1 Significant Accounting Policies
1.01 Basis of preparation of financial statements :
The financial statements are prepared under historical cost convention, on accrual basis and in accordance with the generally accepted accounting principle (GAAP) in India and comply with the accounting standards specified under section 133 of the Companies Act, 2013, read with Rule 7 of the Companies (Accounts) Rules, 2014 and the relevant provisions of the Companies Act, 2013 (the 2013 Act).
1.02 Use of Estimates:
The preparation of financial statements requires management to make certain estimates and assumptions that affect the amount reported in the financial statements and notes thereto. Differences between actual results and estimates are recognized in the period in which they materialize.
1.03 Revenue recognition:
Income on sale of crude oil and gas is accounted for net of VAT and recognized when the risk & rewards are transferred to the buyer''''s representative. Interest income is recognized on time proportion basis.
1.04 Fixed Assets and Depreciation :
a) Fixed Assets are shown at cost less accumulated Depreciation.
b) Depreciation is provided as per Schedule II to the Companies Act, 2013, on straight line method on the basis of useful life of the assets specified therein.
c) Intangible assets comprising software are amortized on straight line basis, over estimated useful life of three years.
1.05 Valuation of inventories :
a) Crude oil : Valued at cost or net realizable value whichever is
lower. Cost is calculated on absorption cost method.
b) Component, stores, spares and consumables (including items related to hydrocarbon properties): at cost (on FIFO basis) or net realizable value, whichever is lower.
1.06 Foreign currency transactions :
a) Foreign currency transactions are recorded at the exchange rates prevailing on the date of transaction.
b) In terms of Production Sharing Contracts (PSCs) with Government of India, selling price of crude oil per barrel is to be determined FOB delivery point at the prevailing international market rates in US Dollars. However payment is receivable in Indian Rupees at the US Dollar / Rupee conversion rate prevailing at the time of payment.
c) The PSC permits sale of gas to domestic users. Sale of Gas is based on rupee denominated rate as per contractual agreements.
d) The accounts receivable and payable are restated at the rates prevailing on the balance sheet date and the resultant exchange difference is recognized in the Statement of Profit & Loss.
1.07 Development of Hydrocarbon Properties
Considering the nature of the oil industry and that Accounting Standard AS-26 being not applicable to Oil Industry, it is considered appropriate to show the development expenses of oil fields under "Development of Hydrocarbon Properties" as a separate item. Development of Hydrocarbon Properties includes the cost incurred on the collection of seismic data, drilling of wells, reservoir modeling costs and other related expenditures. Till 31.03.2014 these expenses were being amortized over a period not exceeding the remaining period of the contract. In the case of oil fields at Bakrol, Indrora and Lohar, the original contract period ends in 2020, while in the case of Karjisan and Ognaj, the contract ends in 2030 and 2033, respectively. Under
the Production Sharing Contract (PSC), the Government has the power to extend the contract for a period not exceeding 5 years and management is of the opinion that there is a reasonable likelihood of this extension. In the circumstance, effective from the year 2014-15, the amortization of expenses has been extended by 5 years, especially keeping in view that the investments made in recent years for drilling of new wells are expected to continue to result in oil and gas production significantly beyond the original contract period.
1.08 Employee Benefits :
The Company makes regular contributions to duly constituted funds set up for Provident Fund and Family Pension Fund. In respect of accruing liability for gratuity, the employees have been covered under the Group Gratuity Scheme of Life Insurance Corporation of India. There is no prescribed rule for encashment of leave by employees. Provision for gratuity and leave encashment liability is made on the basis of actuarial valuation carried out as at the Balance Sheet date.
"The Company has not entered into any financial lease. Hire charges for equipment and rental for premises are treated as operating lease and charged to revenue/''''
1.10 Deferred Tax:
Provision is made for deferred tax for all timing differences arising between taxable income and accounting income at currently enacted or substantially enacted tax rates. Deferred tax assets are recognized, only if there is reasonable / virtual certainty that they will be realized and are reviewed for the appropriateness of their respective carrying values at each Balance Sheet date.
1.11 Minimum Alternate Tax (MAT):
Minimum Alternate Tax (MAT) credit is recognized as an asset only when and to the extent there is convincing evidence that the Company will pay normal income tax during specified period. In the year in which the MAT credit becomes eligible to be recognized as an asset in accordance with the recommendations contained in the Guidance Note issued by the Institute of Chartered Accountants of India, the said asset is created by way of a credit to the Statement of Profit and Loss and shown as MAT credit entitlement. The Company reviews the same at each Balance Sheet date and writes down the carrying amount of MAT credit entitlement to the extent there is no longer convincing evidence to the effect that Company will pay normal Income Tax during the specified period.
1.12 Impairment of Assets:
At each balance sheet date, the Company assesses whether there is any indication that an asset may be impaired. If any such indication exists, the Company estimates the recoverable amount. If the carrying amount of the asset exceeds its recoverable amounts, an impairment loss is recognized in the statement of profit and loss to the extent the carrying amount exceeds the recoverable amount. There is no impairment loss during the year.
1.13 Provisions and contingencies:
The Company creates a provision when there is a present obligation as result of past event that probably requires an outflow of resources and a reliable estimate can be made of the amount of obligation. A disclosure of contingent liability is made when there is a possible obligation or a present obligation that will probably not require outflow of resources or where a reliable estimate of the obligation cannot be made.
1.14 Site Restoration:
Estimated future liability relating to dismantling and abandoning producing well sites and facilities is charged to revenue in proportion of Production to Reserve and the same is funded by investment in earmarked funds (Bank FDRs).