently the difference of Rs.22.99 Crore between net book value of fixed assets and the sale value of the same has been disclosed as an 'Exceptional items' in the brvious year.

On reassessment of the realizable value, additional amount of Rs.741 Crore has been written off during the year and the same has been disclosed as 'Exceptional items'.

5. capitalization of exchange differences

The Ministry of Corporate Affairs (MCA) has issued the amendment dated 29th December, 2011 to Accounting Standard -11 "The Effects of Changes in Foreign Exchange Rates" (AS-11), to allow companies, deferral / capitalization of exchange differences arising on long-term foreign currency monetary items.

In accordance with the amendment to AS-11, the company has capitalized exchange loss, arising on long-term foreign currency loan / capital liability, amounting to Rs.22.10 Crore (Previous year - Rs.5.54 Crore) to the cost of capital work in progress / plant and equipments.

6. In the context of:

1. Change in the Central Electricity Regulatory Commission (CERC) Regulations emphasizing Plant Load Factor (PLF) as against Plant Availability Factor (PAF) for performance incentive which has impacted the financial results.

2. Deferment of periodic maintenance due to variation in operations and to have charge per unit aligned with the underlying contract;

the Company has changed the basis similarly to PLF for charging operational and maintenance expenses for supply and service agreements from the date of commencement of the contract. Consequently, the aggregate provision of 7273.02 Crore has been reversed during the current year and credited under the head 'Other operating income.

7.  Details of loans given, investments made and guarantee given covered u/s 186 (4) of the Companies Act, 2013 are given under the respective heads.

8. Subject to note 26 above, the figures for the brvious year have been regrouped / reclassified, wherever necessary, to make them comparable with the figures for the current year.

Figures are rounded off to nearest lakh. Figures below Rs.50,000 are denoted by ‘*’.

In terms of our report attached

For Deloitte Haskins & Sells

Chartered Accountants

Hemendra L. Shah

Partner

For and on behalf of the Board of Directors

Sudhir Mehta Chairman DIN: 00061871

T P Vijayasarathy Executive Director - Corporate Affairs & CFO

Darshan SoniCompany Secretary

Ahmedabad, 18th May, 2016