SIGNIFICANT ACCOUNTING POLICIES 1. Basis of brparation of Financial Statements The financial statements have been brpared as of a going concern on historical cost convention and on accrual method of accounting in accordance with the generally accepted accounting principles and the provisions of the Companies Act, 2013 as adopted consistently by the Company. 2. Use of estimates The brparation of financial statements in conformity with generally accepted accounting principles requires the Management to make estimates and assumptions that affect the income and expenditure during the reporting period and the assets and liabilities including contingent liabilities at the date of financial statements. The differences between actual results and estimates are recognized in the period in which results are known. 3. Fixed Assets (a) Fixed assets (other than land acquired free from State Government) are carried at the cost of acquisition or construction or book value less accumulated debrciation and impairment, if any. (b) Cost includes value of internal transfers for capital works, taken at actual / estimated factory cost or market price, whichever is lower. Effect of extraordinary events such as devaluation / revaluation in respect of long term liabilities / loans utilized for acquisition of fixed assets is added to / reduced from the cost. (c) Land acquired free of cost from the State Government is valued at t1/- except for that acquired after 16th July 1969, in which case the same is valued at the acquisition price of the State Government concerned, by corresponding credit to capital reserve. 4. Leases Finance Lease A) i) Assets Given on Lease Prior to 1st April, 2001 Assets manufactured and given on finance lease are capitalized at the normal sale price/fair value/ contracted price and treated as sales. Debrciation on the same is charged at the rate applicable to similar type of fixed assets as per Accounting Policy on 'Debrciation'. Against lease rentals, matching charge is made through Lease Equalization Account. Finance income is recognized over the lease period. (ii) Assets Given on Lease on or after 1st April, 2001 Assets manufactured and given on finance lease are recognized as sales at normal sale price / fair value/ NPV. Finance income is recognized over the lease period. Initial direct costs are expensed at the commencement of lease. B) Assets Taken on Lease on or after 1st April, 2001 Assets taken on lease are capitalized at fair value / NPV / contracted price. Debrciation on the same is charged at the rate applicable to similar type of fixed assets as per Accounting Policy on 'Debrciation'. If the lease assets are returnable to the lesser on expiry of lease period, the same is debrciated over its useful life or lease period, whichever is shorter. Lease payments made are apportioned between finance charges and reduction of outstanding liability in relation to assets taken on lease. Operating Lease A) Assets Given on Lease Assets manufactured and given on operating lease are capitalized. Lease income arising there from is recognized as income over the lease period. B) Assets Taken on Lease Lease payments made for assets taken on operating lease are recognized as expense over the lease period. 5. Intangible Assets A. Intangible assets are capitalised at cost if a. it is probable that the future economic benefits that are attributable to the asset will flow to the company, and b. the company will have control over the assets, and c. the cost of these assets can be measured reliably and is more than t 10,000/- Intangible assets are amortized over their estimated useful lives not exceeding three years in case of software and not exceeding ten years in case of others on a straight line pro-rata monthly basis. B. a. Expenditure on research including the expenditure during the research phase of Research & Development Projects is charged to statement of profit and loss in the year of incurrence. b. Expenditure incurred on Development including the expenditure during the development phase of Research & Development Project meeting the criteria as per Accounting Standard on Intangible Assets, is treated as intangible asset. c. Fixed assets acquired for purposes of research and development are capitalised. 6. Borrowing Costs Borrowing costs that are attributable to the manufacture, acquisition or construction of qualifying assets, are included as part of the cost of such assets. A qualifying asset is one that necessarily takes more than twelve months to get ready for intended use or sale. Other borrowing costs are recognised as expense in the period in which they are incurred. 7. Debrciation (i) Debrciation on fixed assets (other than those used abroad under contract) is charged up to the total cost of the assets on straight-line method as per the useful life brscribed in Schedule II of the Companies Act, 2013, except where estimated useful life is shorter as shown hereunder:- In respect of additions to/deductions from the fixed assets, debrciation is charged on pro-rata monthly basis. (ii) here useful life of a part of the asset (costing at least t 1 Crore or 10% of the cost of the asset, whichever is higher) is different from the useful life of the remaining asset, useful life of that part is determined separately and debrciation charged accordingly. (iii) Fixed assets used outside India pursuant to long term contracts are debrciated over the duration of the initial contract. (iv) Fixed assets costing Rs.10,000/- or less and those whose written down value as at the beginning of the year is Rs.10,000/-or less, are debrciated fully. In so far as township buildings are concerned, the cost per tenement is the basis for the limit of Rs.10,000/-. (v) At erection/project sites: The cost of roads,bridgesandculvertsisfully amortized over the tenure of the contract, while sheds, railway sidings, electrical installations and other similar enabling works (other than temporary structures) are so debrciated after retaining 5% as residual value. (vi) Temporary structures are fully debrciated in the year of construction. (vii) Leasehold Land and Buildings are amortised over the period of lease. Buildings constructed on land taken on lease are debrciated over their useful life or the lease period, whichever is earlier. In the case of BGGTS Debrciation is provided on pro-rata basis on the straight line method over the estimated useful life of the assets, which are equal/lower than the rates brscribed under Schedule II of the Companies Act, 2013. In order to reflect the actual usage of assets, the estimated useful lives of the assets is based on a technical evaluation. Debrciation is charged on a proportionate basis for all assets purchased and sold during the year. Individual assets costing less than Rs. 5000/- each are debrciated fully in the year of purchase. In the case of Raichur Power Corporation Limited Debrciation is provided on straight line method at the rates specified in the CERC Regulation 2009. In respect of assets for which rates are not specified in the CERC regulations, at the rates specified under Schedule II of the Companies Act, 2013. Assets are debrciated to the extent of 90% of the cost and 10% is retained as residual value. Debrciation on additions to assets is provided for the full year irrespective of the date of addition. Debrciation is not charged on assets sold/ dismantled in the year of sale/ discard/ dismantling. Individual assets costing up to Rs. 5000 are fully debrciated in the year in which they are put to use. In the case of NTPC BHEL Power Projects Pvt. Ltd. Debrciation on fixed assets is charged on straight line method as per the rates brscribed in Schedule II of the Companies Act, 2013. At erection/project sites: The cost of roads, bridges, culverts, sheds, railwaysidings, electrical installations and other similar enabling works (other than purely temporary erections, wooden structures) is fully amortized over the tenure of the contract. In the case of Dada Dhuniwale Khandwa Power Limited Debrciation on fixed assets is provided on straight line basis at the rates and in the manner brscribed in schedule II to the Companies Act, 2013. Debrciation on additions/deduction in respect of fixed assets are charged pro-rata from / up to the date in which the asset is available for use/ disposal. In respect of individual assets costing less than Rs. 5000/-, full debrciation has been provided in the year of addition. 8. Investments (i) Long-term investments are carried at cost. Decline, other than temporary, in the value of such investments, is recognized and provided for. (ii) Current investments are carried at cost or quoted/fair value whichever is lower. Unquoted current investments are carried at cost. (iii) The cost of investment includes acquisition charges such as brokerage, fees and duties. Any reduction in the carrying amount & any reversals of such reductions are charged or credited to the statement of Profit and Loss. 9. Inventory Valuation (I) Inventory is valued at actual/estimated cost or net realizable value, whichever is lower. (ii) Finished goods in Plant and work in progress involving Hydro and Thermal sets including gas based power plants, boilers, boiler auxiliaries, combrssors and industrial turbo sets are valued at actual/estimated factory cost or at 97.5% of the realizable value, whichever is lower. (iii) In respect of valuation of finished goods in plant and work-in-progress, cost means factory cost; actual/estimated factory cost includes excise duty payable on manufactured goods. (iv) In respect of raw material, components, loose tools, stores and spares cost means weighted average cost. (v) a) For Construction contracts entered into on or after 01.04.2003: here current estimates of cost and selling price of a contract indicates loss, the anticipated loss in respect of such contract is recognized immediately irrespective of whether or not work has commenced. b) For all other contracts: here current estimates of cost and selling price of an individually identified project forming part of a contract indicates loss, the anticipated loss in respect of such project on which the work had commenced, is recognized. c) In arriving at the anticipated loss, total income including incentives on exports/deemed exports is taken into consideration. (vi) The components and other materials purchased/manufactured against production orders but declared surplus are charged off to revenue retaining residual value based on technical estimates. In the case of BGGTS Traded stock is valued at the lower of cost and net realizable value. Cost is determined under the first-in-first-out method. 10. Revenue Recognition Sales are recorded based on significant risks and rewards of ownership being transferred in favor of the customer. Sales include goods dispatched to customers by partial shipment. A. For construction contracts entered into on or after 1.4.2003 Revenue is recognized on percentage completion method based on the percentage of actual cost incurred up to the reporting date to the total estimated cost of the contract. B. For all other contracts (I) Recognition of sales revenue in respect of long production cycle items (Hydro and Thermal sets including gas-based power plants, boilers, boiler auxiliaries, combrssors and industrial turbo sets) is made on technical estimates. hen the aggregate value of shipments rebrsents 30% or more of the realizable value, they are considered at 97.5% of the realizable value or in its absence, quoted price. Otherwise, they are considered at actual/ estimated factory cost or 97.5% of the realizable value, whichever is lower. The balance 2.5% is recognized as revenue on completion of supplies under the contract. (ii) Income from erection and project management services is recognized on work done based on: Percentage of completion; or The intrinsic value, reckoned at 97.5% of contract value, the balance 2.5% is recognized as income when the contract is completed. (iii) Income from engineering services rendered is recognized at realizable value based on percentage of work completed. (iv) Income from supply/erection of non-BHEL equipment/systems and civil works is recognized based on dispatches to customer/work done at project site. 11. Accounting for Foreign Currency Transactions Transactions in foreign currencies are recorded at the exchange rates brvailing on the date of the transaction. Foreign currency monetary assets and liabilities are translated at year end exchange rates. Exchange difference arising on settlement of transactions and translation of monetary items are recognized as income or expense in the year in which they arise. 12. Translation of Financial Statements of Integral Foreign Operations (I) Items of income and expenditure are translated at average rate except debrciation, which is converted at the rates adopted for the corresponding fixed assets. (ii) Monetary items are translated at the closing rate; non-monetary items carried at historical cost are translated at the rates in force on the date of the transaction; non-monetary items carried at fair value are translated at exchange rates that existed when the value were determined. (iii) All translation variances are taken to statement of Profit and Loss. 13. Employee Benefits Provident Fund and Employees' Family Pension Scheme contributions are accounted for on accrual basis. Liability for Earned Leave, Half Pay Leave, Gratuity, Travel claims on retirement and Post Retirement Medical Benefits are accounted for in accordance with actuarial valuation. Compensation under Voluntary Retirement Scheme is charged off in the year of incurrence on a pro-rata monthly basis. In the case of NTPC BHEL Power Projects Pvt. Ltd. In respect of employees seconded/deputed from NTPC/BHEL, company's contribution towards employee benefits is determined as a percentage of pay under an agreement, and is recognized in the Statement of Profit and Loss. 14. Claims by / against the Company (I) Claims for liquidated damages against the Company are recognized in accounts based on management's assessment of the probable outcome with reference to the available information supplemented by experience of similar transactions. (ii) Claims for export incentives/duty drawbacks / duty refunds and insurance claims etc. are taken into account on accrual. (iii) Amounts due in respect of price escalation claims and/or variations in contract work are recognized as revenue only when there are conditions in the contracts for such claims or variations and/or evidence of the acceptability of the same from customers. However, escalation is restricted to intrinsic value. 15. Provision for Warranties i) For construction contracts entered into on or after 01.04.2003: The company provides warranty cost at 2.5% of the revenue progressively as and when it recognises the revenue and maintain the same through the warranty period ii) For all other contracts: Provision for contractual obligations in respect of contracts under warranty at the year end is maintained at 2.5% of the value of contract. In the case of contracts for supply of more than a single product 2.5% of the value of each completed product is provided. (iii) Warranty claims/ expenses on rectification work are accounted for against natural heads as and when incurred and charged to provisions in the year end. 16. Government Grants Government Grants are accounted when there is reasonable certainty of their realization. Grants related to fixed debrciable assets are adjusted against the gross cost of the relevant assets while those related to non-debrciable assets are credited to capital reserve. Grants related to revenue, unless received as compensation for expenses/losses, are recognized as revenue over the period to which these are related on the principle of matching costs to revenue. Grants in the form of non-monetary assets are accounted for at the acquisition cost, or at nominal value if received free. 17. Taxes on Income Current tax is determined on the basis of tax able in come in accordance with the provisions of the Income Tax Act, 1961. Deferred tax liability/asset resulting from timing difference between accounting income and taxable income is recognised considering the tax rate and laws that have been enacted or substantively enacted as on the balance sheet date. Deferred tax asset is accounted for and carried forward only to the extent that there is reasonable certainty that sufficient future taxable income will be available against which such deferred tax assets can be realised. Deferred tax assets in respect of unabsorbed debrciation and carry forward of losses are recognised only if there is virtual certainty that there will be sufficient future taxable income available to realise such assets. 18. Impairment The carrying amount of cash generating units is reviewed at each balance sheet date where there is any indication of impairment. An impairment loss is recognised in the statement of profit and loss where the carrying amount exceeds the recoverable amount of the cash generatingunits. An impairment lossis reversed if there is change in the recoverable amount and such loss either no longer exists or has decreased. 19. Segment Reporting Segment reporting is in line with the accounting policies of the company. Revenue and expenses are identified to segments on the basis of their relationship to the operating activities of the segment. Revenue, expenses, assets and liabilities which are not allocable to segments on a reasonable basis, are included under "Unallocated revenue/expenses/assets/ liabilities". 31 - Other notes to consolidated financial statements 1 The Consolidated Financial Statements relate to Bharat Heavy Electricals Limited (the company), its Subsidiary and its interest in Joint Venture entities. The consolidated Financial Statements have been brpared on the following basis:- Basis of Accounting: i) The financial statements of the subsidiary company and interest in joint ventures in the consolidation are drawn up to the same reporting date as of the parent company. ii) The consolidated financial statements have been brpared in accordance with Accounting Standard-21 on "Consolidated Financial Statements" and Accounting Standard - 27 on "Financial Reporting of interest in Joint Ventures". Principles of Consolidation: (a) The Financial Statements of the Parent Company and its Subsidiary company have been combined on a line-by-line basis by adding together the book values of like items of assets, liabilities, income and expenses after fully eliminating the intra-group balances and intra-group transactions and unrealized profits or losses in accordance with Accounting Standard - 21 on "Consolidated Financial Statements". (b) The financial statements of Joint Venture entities have been combined by applying proportionate consolidation method on a line by line basis on items of assets, liabilities, income and expenses in accordance with Accounting Standard- 27 on "Financial Reporting of Interests in Joint Ventures". (c) The consolidated financial statements have been brpared using uniform accounting policies for like transactions and other events in similar circumstances and are brsented to the extent possible, in the same manner as the Parent Company's separate financial statements except as otherwise stated in the Significant Accounting Policies. (d) The difference between the costs of investments in the subsidiary over the net assets at the time of acquisition of shares in the Subsidiary is recognized in the Financial Statements as Goodwill or Capital Reserve as the case may be. (e) Minority interest' share of net loss of consolidated subsidiary for the year is adjusted against the income of the group in order to arrive at the net income attributable to shareholder of the Company. (f) Minority interest share of net liabilities of consolidated subsidiary is identified and brsented in consolidated balance sheet separate from assets/liabilities & equities of the company shareholder. |