Note No. 1 - General Information:
a) JSW Energy Limited (the Company), is a public limited Company domiciled in India and is incorporated under the provisions of the Companies Act applicable in India. Its shares are listed on two recognised stock exchanges in India. The registered office of the Company is located at JSW Centre Bandra Kurla Complex, Bandra East, Mumbai - 400 051.
b) The Company is primarily engaged in the business of generation of power, project management consultancy, operation & maintenance of power plants.
Note No. 2 - Statement of compliance:
a) The financial statements have been prepared in accordance with Indian Accounting Standards (‘Ind AS’) notified under the Companies (Indian Accounting Standards) Rules, 2015 as amended by the Companies (Indian Accounting Standards) (Amendment) Rules, 2016.
b) Upto the year ended 31st March, 2016, the Company prepared its financial statements in accordance with the requirements of previous GAAP prescribed under Section 133 of the Companies Act, 2013 (‘the Act’) read with Rule 7 of the Companies (Accounts) Rules, 2014. These are the Company’s first Ind AS financial statements. The date of transition to Ind AS is 1st April, 2015. Refer Note 43 for the details of significant first-time adoption exemptions availed by the Company and an explanation of how the transition from previous GAAP to Ind AS has affected the Company’s financial position, performance and cash flows.
3) Details of Security :
a) Debentures aggregating to Rs.699.49 crore; (31st March, 2016 : Rs.1,079.12 crore and 1st April, 2015 : Rs.1,198.75 crore), mentioned in (1)(i) are secured on a pari passu basis by (a) a first ranking charge by way of legal mortgage on the freehold land of the Company situated at Mouje Maharajpura, Taluka Kadi, District Mehsana, in the state of Gujarat, (b) a first ranking charge by way of legal mortgage of immovable assets of the Company’s SBU I & SBU II situated in the State of Karnataka, (c) a first ranking charge by way of hypothecation of moveable fixed assets of the Company’s SBU I & SBU II.
b) Debentures aggregating to Rs.709.15 crore (31st March, 2016 : Rs.1,544.58 crore and 1st April, 2015 : Rs.1,780.27 crore), mentioned in (1)(i) are secured on a pari passu basis by (a) a first ranking charge by way of legal mortgage on the freehold land of the Company situated at Mouje Maharajpura, Taluka Kadi, District Mehsana, in the state of Gujarat, (b) secured on a pari passu basis by a a first ranking charge by way of mortgage on fixed assets of SBU III (4 x 300 MW Power Plant situated at Dist. Ratnagiri, in the State of Maharashtra).
c) Debentures aggregating to Rs.499.07 crore (31st March, 2016 : Rs.NIL and 1st April, 2015 : Rs.NIL), mentioned in 1 (i) are secured on a pari passu basis by (a) a first ranking charge by way of legal mortgage on the freehold land of the Company situated at village Chaferi, Ratnagiri, Maharashtra (b) a first ranking charge by way of hypothecation of moveable fixed assets of the Company’s SBU I & SBU II.
d) Rupee Term Loan aggregating to Rs.10.91 crore (31st March, 2016 : Rs.59.28 crore and 1st April, 2015 : Rs.109.22 crore) included in (1)(ii) is secured on a pari passu basis by (a) a first ranking charge by way of equitable mortgage of immovable assets of the Company’s SBU I & SBU II situated in the State of Karnataka, (b) a first ranking charge by way of hypothecation of moveable fixed assets of the Company’s SBU I & SBU II unit situated in the State of Karnataka, (c) a second ranking charge by way of hypothecation on the current assets of Company’s SBU I & SBU II including stock and receivables (both present and future).
e) Rupee term loan aggregating to Rs.NIL (31st March, 2016 : Rs.32.41 crore and 1st April, 2015 : Rs.69.55 crore) included in (1)(ii) is secured on a pari passu basis by (a) a first ranking charge by way of equitable mortgage of immovable assets of the Company’s SBU I & SBU II situated in the State of Karnataka, (b) a first ranking charge by way of hypothecation of moveable fixed assets of the Company’s SBU I & II (c) a second ranking charge by way of hypothecation on the current assets of Company’s SBU I & SBU II including stock and receivables (both present and future).
f) Rupee term loan included in 1 (ii) aggregating to Rs.145.01 crore (31st March, 2016 : Rs.180.38 crore and 1st April, 2015 : Rs.215.73 crore) are secured on a pari passu basis by (a) first ranking charge by way of legal mortgage on the Company’s SBU III (4x300 MW) immovable property both present and future situated in Ratnagiri, and (b) a first ranking charge by way of Hypothecation of moveable assets both present and future of Company’s SBU III situated in Ratnagiri, Maharashtra. (c) second ranking charge on current assets of the Company’s SBU III for rupee term loan included in 1 (ii) aggregating to Rs.91.99 crore (31st March, 2016 : Rs.114.91 crore and 1st April, 2015 : Rs.137.80 crore ).
g) Rupee term loan included in 1 (ii) aggregating to Rs.1,400.42 crore (as at 31st March, 2016 - Rs.628.89 crore, as at 1st April, 2015 - Rs.764.12 crore) are secured on a pari passu basis by (a) first ranking charge by way of legal mortgage on Company’s SBU III (4x300 MW) immovable property both present and future situated in Ratnagiri and an apartment in Mumbai (b) a first ranking charge by way of Hypothecation of moveable assets both present and future of the Company’s SBU III situated in Ratnagiri, Maharashtra. (c) second ranking charge on current assets of the Company’s SBU III for rupee term loan.
h) Rupee term loan aggregating to Rs.NIL (31st March, 2016 : Rs.NIL crore and 1st April, 2015 : Rs.65.50 crore) included in 1 (ii) is secured by first ranking charge on the Company’s share (i.e.50%) in property being developed at Village Kole Kalyan, Taluka South Salsette, District of Mumbai suburban)
i) Working capital facility pertaining to SBU I are secured on a pari passu basis by (a) First Charge on the current assets of the Company (Present and future) pertaining to its SBU I (b) Second charge on the fixed assets of the company pertaining to its SBU I.
Working capital facility pertaining to SBU II are secured on a pari passu basis by (a) first charge on current assets (Present and future) of the company pertaining to its SBU II (b) a second charge on all fixed assets of the company pertaining to its SBU II.
Working capital facility pertaining to SBU III are secured on a pari passu basis by (a) first charge on current assets (Present and future) of the company pertaining to its SBU III (b) second charge on all fixed assets of the company pertaining to its SBU III.
Note No. 4 - Critical accounting judgements and key sources of estimation uncertainty
In the course of applying the policies outlined in all notes under Section 3 above, the Company is required to make judgements, estimates and assumptions about the carrying amount of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future period, if the revision affects current and future periods.
Critical judgements in applying accounting policies.
Significant judgement is required to apply lease accounting rules under Appendix C to Ind AS 17: ‘Determining whether an arrangement contains a Lease’. In assessing the applicability to arrangements entered into by the Company, management has exercised judgement to evaluate the right to use the underlying assets, substance of the transaction including legally enforced arrangements and other significant terms and conditions of the arrangement to conclude whether the arrangement meet the criterion under Appendix C to Ind AS 17. Based on detailed evaluation, the management have determined that arrangement in relation to the Company’s Ratnagiri Power Plant - 300 MW arrangement with Maharashtra State Electricity Distribution Company Limited (“MSEDCL”) meets the criterion for recognition as finance lease arrangement. (Refer Note 41)
Key sources of estimation uncertainties:
Useful life and residual value of property, plant and equipment:
Management reviews the useful life and residual values of property, plant and equipment at least once a year. Such life are dependent upon an assessment of both the technical life of the assets and also their likely economic life, based on various internal and external factors including relative efficiency and operating costs. Accordingly, depreciable lives are reviewed annually using the best information available to the Management.
Impairment of property plant and equipment:
At the end of each reporting period, the Company reviews the carrying amounts of its property, plant and equipment to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any).
Recoverable amount is the higher of fair value less costs to sell and value in use. Value in use is usually determined on the basis of discounted estimated future cash flows. This involves management estimates on anticipated commodity prices, market demand and supply, economic and regulatory environment, discount rates and other factors. Any subsequent changes to cash flow due to changes in the above mentioned factors could impact the carrying value of assets.
In the normal course of business, contingent liabilities may arise from litigation and other claims against the Company. Potential liabilities that are possible but not probable of crystallising or are very difficult to quantify reliably are treated as contingent liabilities. Such liabilities are disclosed in the notes but are not recognised.
Fair value measurements:
Some of the Company’s assets and liabilities are measured at fair value for financial reporting purposes. The management determines the appropriate valuation techniques and inputs for fair value measurements. In estimating the fair value of an asset or a liability, the Company uses market-observable data to the extent it is available. Where Level 1 inputs are not available, the Company engages third party qualified valuers to perform the valuation. The management works closely with the qualified external valuers to establish the appropriate valuation techniques and inputs to the model.
Defined benefit plans:
The cost of defined benefit plan and other postemployment benefits and the present value of such obligations are determined using actuarial valuations. An actuarial valuation involves making various assumptions that may differ from actual development in the future. These include the determination of the discount rate, future salary escalations and mortality rates etc. 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.
Share based payments:
Estimating fair value for share based payment transactions requires determination of the most appropriate valuation model, which is dependent on the terms and conditions of the grant. This estimate also requires determination of the most appropriate inputs to the valuation model including the expected life of the share option, volatility and dividend yield and making assumptions about them. This requires a reassessment of the estimates used at the end of each reporting period.
The Company based on its best estimate determined the additional consideration is payable as per the terms of Securities Purchase Agreement to Jaiprakash Power Ventures Limited (JPVL) as detailed in business combination disclosure. Refer Note 29 for details.
The Company is subject to tax, principally in India.
The amount of tax payable in respect of any period is dependent upon the interpretation of the relevant tax rules. Whilst an assessment must be made of deferred tax position of each entity within the Company, these matters are inherently uncertain until the position of each entity is agreed with the relevant tax authorities.
The Company’s pending litigations comprise mainly claims against the Company, property disputes, proceedings pending with Tax and other Authorities. The Company has reviewed all its pending litigations and proceedings and has made adequate provisions, wherever required and disclosed the contingent liabilities, wherever applicable, in its financial statements. The Company does not reasonably expect the outcome of these proceedings to have a material impact on its financial statements. (Also Refer Note 40).
Note No. 5 - Business combination:
During the year ended 31st March, 2016, the Company has acquired 100% stake in Himachal Baspa Power Company Limited (HBPCL), an unlisted entity, which has (i) 300 MW Baspa II and (ii) 1091 MW Karcham Wangtoo hydroelectric projects both located at Himachal Pradesh from Jaiprakash Power Ventures Limited (JPVL). Consequently, HBPCL has become a 100% subsidiary of the Company effective 8th September, 2015.
HBPCL was acquired so as to diversify its investment in Hydro business.
The fair values of the identifiable assets and liabilities of HBPCL as at the date of acquisition were:
As per the terms of Securities Purchase Agreement (SPA), amount aggregating to Rs.636.50 crore payable to JPVL, upon happening of certain future events, towards trade receivables, entry tax and differential project cost, has been considered as contingent consideration. There will be probable cash outflows on account of the same.
As per the terms of the SPA, an additional consideration of Rs.300 crore shall be payable to JPVL upon receipt of certain additional consents and approvals related to the installed capacity of 1,091 MW Karcham Wangtoo HEP on or before 6th September, 2020
Note No. 6 - Operating lease
The Company has taken certain premises on non-cancellable operating lease arrangement. Rentals charged to Statement of Profit and Loss Rs.2.25 crore (Previous Year Rs.2.43 crore)
Note No. 7 - Scheme of arrangement:
The Scheme of arrangement under Section 391 to 394 of the Companies Act, 1956 has been entered into between the Company and its subsidiaries, JSW Power Trading Company Limited (JSWPTC) and JSW Green Energy Limited (JSWGEL):
The Scheme provides for:
- Demerger of the Power Trading Business of JSWPTC to JSWGEL;
- Merger of remaining JSWPTC into the Parent Company;
- Appointed date - Closing hours of 31st March, 2015;
- The Scheme is subject to requisite consent, approval or permission of any statutory or other regulatory authorities.
The Scheme of arrangement has been sanctioned by the National Company Law Tribunal (NCLT) on 9th March, 2017 (Signed copy of the Order is yet to be received from NCLT). Pursuant to the sanction of scheme by NCLT, the Company has filed a petition with Central Electricity Regulatory Commission (CERC) for transfer of trading license from JSWPTC to JSWGEL.
On receipt of requisite approvals from CERC and after receipt of signed copy of Order from NCLT, the Company would be filing the Scheme with Registrar of Companies to make the scheme effective. However, there will be no impact on these financial statements, as the Scheme is not effective.
Note No. 8 - Employees Benefits:
(a) Defined contribution plans:
The Company has certain defined contribution plans in which both employee and employer contribute monthly, at the rate of 12% of basic salary, as per regulations to provident fund set up as trust and to the respective regional provident fund commissioner. The Company which contributes to the provident fund set up as a trust are liable for future provident fund benefits to the extent of its annual contribution and any shortfall in fund assets based on government specified minimum rates of return relating to current period service and recognises such contributions and shortfall, if any, as an expense for the year incurred.
(b) Defined benefits plans:
The Company provides for gratuity for employees as per the Payment of Gratuity Act, 1972. The amount of gratuity shall be payable to an employee on the termination of his employment after he has rendered continuous service for not less than five years, or on their superannuation or resignation. However, in case of death of an employee, the minimum period of five years shall not be required. The amount of gratuity payable on retirement / termination is the employees last drawn basic salary per month computed proportionately for 15 days salary multiplied by the number of years’ service completed. The gratuity plan is a funded plan administered by a separate Fund that is legally separated from the entity and the Company makes contributions to the insurer (LIC). The Company does not fully fund the liability and maintains a target level of funding to be maintained over period of time based on estimations of expected gratuity payments.
The Company has a policy on compensated absences with provisions on accumulation and encashment by the employees during employment or on separation from the Company due to death, retirement or resignation. The expected cost of compensated absences is determined by actuarial valuation performed by an independent actuary at the balance sheet date using projected unit credit method.
The plans typically expose the Company to actuarial risks such as: investment risk, interest rate risk, longevity risk and salary risk.
The most recent actuarial valuation of the plan assets and the present value of the defined benefit obligation were carried out at 31st March, 2017 by M/s K. A. Pandit Consultants & Actuaries. The present value of the defined benefit obligation, and the related current service cost and past service cost, were measured using the projected unit credit method.
Note No. 9 - Disclosure under Micro, Small and Medium Enterprises Development Act:
The details of amounts outstanding to Micro, Small and Medium Enterprises under the Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act), based on the available information with the Company are as under:
Note No. 10 - Capital management & Risk Management Strategies:
i) Capital management
The Company being in a capital intensive industry, its objective is to maintain a strong credit rating healthy capital ratios and establish a capital structure that would maximise the return to stakeholders through optimum mix of debt and equity.
The Company’s capital requirement is mainly to fund its capacity expansion, repayment of principal and interest on its borrowings and strategic acquisitions. The principal source of funding of the Company has been, and is expected to continue to be, cash generated from its operations supplemented by funding from bank borrowings and the capital markets. The Company is not subject to any externally imposed capital requirements.
The Company regularly considers other financing and refinancing opportunities to diversify its debt profile, reduce interest cost and align maturity profile of its debt commensurate with life of the asset and closely monitors its judicious allocation amongst competing capital expansion projects and strategic acquisitions, to capture market opportunities at minimum risk.
ii) Financial risk management objectives
The Company’s Corporate Treasury function provides services to the business, co-ordinates access to domestic and international financial markets, monitors and manages the financial risks relating to the operations of the Company. These risks include market risk (including currency risk, interest rate risk and other price risk), credit risk and liquidity risk.
The Company seeks to minimise the effects of these risks by using derivative financial instruments to hedge risk exposures, wherever required. The use of financial derivatives is governed by the Company’s policies approved by the Board of Directors, which provide written principles on foreign exchange and commodity price risk management, the use of financial derivatives and non-derivative financial instruments, and the investment of excess liquidity. Compliance with policies and exposure limits is reviewed by the internal auditors on a continuous basis. The Company does not enter into or trade financial instruments, including derivative financial instruments, for speculative purposes.
Foreign currency risk management
The Company undertakes transactions denominated in foreign currencies; consequently, exposures to exchange rate fluctuations arise. Exchange rate exposures are managed within approved policy parameters utilizing forward foreign exchange contracts and currency options.
The Company uses foreign currency forward contracts to hedge its risks associated with foreign currency fluctuations relating to certain firm commitments and foreign currency required at the settlement date of certain receivables/payables. The use of foreign currency forward contracts is governed by the Company’s strategy approved by the board of directors, which provide principles on the use of such forward contracts consistent with the Company’s risk management policy.
Interest rate risk management
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. 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 risk is managed by the Company by maintaining an appropriate mix between fixed and floating rate borrowings.
The Company’s exposures to interest rates on financial assets and financial liabilities are detailed in the liquidity risk management section of this note.
Interest rate sensitivity analysis
The sensitivity analyses below have been determined based on the exposure to interest rates for non-derivative instruments at the end of the reporting period. For floating rate liabilities, the analysis is prepared assuming the amount of the liability outstanding at the end of the reporting period was outstanding for the whole year. A 50 basis point increase or decrease is used when reporting interest rate risk internally to key management personnel and represents management’s assessment of the reasonably possible change in interest rates.
If interest rates had been 50 basis points higher/lower and all other variables were held constant, the Company’s profit before tax for the year ended 31st March, 2017 would decrease/increase by Rs.8.02 crore (for the year ended 31st March, 2016: decrease/increase by Rs.5.62 crore). This is mainly attributable to the Company’s exposure to interest rates on its variable rate borrowings.
Credit risk management
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Company. The Company has adopted a policy of only dealing with creditworthy counterparties and obtaining sufficient collateral, where appropriate, as a means of mitigating the risk of financial loss from defaults. The Company’s exposure and the credit ratings of its counterparties are continuously monitored.
In addition, the Company is exposed to credit risk in relation to financial guarantees given to banks provided by the Company. The Company’s maximum exposure in this respect is the maximum amount the Company could have to pay if the guarantee is called on. No amount has been recognised in the financial position as financial liabilities. (Refer Note 40).
iv) Liquidity risk management
Ultimate responsibility for liquidity risk management rests with the board of directors, which has established an appropriate liquidity risk management framework for the management of the Company’s short-term, medium-term and long-term funding and liquidity management requirements. The Company manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities, by continuously monitoring forecast and actual cash flows, and by matching the maturity profiles of financial assets and liabilities.
vi) Fuel Prices risk management
The Company is currently using imported coal from countries like Indonesia, South Africa, and Australia, among others. The interruption in the supply of coal due to regulatory changes, weather conditions in the sourcing country, strike by mine workers and closure of mines due to force majeure may impact the availability and/or cost of coal.
The Company regularly broadens the sources (countries/ vendors) and maintains optimum fuel mix and stock level. The Company further applies prudent hedging strategies to mitigate the risk of foreign exchange fluctuations
vii) Power Offtake risk management
With supply outpacing demand in the medium term, merchant tariffs have been under constant pressure, posing a severe challenge to the off take of merchant power. With the DISCOMS adhering to strict fiscal discipline there has been deferment of power procurement, resulting in reduced demand for power. In States like Maharashtra, the high cross subsidy surcharge has served as a big deterrent to the direct sale of power to industrial consumers. Transmission corridor related bottlenecks, especially pertaining to sales to the power deficit southern region has also served as a major dampener
The Company’s focus is on enhancing the sale through long term PPAs and through captive route and ensuring an optimum mix of medium, short and long term arrangements. Further, the Company is tracking various opportunities for sale of power to utilities in the home states as well as others. Focus on ensuring an optimum mix of medium, short and long term arrangements.
Note No. 11- Trade Receivables:
The average credit period allowed to customers is in the range of 30-45 days.
Trade receivables disclosed above include amounts (see below for aged analysis) that are past due at the end of the reporting period for which the Company has not recognised an allowance for doubtful debts because there has not been a significant change in credit quality and the amounts are still considered recoverable.
Allowances, if any, for doubtful debts are recognised against trade receivables based on estimated irrecoverable amounts determined by reference to past default experience of the counterparty and an analysis of the counterparty’s current financial position. In determining the allowances for doubtful trade receivables, the Company has used a practical expedient by computing the expected credit loss allowance for trade receivables based on a provision matrix. The provision matrix takes into account historical credit loss experience and is adjusted for forward looking information. The expected credit loss allowance is based on the ageing of the receivables that are due and rates used in the provision matrix.
Note No. 12 - Finance lease receivables:
The Company has entered into a power purchase agreement (“PPA”) on 23rd February, 2010 with Maharashtra State Electricity Distribution Company Limited for its Ratnagiri (SBU III) power plant unit of 300 MW. Such contract is for a term of 25 years from the date of commercial operation of the said unit. In respect of the said unit, entire capacity is tied up with the tariff which consists of capacity and energy charges. The Company is entitled to get the capacity charges after meeting the availability criterion as mentioned in the PPA.
Note No. 13 - Disclosure as per Ind AS 101 First-time adoption of Indian Accounting Standards:
(a) Overall principle:
The Company has prepared the opening balance sheet as per Ind AS as of 1st April, 2015 (the transition date) by recognising all assets and liabilities whose recognition is required by Ind AS, not recognising items of assets or liabilities which are not permitted by Ind AS, by reclassifying items from previous GAAP to Ind AS as required under Ind AS, and applying Ind AS in measurement of recognised assets and liabilities.
However, this principle is subject to certain mandatory exceptions and certain optional exemptions availed by the Company as detailed below:
Mandatory exceptions and optional exemptions Classification of debt instruments:
The Company has determined the classification of debt instruments in terms of whether they meet the amortised cost criteria or the FVTOCI criteria based on the facts and circumstances that existed as of the transition date.
Past business combinations:
The Company has elected not to apply Ind AS 103 Business Combinations retrospectively to past business combinations that occurred before the transition date of 1st April, 2015.
Deemed cost for property, plant and equipment and intangible assets:
The Company has elected to continue with the carrying value of all of its plant and equipment, capital work-in-progress and intangible assets recognised as of 1st April, 2015 (transition date) measured as per the previous GAAP and use that carrying value as its deemed cost as of the transition date.
Determining whether an arrangement contains a lease:
The Company has applied Appendix C of Ind AS 17 Determining whether an Arrangement contains a Lease to determine whether an arrangement existing at the transition date contains a lease on the basis of facts and circumstances existing at that date.
Exchange differences arising on long-term foreign currency monetary items:
Under previous GAAP, the Company had opted to defer/ capitalize exchange differences arising on long-term foreign currency monetary items in accordance with paragraph 46A of AS 11. The Company has now availed Ind AS 101 option whereby a first time adopter can continue its previous GAAP policy for accounting for exchange differences arising from translation of long-term foreign currency monetary items recognised in the previous GAAP financial statements for the period ending immediately before the beginning of the first Ind AS financial reporting period i.e 1st April, 2016.
Classification and measurement of financial assets:
The Company has classified the financial assets in accordance with Ind AS 109 on the basis of facts and circumstances that exist at the date of transition to Ind AS.
Derecognition of financial assets and liabilities:
The Company has applied the derecognition requirements of financial assets and financial liabilities
Impairment of financial assets:
The Company has applied the impairment requirements of Ind AS 109 retrospectively; however, as permitted by Ind AS 101, it has used reasonable and supportable information that is available without undue cost or effort to determine the credit risk at the date that financial instruments were initially recognised in order to compare it with the credit risk at the transition date.
Further, the Company has not undertaken an exhaustive search for information when determining, at the date of transition to Ind ASs, whether there have been significant increases in credit risk since initial recognition, as permitted by Ind AS 101.
Share based payments:
Ind AS 102 Share based Payment has not been applied to equity instruments in share-based payment transactions that vested before 1st April, 2015.
(b) First-time Ind AS adoption reconciliations:
Effect of Ind AS adoption on the balance sheet as at 31st March, 2016 and 1st April, 2015:
(f) Footnotes to the above reconciliations
i. Arrangements in the nature of lease:
Under the Previous GAAP, the Property Plant and Equipment (PPE) related to thermal power plants were capitalised and depreciation was accordingly charged to statement of profit and loss. Under INDAS, PPE related to one of the units, considered as embedded lease arrangement, has been de-recognised and shown as lease receivable at fair value.
ii. Financial assets at amortised cost:
Certain financial assets held on with objective to collect contractual cash flows in the nature of interest and principal have been recognised at amortised cost on transition date as against historical cost under the previous GAAP with the difference been adjusted to the opening retained earnings.
iii. Fair valuation of investments:
Investments in preference shares / mutual funds have been measured at fair value through profit or loss as against cost less diminution of other than temporary nature, if any, under the previous GAAP. Certain equity investments (other than investments in subsidiaries, joint ventures and associates) have been measured at fair value.
iv. Financial liabilities and related transaction cost at amortised cost:
Borrowings and other financial liabilities which were recognised at historical cost under previous GAAP have been recognised at amortised cost under IND AS with the difference been adjusted to opening retained earnings. Under Previous GAAP, transaction costs incurred in connection with borrowings are amortised upfront and charged to statement of profit or loss or capitalised. Under IND AS, transaction costs are deducted from the initial recognition amount of the financial liability and charged to statement of profit or loss over the tenure of the borrowings using the effective interest rate method.
v. Business acquisitions:
Under IND AS, the cost of acquisition has to include the fair value of contingent consideration also. Accordingly, investment in equity of subsidiary has been increased with a corresponding increase in liability for continent consideration payable. Under the Previous GAAP, the transaction cost of the business acquisitions were added to the cost of Investment. Under IND AS, the transaction cost of the business acquisitions is required to be charged to Statement Profit and Loss.
vi. Deemed investment in equity:
As per IND AS, waiver off interest on investment in debentures of a wholly owned subsidiary has been considered as deemed equity by the Company.
vii. Proposed Divided:
Under previous GAAP, proposed dividends including DDT are recognised as a liability in the period to which they relate, irrespective of when they are declared. Under IND AS, a proposed dividend is recognised as a liability in the period in which it is declared by the company, usually when approved by the shareholders in a general meeting, or paid.
In the case of the Company, the declaration of dividend occurs after period end. Therefore, the liability for the year ended on 31st March, 2015 recorded for dividend has been derecognised against retained earnings on 1st April 2015. The proposed dividend for the year ended on 31st March, 2016 recognized under previous GAAP was reduced from other payables and with a corresponding impact in the retained earnings.
viii. Defined benefit liabilities:
Under IND AS, re-measurements i.e. actuarial gains and losses and the return on plan assets, excluding amounts included in the net interest expense on the net defined benefit liability are recognised in other comprehensive income instead of profit and loss in previous GAAP.
ix. Share-based payments:
Under Previous GAAP, the Company recognised only the intrinsic value for the long-term incentive plan as an expense. IND AS requires the fair value of the share options to be determined using an appropriate pricing model recognised over the vesting period. An additional expense has been recognised in profit or loss for the year ended 31st March 2016. Share options which were granted before and still vesting at 1st April 2015, have been recognised as a separate component of equity in share based payments reserve against retained earnings at 1st April 2015.
x. Depreciation of property, plant and equipment:
IND AS 16 requires the cost of major inspections/overhauling to be capitalised and depreciated separately over the period till the next major inspection/overhauling. Under previous GAAP the same is charged to statement of profit and loss in the period in which it was incurred.
xi. Deferred tax:
Previous GAAP requires deferred tax accounting using the income statement approach, which focuses on differences between taxable profits and accounting profits for the period. IND AS 12 requires entities to account for deferred taxes using the balance sheet approach, which focuses on temporary differences between the carrying amount of an asset or liability in the balance sheet and its tax base. The application of IND AS 12 approach has resulted in recognition of deferred tax on new temporary differences which was not required under Previous GAAP.
xii. Sale of Power:
Under Previous GAAP, sale of power was presented gross of rebates and discounts. However, under IND AS, sale of power is net of all rebates and discounts. Thus sale of power under IND AS has decreased with a corresponding decrease in other expense.
xiii. Other comprehensive income:
Under IND AS, all items of income and expense recognised in a period should be included in profit or loss for the period, unless a standard requires or permits otherwise. Items of income and expense that are not recognised in profit or loss but are shown in the statement of profit and loss as ‘other comprehensive income’ includes re-measurements of defined benefit plans. The concept of other comprehensive income did not exist under previous GAAP.
xiv. Consolidation of Employee Welfare Trust:
Employee Welfare Trust, financed through interest free loans by the Company and warehousing the shares which have not been vested yet, for distribution to employees of the Company has resulted into line by line addition of all the assets and liabilities by reducing equity share capital of the company with face value of such treasury shares and adjusting the difference, if any, into other equity..
xv. Statement of cash flows:
The transition from Previous GAAP to IND AS has not had a material impact on the statement of cash flows, except as disclosed above.
Note No. 14 - The Company is yet to receive balance confirmations in respect of certain financial assets and financial liabilities. The Management does not expect any material difference affecting the current year’s financial statements due to the same.
Note No. 15 - Approval of financial statements:
The financial statements were approved for issue by the Board of Directors on 29th April, 2017.
Note No. 16 - Operating segments
The Joint Managing Director & Chief Executive Officer of the Company has been identified as the Chief Operating Decision Maker (CODM) as defined by Ind AS 108, Operating Segments. The CODM evaluates the Company’s performance and allocates resources based on an analysis of various performance indicators, however the Company is primarily engaged in only one segment viz., “Generation and Sale of power” and that most of the operations are in India. Hence the Company does not have any reportable Segments as per Indian Accounting Standard 108 “Operating Segments”.