1. CASH AND CASH EQUIVALENTS
Cash and cash equivalent in the balance sheet comprise cash at banks and on hand and short-term deposits with an original maturity of three months or less, which are subject to an insignificant risk of changes in value.
2. CASH FLOW STATEMENT
Cash flow statement are reported using the indirect method, whereby net profit or loss is adjusted for the effects of transactions of a non-cash nature, any deferrals or accruals of past or future operating cash receipts or payments, and items of income or expense associated with investing or financing cash flows.
Note -3: SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS
The preparation of the company''''s financial statements requires management to make judgments, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, the accompanying disclosures, and the disclosure of contingent liabilities. Uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of assets or liabilities affected in future periods.
In the process of applying the company''''s accounting policies, management has made the following judgments, which have the most significant effect on the amounts recognized in the standalone financial statements:
Contingent liabilities may arise from the ordinary course of business in relation to claims against the Company, including legal, contractor, land access and other claims. By their nature, contingencies will be resolved only when one or more uncertain future events occur or fail to occur. The assessment of the existence and potential quantum of contingencies inherently involves the exercise of significant judgment and the use of estimates regarding the outcome of future events
Refer Note no. 33 for details of Contingent Liabilities
ESTIMATES AND ASSUMPTIONS
The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year. Existing circumstances and assumptions about future developments, however, may change due to market changes or circumstances arising that are beyond the control of the company. Such changes are reflected in the assumptions when they occur.
Impairment of non-financial assets
Impairment exists when the carrying value of an asset or cash generating unit exceeds its recoverable amount, which is the higher of its fair value less costs of disposal and its value in use. The fair value less cost of disposal used to determine the recoverable amounts of the impaired assets are not based on observable market data, rather, management''''s best estimates.
The value in use calculation is based on a DCF model. The cash flows do not include impact of significant future investments that may enhance the asset''''s performance of the CGU being tested. The results of impairment test are sensitive to changes in key judgments, such as changes in commodity prices, future changes in alternate use of assets etc, which could result in increase or decrease of the recoverable amounts and result in additional impairment charges or recovery of impairment charged.
Refer Note 43.2 on impairment recognized during the year.
Deferred tax assets are recognized for unused tax losses to the extent that it is probable that taxable profit will be available against which the losses can be utilized. The net tax expense has been arrived at after considering deferred tax liability and Credit for Minimum Alternate Tax (including credits available in the previous year), considering the availability of MAT credit for utilization against the future year''''s tax liability. Significant management judgment is required to determine the amount of deferred tax assets that can be recognized, based upon the likely timing and the level of future taxable profits together with future tax planning strategies.
Refer Note 7 on Taxes
Defined benefit plans
The cost of the defined benefit gratuity plan and other post-employment medical benefits and the present value of the gratuity obligation are determined using actuarial valuations. An actuarial valuation involves making various assumptions that may differ from actual developments in the future. These include the determination of the discount rate, future salary increases and mortality rates. Due to the complexities involved in the valuation and its long-term nature, a defined benefit obligation is highly sensitive to changes in these assumptions. All assumptions are reviewed at each reporting date.
The parameter, which is most subject to change is the discount rate. In determining the appropriate discount rate for plans operated in India, the management considers the interest rates of government securities of relatable maturity.
The mortality rate is based on publicly available mortality tables which tend to change only at interval in response to demographic changes. Future salary increases and gratuity increases are based on expected future inflation rates.
Further details about gratuity obligations are given in Note 32.
(i) Includes receivables from Indian Oil Corporation Ltd., the holding company - Rs,89104.45 Lakhs (2016: Rs,61334.93 Lakhs; 2015: Rs,161885.99 Lakhs) and receivables from Indian Additives Limited., Joint Venture Company - Rs,393.85 Lakhs(2016: Rs,485.25 Lakhs ; 2015: Rs,401.10 Lakhs). For Terms & Conditions relating to Related Party transactions. Refer note 34
(ii) Represents dues for which mortgage and first charge on Fixed asset is in favour of the company to the extent of Rs,10000 Lakhs (2016: Rs,10000 Lakhs; 2015: Rs,10000 Lakhs)
(i) As per the Formation Agreement entered into between the promoters, an offer is to be made to the Naftiran Intertrade Company Limited (NICO), an affiliate of National Iranian Oil Company (NIOC) in any issue of the Capital in proportion to the shares held by them at the time of such issue to enable them to maintain their shareholding at the existing percentage.
(ii) Based on special resolution passed by the shareholders through postal ballot on 16.07.2015, the company has allotted 100 Crore Non Convertible Cumulative Redeemable Preference Shares of 0 each for cash at par amounting to Rs,1000 Crore to Indian Oil Corporation Ltd, the holding company on private placement preferential allotment basis on 24.09.2015 after receipt of full subscription amount.
Preference Shares classified as financial liability (long term borrowing) as per Ind AS 32 - Refer note -15(11) (C) and note (ii) thereon
C. Non Convertible Cumulative Redeemable Preference Shares
Preference Share is treated as financial liability as per Ind AS 32, as these are redeemable on maturity for a fixed determinable amount and carry fixed rate of dividend.
(i) Rights, preferences and restrictions attached to Preference shares:
The Company has one class of preference shares i.e. Non-Convertible Cumulative Redeemable Preference Shares (NCCRP Shares) ofRs, 10 per share.
(a) Such shares shall confer on the holders thereof, the right to preferential dividend from the date of allotment i.e., 24.09.2015
(b) Such shares shall rank for capital and dividend (including all dividend undeclared up to the commencement of winding up) and for repayment of capital in a winding up, pari passu inter se and in priority to the Ordinary Shares of the Company, but shall not confer any further or other right to participate either in profits or assets.
(c) The holders of such shares shall have the right to receive all notices of general meetings of the Company and have a right to vote only on resolution placed before the share holders which directly affect their rights attached to preference shares like winding up of company or repayment of preference shares etc.
(d) The tenure of the NCCRP Shares would be 10 years, with put and call option. Either the preference shareholder shall have right to exercise Put option or the Issuer shall have right to exercise Call option to redeem the preference shares, in whole or in part after the 5 years of the preference issue date. However, it is also agreed that Put & Call option before the 5 year period can be exercised by mutual consent of both the parties by giving 30 days notice.
(e) Dividend rate shall be equivalent to the Post tax yield of AAA rated corporate bond i.e. prevailing (at the time of issue) 10 year G-Sec yield plus spread on AAA rated corporate bond i.e., 6.65% p.a (reckoned forthe FY 2015-16). The coupon rate on preference share would be adjusted to reflect the subsequent changes in tax laws with the consent and approval of preference share holders by way of special resolution. Currently, the Effective interest rate inclusive of dividend distribution tax is 8.00%
A Pending the approval of shareholders, preference dividend has been provisionally accrued as finance cost. However, as per the Companies Act 2013, the preference shares is treated as part of share capital and the provisions of the Act relating to declaration of Preference Dividend at the end of the year would be applicable.
B There are no amounts due for payment to the Investor Education and Protection Fund as at the year end. Balance as at 31st March 2017 includes Rs, 917.32 Lakhs (2016: Rs, 3210.61 Lakhs; 2015: Rs,3210.61 Lakhs) of unpaid dividend to Naftiran Inter trade company Limited (NICO) for the financial year ending 2016 which could not be remitted due to restrictions in banking channels arising out of sanctions imposed by US / European Union against Iran
A With regard to disclosure requirements under the provisions of section 22 of Micro, Small and Medium Enterprises Development Act, 2006, the company has carried out the same based on the confirmation received from its suppliers.
No interest amount remains unpaid to such Micro and Small enterprises as on 31 March 2017 and no payments were made to such enterprises beyond the "appointed day" during the year. Also, the company has not paid any interest in terms of section 16 of the above mentioned act or otherwise.
B Represents dues to Indian Oil Corporation Ltd., the holding company Rs, 114882.02 Lakhs (2016: Rs,175764.32 Lakhs; 2015: Rs,198087.31 Lakhs) and IOT Infrastructure and Energy Services Limited Rs, 107.81 Lakhs (2016: Rs,183.24 Lakhs; 2015: Rs,96.01 Lakhs)
A Represents Dividends received from Indian Additives Limited (Non-Current Investments in Joint Ventures) B Includes Income from Petroleum India International Rs, 93.58 Lakhs (2016: Rs, 78.55 Lakhs)
A Miscellaneous Expenses Includes:
Expenditure on Public Relations and Publicity amounting to Rs,372.6 Lakhs (2016 : Rs,281.24 Lakhs). The ratio of annual expenditure on Public Relations and Publicity to the annual turnover (inclusive of excise duty) is 0.00009:1 (2016: 0.00008:1).
Entertainment Expenses Rs,29.43 Lakhs (2016: Rs,21.22 Lakhs).
Note - 4 EMPLOYEE BENEFITS
Disclosures in compliance with Ind AS 19 on "Employee Benefits" is as under
A. Defined Contribution Plans- General Description Pension Scheme:
During the year, the company has recognized Rs,2286.41 Lakhs (2016: Rs,2108.82 Lakhs) towards Defined Contributory Employees Pension Scheme in the Statement of Profit and Loss/ CWIP (included in Contribution to Provident & Other Funds in Note - 25/ Construction period expenses in Note-2.1)
B. Defined Benefit Plans- General Description
1. Provident Fund:
The Company''''s contribution to the Provident Fund is remitted to separate provident fund trust established for this purpose based on a fixed percentage of the eligible employee''''s salary and charged to Statement of Profit and Loss. Shortfall, if any, in the fund assets, based on the Government specified minimum rate of return, will be made good by the Company. The Provident Funds maintained by the PF Trust in respect of which actuarial valuation is carried out does not have any deficit as on 31st March 2017.
During the year, the company has recognized Rs, 234.04 lakhs (2016: Rs, 227.88 lakhs) as contribution to EPS-95 in the Statement of Profit and Loss / CWIP (included in Contribution to Provident and Other Funds in Note - 25/ Construction period expenses in Note-2.1)
Each employee rendering continuous service of 5 years or more is entitled to receive gratuity amount equal to 15/26 of the eligible salary for every completed year of service subject to a maximum of Rs, 10 lakhs at the time of separation from the company.
3. Post Retirement Medical Scheme (PRMS):
PRMS provides medical benefit to retired employees and eligible dependant family members.
C. Other Long-Term Employee Benefits - General Description
5. Leave Encashment:
Each employee is entitled to get 8 earned leaves for each completed quarter of service. Encashment of earned leaves is allowed during service leaving a minimum balance of 15 days subject to maximum accumulation up to 300 days. In addition, each employee is entitled to get 5 sick leaves at the end of every six months. The entire accumulation of sick leaves is permitted for encashment only at the time of retirement.
6. Long Service Award:
On completion of specified period of service with the company and also at the time of retirement, employees are rewarded with Prepaid Card as per eligibility, based on the duration of service completed.
Operating lease - as lessee
The company has taken certain assets (including office/residential premises/Land) on Operating Lease which are cancellable by giving appropriate notice as per the respective agreements. During the year Rs,2063.92 Lakh (2016: Rs,2521.47 Lakh) had been paid towards cancellable Operating Lease.
B Disclosure under Finance Lease as Lessee:
The company has entered into BOOT arrangement with IOT Infrastructure & Energy Services Limited in respect of LPG Bottling facilities for a period of 10 years. Lessor will transfer ownership to the company after 10 years at Nil Value
C Contingent Liabilities
Contingent Liabilities amounting toRs,65184.02 Lakhs (2016:763045.40 Lakhs; 2015:738669.59 Lakhs) are as under
(i) 7539.66 Lakhs (2016: 7514.28 Lakhs; 2015: Rs,619.54 Lakhs) being the demands raised by the Central Excise /Customs/ Service Tax Authorities including interest of 7189.74 Lakhs (2016: 7182.76 Lakhs; 2015: 7257.02 Lakhs).
(ii) 750592.22 Lakhs (2016:748632.59 Lakhs; 2015:727028.27 Lakhs) being the demands raised by the VAT/ Sales Tax Authorities and includes no interest (2016; Nil, 2015; Nil).
(iii) 710002.51 Lakhs (2016: 79414.81 Lakhs; 2015: 77075.98 Lakhs) in respect of Income Tax demands including interest of 72582.58 Lakhs (2016:71994.87 Lakhs; 2015:7795.08 Lakhs).
(iv) 74049.63 Lakhs (2016:74483.72 Lakhs; 2015:73945.80 Lakhs) including 72241.64 Lakhs (2016:72219.59 Lakhs; 2015:71713.94 Lakhs) on account of Projects for which suits have been filed in the Courts or cases are lying with Arbitrator. This includes interest of 7827.75 Lakhs (2016:7784.43 Lakhs; 2015:7692.78 Lakhs).
The Company has not considered those disputed demands/claims as contingent liabilities, for which, the outflow of resources has been considered as remote.
(i) Capital Commitments
Estimated amount of contracts remaining to be executed on Capital Account not provided for 782208.01 Lakhs (2016: 7154579.73 Lakhs; 2015:7249455.02 Lakhs).
(ii) Other Commitments
The Company has an export obligation to the extent of759057.65 Lakhs (2016:745190.62 Lakhs; 2015:712881.18 Lakhs) on account of concessional rate of customs duty availed under EPCG license scheme on import of capital goods.
F. Other Government related entities where significant transactions were carried out i) Details of Entities
1) Oil & Natural Gas Corporation Limited
2) Madras Fertilizers Limited
3) GAIL (India) Limited
4) Bharat Petroleum Corporation Limited
5) Hindustan Petroleum Corporation Limited
6) Shipping Corporation of India Limited
7) Engineers India Limited
8) Bharat Heavy Electricals Limited
9) Bridge & Roof Co. (India) Ltd
2) Key Managerial Personnel
A. Whole Time Directors / Company Secretary B. Independent / Government Nominee Directors
1) Shri B.Ashok 1) Shri K.M.Mahesh
2) Shri Sanjiv Singh 2) Shri Mrutunjay Sahoo (w.e.f 23.02.2017)
3) Shri Gautam Roy 3) Dr. P.B.Lohiya (w.e.f 23.02.2017)
4) Shri S.Venkataramana 4) Shri G.Ramaswamy (Upto 08.10.2016)
5) Shri U.Venkataramana
6) Shri S.Krishna Prasad
7) Shri Yasin Rezazadeh (Upto 23.01.2017)
8) Shri Ali Zamani (Upto 23.02.2017)
9) Shri Mohammad Bagher Dakhili (w.e.f 23.01.2017)
10) Shri Farzad Bahrami (w.e.f 23.02.2017)
11) Shri P.Shankar
1. Levels under Fair Value measurement hierarchy are as follows:
a) Level 1 items fair valuation is based upon market price quotation at each reporting date
b) Level 2 items fair valuation is based upon Significant observable inputs like PV of future cash flows, MTM valuation, etc.
c) Level 3 items fair valuation is based upon Significant unobservable inputs wherein valuation done by independent valuer.
2. The management assessed that Trade Receivables, Cash and Cash Equivalents, Bank Balances, Deposit for Leave Encashment Fund, Recoverable from Employee Benefits Trusts, Other Non-derivative Current Financial Assets, Short-term Borrowing, Trade Payables, Floating Rate Loans and Other Non-derivative Current Financial Liabilities approximate their carrying amounts largely due to the short-term maturities of these instruments.
3. The fair value of the financial assets and liabilities is included at the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale.
Methods and assumptions
The following methods and assumptions were used to estimate the fair values at the reporting date:
Level 2 Hierarchy:
(i) Derivative instruments at fair value through profit or loss viz. Foreign exchange forward contracts: Replacement cost quoted by institutions for similar instruments by employing use of market observable inputs are considered .
(ii) Loans to employees. Loan to related parties. Security deposits paid and Security deposits received: Discounting future cash flows using rates currently available for items on similar terms, credit risk and remaining maturities
(iii) Finance lease obligation: For obligation arrived based on IRR, implicit rate applicable on the reporting date and for obligation arrived based on incremental borrowing rate, applicable rate for remaining maturity.
(iv) Term Loans from Banks - In Foreign Currency: Discounting future cash flows using rates currently available for items on similar terms, credit risk and remaining maturities (Excluding floating rate borrowings)
(v) Non Convertible Redeemable Preference shares: The fair value of Preference shares is estimated by discounting future cash flows.
Note - 7 : FINANCIAL INSTRUMENTS AND RISK FACTORS Financial Risk Factors
The Company''''s principal financial liabilities, other than derivatives, comprise borrowings, trade and other payables, security deposits, employee liabilities and finance lease obligation. The main purpose of these financial liabilities is to finance the Company''''s operations and to support its operations. The Company''''s principal financial assets include loans & advances, trade and other receivables, short-term deposits and cash / cash equivalents that derive directly from its operations. The company''''s requirement of crude oil imports are canalized through its holding company, Indian Oil Corporation Limited. The derivative activities for risk management purposes are carried out by specialist teams that have the appropriate skills, experience and supervision. It is the Company''''s policy that trading in derivatives are taken only to hedge the various risks that the company is exposed to and not for speculation purpose.
To ensure alignment of Risk Management system with the corporate and operational objective and to improve upon the existing procedure, the Executive Committee of the company constituted a Committee comprising of officials from various functional areas to identify the risks in the present context, prioritize them and formulate proper action plan for implementation. The Committee has formulated the Risk Management Policy. The Action Taken Report on the Risk Management Policy for the year 2015-16 was reviewed by the Audit Committee and Board at the Meeting held on 22.05.2016 and 23.05.2016 respectively and the Report for the year 2016-17 has been reviewed by the Audit Committee and Board at the Meeting held on 15.05.2017.
The Board of Directors oversees the risk management activities for managing each of these risks, which are summarized below:
Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. The major components of market risk are interest rate risk, foreign currency risk, commodity price risk and other price risks etc. Financial instruments affected by market risk include Borrowings, Deposits, FVTOCI investments and derivative financial instruments.
The sensitivity analyses in the following sections relate to the position as at 31st March 2017 and 31st March 2016.
The analyses exclude the impact of movements in market variables on the carrying values of gratuity and other post-retirement obligations, provisions, and other non-financial assets and liabilities of foreign operations.
The following assumptions have been made in calculating the sensitivity analyses:
- The sensitivity of the relevant profit or loss item is the effect of the assumed changes in respective market risks. This is based on the financial assets and financial liabilities held at 31st March 2017 and 31st March 2016 including the effect of hedge accounting.
- The sensitivity analysis have been prepared on the basis that the amount of net debt, the ratio of fixed to floating interest rates of the debt and derivatives and the proportion of financial instruments in foreign currencies are all constant as at 31st March 2017.
Interest rate risk
The Company is also exposed to interest rate risk from the possibility that changes in interest rates will affect future cash flows of a financial instrument, principally financial debt. The Company''''s exposure to the risk of changes in market interest rates relates primarily to the Company''''s long-term debt obligations with floating interest rates.
The Company''''s interest rate risk management includes to maintain a mix between fixed and floating rates for rupee and foreign currency loans, based on liquidity, availability of cost effective instruments and considering the market/ regulatory constraints. As at 31st March 2017, approximately 93% of the Company''''s borrowings are at a fixed rate of interest (31st March 2016:100%, 1st April 2015:100%).
The assumed movement in basis points for the interest rate sensitivity analysis is based on the currently observable market environment, showing a significantly higher volatility than in prior years
Foreign currency risk
Foreign currency risk is the risk that the fair value or future cash flows of an exposure will fluctuate because of changes in foreign exchange rates. The Company''''s exposure to the risk of changes in foreign exchange rates relates primarily to the Company''''s operating activities (when revenue or expense is denominated in a foreign currency) and Borrowings.
The Company manages its foreign currency risk through combination of natural hedge, hedging undertaken on occurrence of pre-determined triggers as per the Risk management policy. The hedging is undertaken through forward contracts.
The Company has outstanding forward contract of X NIL Lakhs as at 31st March 2017 (31st March 2016: Rs, 44328.29 Lakhs, 1 st April 2015: Nil Lakhs) which has been undertaken to hedge its exposure to borrowings and other financial liabilities.
The sensitivity to a reasonably possible change in USD exchange rates, with all other variables held constant and the impact on the Company''''s profit before tax due to changes in the fair value of monetary assets and liabilities is tabulated below. The Company''''s exposure to foreign currency changes for all other currencies is not material.
The effects of most exchange rate fluctuations are absorbed in business operating results which are offset by changing cost competitiveness, lags in market adjustments to movements in rates to its other non-financial assets like inventory etc. For this reason, the total effect of exchange rate fluctuations is not identifiable separately in the company''''s reported results.
Credit risk Trade receivables
Customer credit risk is managed according to the Company''''s policy, procedures and control relating to customer credit risk management. Outstanding customer receivables are regularly monitored. Transactions other than with oil marketing companies are either generally covered by Letters of Credit, Bank Guarantees or cash-and-carry basis.
Financial instruments and cash deposits
Credit risk from balances with banks and financial institutions is managed by the Company''''s treasury department in accordance with the Company''''s policy. Investments of surplus funds are made only with approved counterparties and within credit limits assigned to each counterparty so as to minimize concentration of risks and mitigate consequent financial loss.
The Company monitors its risk of shortage of funds using detailed cash flow projections which is monitored closely on daily basis. The Company seeks to manage its liquidity requirement by maintaining access to both short term and long term debt markets. In addition, Company has committed credit facilities from banks.
The Company''''s objective is to maintain a balance between continuity of funding and flexibility through the use of bank overdrafts, commercial papers, bank loans and debentures, and finance leases. The Company assessed the concentration of risk and concluded it to be low. The Company has access to a sufficient variety of sources of funding.
The table below summarizes the maturity profile of the Company''''s financial liabilities based on contractual undiscounted payments.
Excessive risk concentration
Substantial portion of the Company''''s sales is to the Holding Company, Indian Oil Corporation Limited. Consequently, trade receivables from IOCL are a significant proportion of the Company''''s receivables. Since the operations are synchronized with those of the Holding Company, for optimal results, the same does not present any risk.
As the Company has been rated investment grade by various rating agencies, there has been no requirement of submitting any collateral for booking of derivative contracts. The Company undertakes derivatives contract only with those counterparties that have credit rating above the internally approved threshold rating. Accordingly, the Company does not seek any collaterals from its counterparties.
Note - 8: CAPITAL MANAGEMENT
For the purpose of the Company''''s capital management, capital includes issued equity capital, share premium and all other equity reserves. The primary objective of the Company''''s capital management is to maximize the shareholder value.
The Company manages its capital structure and makes adjustments in light of changes in economic conditions and the requirements of the financial covenants. To maintain or adjust the capital structure, the Company may adjust the dividend payment to shareholders or issue new shares. The Company monitors capital using debt equity ratio, which is borrowings divided by Equity. The Company''''s strategy is to keep the debt equity ratio in the range of 2:1 and 1:1. The Company also includes accrued interest in the borrowings for the purpose of capital management.
In order to achieve this overall objective, the Company''''s capital management, amongst other things, aims to ensure that it meets financial covenants attached to the interest-bearing loans and borrowings that define capital structure requirements. Breaches in meeting the financial covenants would permit the bank to immediately call loans and borrowings. There have been no breaches in the financial covenants of any interest-bearing loans and borrowing in the current period.
No changes were made in the objectives, policies or processes for managing capital during the years ended 31st March 2017 and 31st March 2016.
Note - 9 : DISCLOSURES ON GOVERNMENT GRANTS Revenue Grant
1 Nature of grant Export Promotion Capital Goods (EPCG) scheme allows import of capital goods including spares at zero duty subject to fulfillment of an export obligation
Note 10 : EVENTS AFTER REPORTING PERIOD
The Board of Directors has recommended a dividend of 6.65% on the paid-up Preference Capital of the company, representing Rs, 0.665 per preference share and 210% on the paid-up Equity Capital of the company, representing Rs, 21 per equity share.
STANDALONE FINANCIAL STATEMENTS
Note - 11 : EXPOSURE TO FINANCIAL DERIVATIVES
Financial and Derivative Instruments:
1. All derivative contracts entered into by the Company are for hedging its foreign currency relating to underlying transactions and firm commitments and not for any speculative or trading purposes.
Note - 12 : FIRST-TIME ADOPTION OF IND AS
These financial statements, for the year ended 31 March 2017, are the first the Company has prepared in accordance with Ind AS. For periods up to and including the year ended 31 March 2016, the Company prepared its financial statements in accordance with accounting standards notified under section 133 of the Companies Act 2013, read together with paragraph 7 of the Companies (Accounts) Rules, 2014 (Indian GAAP).
Accordingly, the Company has prepared financial statements which comply with Ind AS applicable for periods ending on 31st March 2017, together with the comparative period data as at and for the year ended 31st March 2016, as described in the summary of significant accounting policies. In preparing these financial statements, the Company''''s opening balance sheet was prepared as at 1 st April 2015, the Company''''s date of transition to Ind AS. This note explains exemptions availed by the Company in restating its Indian GAAP financial statements, including the balance sheet as at 1 st April 2015 and the financial statements as at and for the year ended 31st March 2016.
1. Mandatory exceptions: a) Estimates
The estimates at 1 st April 2015 and at 31st March 2016 are consistent with those made for the same dates in accordance with Indian GAAP (after adjustments to reflect any differences in accounting policies) apart from the following items where application of Indian GAAP did not require estimation:
- FVTOCI - unquoted equity shares
Impairment of financial assets are made based on expected credit loss model
The estimates used by the Company to present these amounts in accordance with Ind AS reflect conditions at 1 st April 2015, the date of transition to Ind AS and as of 31st March 2016.
2. Optional exemptions;
A. Deemed cost-Previous GAAP carrying amount: (PPE and Intangible)
Since there is no change in the functional currency, the Company has elected to continue with the carrying value for all of Property, Plant and Equipment and Intangible Assets, as recognized in its Indian GAAP financial as deemed cost at the transition date.
B. Investment in Joint ventures and associates:
The Company has elected this exemption and opted to continue with the carrying value of investment in joint ventures, as recognized in its Indian GAAP financials, as deemed cost at the date of transition.
C. Designate of previously recognized financial instrument:
The Company has elected this exemption and opted to:
- Designate financial asset at FVTPL as per Ind AS 109 based on facts and circumstances as on transition date;
- Designate an investment in equity shares as FVOCI, as per Ind AS 109, based on facts and circumstances exist on transition date.
D. Classification and measurement of financial assets:
i. Financial Instruments: (Loan to employees. Security deposits received and paid):
Financial assets like loan to employees, security deposits received and security deposits paid, has been classified and measured at amortized cost on the basis of the facts and circumstances that exist at the date of transition to Ind ASs. Since, it is impracticable for the Company to apply retrospectively the effective interest method in Ind AS 109, the fair value of the financial asset or the financial liability at the date of transition to Ind As by applying amortized cost method, has been considered as the new gross carrying amount of that financial asset or the financial liability at the date of transition to Ind AS.
ii. Financial Instruments: (Equity shares other than investment in associates and JVs):
The Company has designated unquoted equity instruments held at 1 April 2015 as fair value through OCI investments.
E. Embedded Derivatives:
The Company has assessed whether an embedded derivative is required to be separated from the host contract and accounted for as a derivative on the basis of the conditions that existed at the later of the date it first became a party to the contract and the date of reassessment.
2 Details of impairment loss in respect of Cauvery Basin Refinery
The Company has refineries at two locations viz., Manali and Nagapattinam (Cauvery Basin Refinery). Consequent to implementation of BS- IV specifications on a pan India basis w.e.f 01.04.2017 and in the absence of secondary treatment facilities, the BS - III grade of diesel production from CBR would not marketable in the local market, entailing significant coastal/export under recoveries, which has adversely impacted the profitability of CBR and hence the value in use is negative. Accordingly, in line with the requirements of Ind AS -36, difference between the carrying value ofRs, 113.19 Cr and the recoverable value ofRs, 51.40 Cr has been accounted as impairment loss during the year. This impairment loss has been recognized as part of Depreciation, Depletion and Amortization of tangible and intangible assets in the statement of profit and loss as the carrying value of the assets is lower than the value in use/ estimated recoverable amount of this CGU.
In estimating the value in use, the approximate weighted average capital cost has been considered as the discount rate used to calculate the net present value of the estimated future cash flows, which are subject to changes in the external environment.
The fair value less cost of disposal used to determine the recoverable amounts of the impaired assets are classified as level 3 fair value measurements (as detailed in statement of significant accounting policy no.4), as the estimated recoverable amounts are not based on observable market data, rather, management''''s best estimates. The results of impairment test are sensitive to changes in key judgments, such as changes in commodity prices, future changes in alternate use of assets etc, which could result in increase or decrease of the recoverable amounts and result in additional impairment charges or recovery of impairment charged.
3 The pay revision for employees is due from 01.01.2017. Pending finalization of revision in pay and benefits, provision of Rs, 110 crore (inclusive of consequential impact on retirement benefits has been considered) - Refer note 25.
4 The Employees'''' Township at Cauvery Basin Refinery has been constructed on land area of thirty four acres and forty nine cents of land leased from a trust on five-year renewable basis.
5 Sixteen acres and twenty six cents of land of the company are under lease for a period of twelve years to IOT Infrastructure & Energy Services Limited in respect of LPG botting facilities operated on BOOT basis.
6 As part of CSR activities, CPCL sponsors polytechnic college, for which twenty acres of land of the company has been leased to CPCL Educational Trust for a period of fifty years.
7 (a) The cost of land includes provisional payments towards cost, compensation, and other accounts for which detailed accounts are yet to be received from the authorities concerned.
(b) The company has valid title for all immovable properties. However, in respect of 186.86 acres of Land allotted by Government of Tamil Nadu (classified as Poramboke) Assignment deed is yet to be received. Out of this, value is to be determined by Government of Tamilnadu in respect of 135.93 acres.
(c) Pending decision of the Government/Court, additional compensation, if any, payable to the landowners and the Government for certain lands acquired, is not quantifiable, and hence not considered.
13 Valuation of Finished Products:
The overall gross margin percentage for all joint products is subtracted from the final net realizable value of each product to arrive at the total cost of each product which is taken as the basis for valuation of closing stock of finished products. (Refer Policy No 7.2 in Note 1 - "Statement of Significant Accounting Policies").
9 The company operates only in a single segment viz. downstream petroleum sector. As such reporting is done on a single segment basis.
10 Previous year''''s comparative figures have been regrouped,reclassified and recast wherever necessary.