7. Provisions, contingent liabilities and contingent
assets
a) A provision is recognized if, as a result of
a past event, the Company has a present
legal or constructive obligation that can be
estimated reliably, and it is probable that an
outflow of economic benefits will be required
to settle the obligation. If the effect of the
time value of money is material, provisions
are determined by discounting the expected
future cash flows at a pre-tax rate that reflects
current market assessments of the time value
of money and the risks specific to the liability.
When discounting is used, the increase in
the provision due to the passage of time is
recognized as a finance cost.
b) The amount recognized as a provision is the
best estimate of the consideration required to
settle the present obligation at reporting date,
taking into account the risks and uncertainties
surrounding the obligation.
c) When some or all of the economic benefits
required to settle a provision are expected to
be recovered from a third party, the receivable
is recognized as an asset if it is virtually certain
that reimbursement will be received and the
amount of the receivable can be measured
reliably. The expense relating to a provision is
presented in the statement of profit and loss
net of reimbursement, if any.
d) Contingent liabilities are possible obligations
that arise from past events and whose
existence will only be confirmed by the
occurrence or non-occurrence of one or more
future events not wholly within the control of
the Company. Where it is not probable that an
outflow of economic benefits will be required,
or the amount cannot be estimated reliably, the
obligation is disclosed as a contingent liability,
unless the probability of outflow of economic
benefits is remote. Contingent liabilities are
disclosed on the basis of judgment of the
management/independent experts. These are
reviewed at each balance sheet date and are
adjusted to reflect the current management
estimate.
e) Contingent assets are possible assets that
arise from past events and whose existence
will be confirmed only by the occurrence or
non-occurrence of one or more uncertain
future events not wholly within the control of
the Company. Contingent assets are disclosed
in the financial statements when inflow of
economic benefits is probable on the basis of
judgment of management. These are assessed
continually to ensure that developments
are appropriately reflected in the financial
statements.
f) Present obligations arising under onerous
contracts are recognised and measured as
provisions. An onerous contract is considered
to exist where the Company has a contract
under which the unavoidable costs of meeting
the obligations under the contract exceed the
economic benefits expected to be received
from the contract.
8. Foreign currency transactions and translation
a) Transactions in foreign currencies are initially
recorded at the functional currency spot
exchange rates at the date the transaction first
qualifies for recognition.
b) Monetary assets and liabilities denominated
in foreign currencies outstanding at the
reporting date are translated at the functional
currency spot rates of exchange prevailing
on that date. Exchange differences arising on
settlement or translation of monetary items
are recognized in the statement of profit and
loss in the year in which it arises.
9. Revenue
Company's revenues arise from sale of energy,
consultancy, project management & supervision
services, and other income.
9.1. Revenue from sale of energy
a) Major portion of revenue from energy
sale where CERC tariff Regulations are not
applicable is recognized based on the rates,
terms & conditions mutually agreed with the
beneficiaries.
b) Certain projects of the Company are also
regulated under the Electricity Act, 2003.
Accordingly, the CERC determines the tariff for
the Company for such power plants based on
the norms prescribed in the tariff regulations
as applicable from time to time. In such cases,
Revenue from sale of energy is accounted for
based on tariff rates approved by the CERC
(except items indicated as provisional) as
modified by the orders of Appellate Tribunal
for Electricity to the extent applicable. In case
of power stations where the tariff rates are yet
to be approved/items indicated provisional
by the CERC in their orders, provisional rates
are adopted considering the applicable
CERC Tariff Regulations. Revenue from sale
of energy is recognized once the electricity
has been delivered to the beneficiary and is
measured through a regular review of usage
meters. Beneficiaries are billed on a periodic
and regular basis. As at each reporting date,
revenue from sale of energy includes an
accrual for sales delivered to beneficiaries
but not yet billed i.e. contract assets/ unbilled
revenue.
c) Rebates allowed to beneficiaries as early
payment incentives are deducted from the
amount of revenue.
9.2. Revenue from services
a) Revenue from consultancy, project
management and supervision services
rendered is measured based on the
consideration that is specified in a contract
with a customer or is expected to be received
in exchange for the services, which is
determined on output method and excludes
amounts collected on behalf of third parties.
The Company recognizes revenue when the
performance obligation is satisfied, which
typically occurs when control over the services
is transferred to a customer.
b) Contract modifications are accounted for when
additions, deletions or changes are approved
either to the contract scope or contract price.
The accounting for modifications of contracts
involves assessing whether the services
added to an existing contract are distinct and
whether the pricing is at the standalone selling
price. Services added that are not distinct are
accounted for on a cumulative catch up basis,
while those that are distinct are accounted for
prospectively, either as a separate contract,
if the additional services are priced at the
standalone selling price, or as a termination
of the existing contract and creation of a new
contract if not priced at the standalone selling
price.
9.3. Other income
a) Interest income is recognized, when no
significant uncertainty as to measurability or
collectability exist, on a time proportion basis
taking into account the amount outstanding
and the applicable interest rate, using the
effective interest rate method (EIR).
b) Insurance claims for loss of profit are accounted
for in the year of acceptance. Other insurance
claims are accounted for based on certainty of
realization.
c) Revenue from rentals is recognized on an
accrual basis in accordance with the substance
of the relevant agreement.
d) The interest/surcharge on late payment/
overdue trade receivables for sale of energy is
recognized when no significant uncertainty as
to measurability or collectability exists.
e) Interest/surcharge recoverable on advances
to contractors and suppliers as well as
warranty claims wherever there is uncertainty
of realization/acceptance are not treated as
accrued and are therefore, accounted for on
receipt/acceptance.
f) Dividend income is recognized in profit or loss
only when the right to receive is established,
it is probable that the economic benefits
associated with the dividend will flow to the
Company, and the amount of the dividend can
be measured reliably.
10. Employee benefits
10.1. Defined contribution plans
A defined contribution plan is a post-employment
benefit plan under which an entity pays fixed
contributions to separate entities and will have
no legal or constructive obligation to pay further
amounts. Obligations for contributions to defined
contribution plans are recognized as an employee
benefits expense in statement of profit and loss in
the period during which services are rendered by
employees.
The Company pays fixed contribution to Provident
Fund at predetermined rates to the regional
provident fund commissioner. The contributions to
the fund for the year are recognized as expense and
are charged to the statement of profit and loss.
In respect of employees of NTPC Limited on
secondment basis, employee benefits include
provident fund, gratuity, post-retirement medical
facilities, compensated absences, long service
award, economic rehabilitation scheme & other
terminal benefits. In terms of arrangement with
NTPC, NGEL makes a fixed percentage contribution
of the aggregate of basic pay and dearness
allowance for the period of service rendered in the
Company to NTPC. Accordingly, these employee
benefits are treated as defined contribution
schemes. The contributions to the fund for the year
are recognized as an expense and charged to the
statement of profit and loss.
10.2. Other long-term employee benefits
Benefits under the Company's leave encashment
and satisfactory service grant constitute other long
term employee benefits.
The actuarial calculation is performed annually
by a qualified actuary using the projected unit
credit method. Any actuarial gains or losses are
recognized in statement of profit and loss account
in the period in which they arise.
The obligations are presented as current liabilities
in the balance sheet if the entity does not have
an unconditional right to defer settlement for at
least twelve months after the reporting period,
regardless of when the actual settlement is
expected to occur.
10.3. Short-term benefits
Short-term employee benefit obligations are
measured on an undiscounted basis and are
expensed as the related service is provided.
A liability is recognized for the amount expected
to be paid under performance related pay if the
Company has a present legal or constructive
obligation to pay this amount as a result of
past service provided by the employee and the
obligation can be estimated reliably.
11. Income tax
a) Income tax expense comprises current and
deferred tax. Current tax expense is recognized
in statement of profit and loss except to the
extent that it relates to items recognized
directly in OCI or equity, in which case it is
recognized in OCI or equity, respectively.
b) Current tax is the expected tax payable on the
taxable income for the year computed as per
the provisions of Income Tax Act, 1961, using
tax rates enacted or substantively enacted
by the end of the reporting period, and
any adjustment to tax payable in respect of
previous years.
c) Deferred tax is recognized using the balance
sheet method, on temporary differences
between the carrying amounts of assets and
liabilities for financial reporting purposes
and the tax bases of assets and liabilities.
Deferred tax is measured at the tax rates that
are expected to be applied to temporary
differences when they materialize, based
on the laws that have been enacted or
substantively enacted by the reporting date.
Deferred tax assets and liabilities are offset
if there is a legally enforceable right to offset
current tax assets against the current tax
liabilities, and they relate to income taxes
levied by the same tax authority.
d) Deferred tax is recognized in statement of
profit and loss except to the extent that it
relates to items recognized directly in OCI or
equity, in which case it is recognized in OCI or
equity, respectively.
e) Deferred tax liability is recognized for all
taxable temporary differences, except when
the deferred tax liability arises from the
initial recognition of goodwill or an asset or
liability in a transaction that is not a business
combination and, at the time of transaction , (i)
affects neither accounting nor taxable profit or
loss and (ii) does not give rise to equal taxable
and deductible temporary differences.
f) A deferred tax asset is recognized for all
deductible temporary differences to the extent
that it is probable that future taxable profits
will be available against which the deductible
temporary difference can be utilized. Deferred
tax assets are reviewed at each reporting date
and are reduced to the extent that it is no
longer probable that the sufficient taxable
profits will be available in future to allow all or
part of deferred tax assets to be utilized.
g) When there is uncertainty regarding income
tax treatments, the Company assesses whether
a tax authority is likely to accept an uncertain
tax treatment. If it concludes that the tax
authority is unlikely to accept an uncertain
tax treatment, the effect of the uncertainty
on taxable income, tax bases and unused tax
losses and unused tax credits is recognised.
The effect of the uncertainty is recognised
using the method that, in each case, best
reflects the outcome of the uncertainty: the
most likely outcome or the expected value. For
each case, the Company evaluates whether
to consider each uncertain tax treatment
separately, or in conjunction with another
or several other uncertain tax treatments,
based on the approach that best prefixes the
resolution of uncertainty.
12. Leases (as lessee)
a) The Company assesses whether a contract
contains a lease, at inception of a contract.
A contract is, or contains, a lease if the
contract conveys the right to control the use
of an identified asset for a period of time in
exchange for consideration. To assess whether
a contract conveys the right to control the use
of an identified asset, the Company assesses
whether: (1) the contact involves the use
of an identified asset (2) the Company has
substantially all of the economic benefits from
use of the asset through the period of the lease
and (3) the Company has the right to direct the
use of the asset.
b) The Company recognizes a right-of-use asset
and a corresponding lease liability for all lease
arrangements in which it is a lessee, except for
leases with a term of twelve months or less
(short term leases) and leases for low value
underlying assets. For these short-term and
leases for low value underlying assets, the
Company recognizes the lease payments as an
operating expense on a straight-line basis over
the term of the lease.
c) Certain lease arrangements include the
options to extend or terminate the lease before
the end of the lease term. Right-of use assets
and lease liabilities include these options
when it is reasonably certain that the option
to extend the lease will be exercised/option to
terminate the lease will not be exercised.
d) The right-of-use assets are initially recognized
at cost, which comprises the initial amount
of the lease liability adjusted for any
lease payments made at or prior to the
commencement date of the lease plus any
initial direct costs less any lease incentives.
They are subsequently measured at cost
less accumulated depreciation/amortization
and impairment losses and adjusted for any
reassessment of lease liabilities
e) Right-of-use assets are depreciated/amortized
from the commencement date to the end of
the useful life of the underlying asset, if the
lease transfers ownership of the underlying
asset by the end of lease term or if the cost of
right-of-use assets reflects that the purchase
option will be exercised. Otherwise, Right-of-
use assets are depreciated/amortized from the
commencement date on a straight-line basis
over the shorter of the lease term and useful
life of the underlying asset.
f) Right-of-use assets are evaluated for
recoverability whenever events or changes
in circumstances indicate that their carrying
amounts may not be recoverable. For
the purpose of impairment testing, the
recoverable amount (i.e. the higher of the fair
value less costs of disposal and the value-in¬
use) is determined on an individual asset basis
unless the asset does not generate cash flows
that are largely independent of those from
other assets. In such cases, the recoverable
amount is determined for the Cash Generating
Unit (CGU) to which the asset belongs.
g) The lease liability is initially measured at
amortized cost at the present value of the
future lease payments. In calculating the
present value, lease payments are discounted
using the interest rate implicit in the lease
or, if not readily determinable, using the
incremental borrowing rate. Lease liabilities
are re-measured with a corresponding
adjustment to the related right-of-use asset if
the Company changes its assessment whether
it will exercise an extension or a termination
option.
13. Impairment of non-financial assets
a) The carrying amounts of the Company's
non-financial assets are reviewed at each
reporting date to determine whether there is
any indication of impairment considering the
provisions of Ind AS 36 - 'Impairment of Assets'
If any such indication exists, then the asset's
recoverable amount is estimated.
b) The recoverable amount of an asset or cash¬
generating unit is the higher of its fair value
less costs of disposal and its value in use. In
assessing value in use, the estimated future
cash flows are discounted to their present
value using a pre-tax discount rate that reflects
current market assessments of the time value
of money and the risks specific to the asset.
For the purpose of impairment testing, assets
that cannot be tested individually are grouped
together into the smallest group of assets
that generates cash inflows from continuing
use that are largely independent of the cash
inflows of other assets or groups of assets (the
'cash-generating unit', or "CGU").
c) An impairment loss is recognized if the
carrying amount of an asset or its CGU exceeds
its estimated recoverable amount. Impairment
losses are recognized in the statement of profit
and loss. Impairment losses recognized in
respect of CGUs are reduced from the carrying
amounts of the assets of the CGU.
d) Impairment losses recognized in prior periods
are assessed at each reporting date for any
indications that the loss has decreased or no
longer exists. An impairment loss is reversed
if there has been a change in the estimates
used to determine the recoverable amount.
An impairment loss is reversed only to the
extent that the asset's carrying amount does
not exceed the carrying amount that would
have been determined, net of accumulated
depreciation or amortization, if no impairment
loss had been recognized.
14. Dividends
Dividends and interim dividends payable to the
Company's shareholders are recognized as changes
in equity in the period in which they are approved
by the shareholders and the Board of Directors
respectively.
15. Material prior period errors
Material prior period errors are corrected
retrospectively by restating the comparative
amounts for the prior periods presented in which
the error occurred. If the error occurred before the
earliest period presented, the opening balances of
assets, liabilities and equity for the earliest period
presented, are restated.
16. Earnings per share
Basic earnings per equity share is computed by
dividing the net profit or loss attributable to equity
shareholders of the Company by the weighted
average number of equity shares outstanding
during the financial year.
Diluted earnings per equity share is computed by
dividing the net profit or loss attributable to equity
shareholders of the Company by the weighted
average number of equity shares considered for
deriving basic earnings per equity share and also
the weighted average number of equity shares
that could have been issued upon conversion of all
dilutive potential equity shares.
The number of equity shares and potentially
dilutive equity shares are adjusted retrospectively
for all periods presented for any bonus shares
issued during the financial year.
17. Financial instruments
A financial instrument is any contract that gives
rise to a financial asset of one entity and a financial
liability or equity instrument of another entity.
The Company recognizes a financial asset or a
financial liability only when it becomes party to the
contractual provisions of the instrument.
17.1. Financial assets
Initial recognition and measurement
All financial assets are recognized at fair value on
initial recognition, except for trade receivables
which are initially measured at transaction price.
Transaction costs that are directly attributable to
the acquisition of financial assets, which are not
valued at fair value through profit or loss, are added
to the fair value on initial recognition.
Subsequent measurement
Business model assessment
The Company holds financial assets which arise
from its ordinary course of business. The objective
of the business model for these financial assets is
to collect the amounts due from the Company's
receivables and to earn contractual interest income
on the amounts collected.
Investment in Equity instruments
Equity investments in subsidiaries and joint venture
companies are accounted at cost less impairment,
if any.
The Company reviews the carrying value of
investments at each reporting date to determine
whether there is any indication of impairment. If
any such indication exists, then the recoverable
amount of the investment is estimated. If the
recoverable amount is less than the carrying
amount, the impairment loss is recognized in the
statement of profit and loss.
De-recognition
A financial asset (or, where applicable, a part of a
financial asset or part of a Group of similar financial
assets) is primarily de-recognized (i.e. removed
from the Company's balance sheet) when:
• The rights to receive cash flows from the asset
have expired, or
• The Company has transferred its rights to
receive cash flows from the asset or has
assumed an obligation to pay the received
cash flows in full without material delay
to a third party under a 'pass-through'
arrangement; and either (a) the Company
has transferred substantially all the risks and
rewards of the asset, or (b) the Company has
neither transferred nor retained substantially
all the risks and rewards of the asset, but has
transferred control of the asset.
The difference between the carrying amount and
the amount of consideration received/receivable is
recognized in the statement of profit and loss.
Impairment of financial assets
In accordance with Ind AS 109-'Financial
instruments', the Company applies expected credit
loss (ECL) model for measurement and recognition
of impairment loss on the following financial assets
and credit risk exposure:
(a) Financial assets which are measured at
amortized cost e.g., deposits, bank balances
etc.
(b) Trade receivables (including unbilled revenue)
and contract assets under Ind AS 115.
For trade receivables and contract assets/unbilled
revenue, the Company applies the simplified
approach required by Ind AS 109 Financial
Instruments, which requires lifetime expected
losses to be recognized from initial recognition.
For recognition of impairment loss on other
financial assets and risk exposure (other than
purchased or originated credit impaired financial
assets), the Company determines that whether
there has been a significant increase in the credit
risk since initial recognition. If credit risk has not
increased significantly, 12-month ECL is used to
provide for impairment loss. However, if credit risk
has increased significantly, lifetime ECL is used.
If, in a subsequent period, credit quality of the
instrument improves such that there is no longer
a significant increase in credit risk since initial
recognition, then the entity reverts to recognizing
impairment loss allowance based on 12 month ECL.
For purchased or originated credit impaired
financial assets, a loss allowance is recognized
for the cumulative changes in lifetime expected
credited losses since initial recognition.
17.2. Financial liabilities
Initial recognition and measurement
Financial liabilities are classified, at initial
recognition, as financial liabilities at fair value
through profit or loss and financial liabilities
at amortized cost, as appropriate. All financial
liabilities are recognized initially at fair value and,
in the case of liabilities subsequently measured
at amortized cost net of directly attributable
transaction cost. The Company's financial liabilities
include trade and other payables and borrowings.
Subsequent measurement
The measurement of financial liabilities depends
on their classification, as described below:
Financial liabilities at amortized cost
After initial measurement, such financial liabilities
are subsequently measured at amortized cost using
the EIR method. Gains and losses are recognized in
statement of profit and loss when the liabilities
are derecognized as well as through the EIR
amortization process Amortized cost is calculated
by taking into account any discount or premium
on acquisition and fees or costs that are an integral
part of the EIR. The EIR amortization is included in
finance costs in the statement of profit and loss.
This category generally applies to borrowings,
trade payables and other contractual liabilities.
Financial liabilities at fair value through profit
or loss
Financial liabilities at fair value through profit or
loss include financial liabilities held for trading
and financial liabilities designated upon initial
recognition as at fair value through profit or loss.
Financial liabilities are classified as held for trading
if they are incurred for the purpose of repurchasing
in the near term. This category also includes
derivative financial instruments entered into by
the Company that are not designated as hedging
instruments in hedge relationships as defined by
Ind AS 109. Separated embedded derivatives are
also classified as held for trading unless they are
designated as effective hedging instruments.
Gains or losses on liabilities held for trading are
recognized in the statement of profit and loss.
Financial liabilities designated upon initial
recognition at fair value through profit or loss are
designated at the initial date of recognition, and
only if the criteria in Ind AS 109 are satisfied. For
liabilities designated as FVTPL, fair value gains/
losses attributable to changes in own credit
risk is recognized in OCI. These gains/losses are
not subsequently transferred to profit and loss.
However, the Company may transfer the cumulative
gain or loss within equity on disposal. All other
changes in fair value of such liability are recognized
in the statement of profit and loss. The Company
has not designated any financial liability as at fair
value through profit and loss.
De-recognition
A financial liability is derecognized when the
obligation under the liability is discharged or
cancelled or expires. When an existing financial
liability is replaced by another from the same
lender on substantially different terms, or the terms
of an existing liability are substantially modified,
such an exchange or modification is treated as
the de-recognition of the original liability and the
recognition of a new liability. The difference in the
respective carrying amounts is recognized in the
statement of profit and loss.
17.3. Offsetting of financial assets and financial
liabilities
Financial assets and financial liabilities are offset
and the net amount is presented in the balance
sheet if there is a currently enforceable legal right
to offset the recognized amounts and there is an
intention to settle on a net basis, to realize the
assets and settle the liabilities simultaneously.
D. Use of estimates and management judgments
The preparation of financial statements requires
management to make judgments, estimates and
assumptions that may impact the application of
accounting policies and the reported value of assets,
liabilities, revenue, expenses and related disclosures
concerning the items involved as well as contingent
assets and liabilities at the balance sheet date. The
estimates and management's judgments are based
on previous experience & other factors considered
reasonable and prudent in the circumstances. Actual
results may differ from these estimates.
Estimates and underlying assumptions are reviewed
on an ongoing basis. Revisions to accounting estimates
are recognised in the period in which the estimates are
revised and in any future periods affected.
In order to enhance understanding of the financial
statements, information about significant areas of
estimation, uncertainty and critical judgments in
applying accounting policies that have the most
significant effect on the amounts recognized in the
financial statements is as under:
1. Formulation of accounting policies
The accounting policies are formulated in a manner
that results in financial statements containing relevant
and reliable information about the transactions, other
events and conditions to which they apply. Those
policies need not be applied when the effect of applying
them is immaterial.
2. Useful life of property, plant and equipment and
intangible assets
The estimated useful life of property, plant and
equipment and intangible assets is based on a number
of factors including the effects of obsolescence,
demand, competition and other economic factors (such
as the stability of the industry and known technological
advances) and the level of maintenance expenditures
required to obtain the expected future cash flows from
the asset.
Useful life of the assets of the generation of electricity
business (where tariff is regulated) is determined by the
CERC Tariff Regulations in accordance with Schedule II
of the Companies Act, 2013.
3. Recoverable amount of property, plant and
equipment and intangible assets
The recoverable amount of property, plant and
equipment and intangible assets is based on estimates
and assumptions regarding in particular the expected
market outlook and future cash flows associated with
the power plants. Any changes in these assumptions
may have a material impact on the measurement of the
recoverable amount and could result in impairment.
4. Revenues
The Company records a part of revenue from sale of
energy based on tariff rates approved by the CERC
as modified by the orders of Appellate Tribunal for
Electricity, as per principles enunciated under Ind AS
115. However, in cases where tariff rates are yet to be
approved, provisional rates are adopted considering
the applicable CERC Tariff Regulations.
5. Leases not in legal form of lease
Significant judgment is required to apply lease
accounting rules as per Ind AS 116 in determining
whether an arrangement contains a lease. In
assessing arrangements entered into by the Company,
management has exercised judgment to evaluate the
right to use the underlying asset, substance of the
transactions including legally enforceable agreements
and other significant terms and conditions of the
arrangements to conclude whether the arrangement
meets the criteria as per Ind AS 116.
6. Provisions and contingencies
The assessments undertaken in recognizing provisions
and contingencies have been made in accordance
with Ind AS 37,- 'Provisions, contingent liabilities and
contingent assets' The evaluation of the likelihood
of the contingent events require best judgment by
management regarding the probability of exposure to
potential loss. Should circumstances change following
unforeseeable developments, this likelihood could
alter.
7. Impairment test of investments in Subsidiaries and
Joint Venture Companies
The recoverable amount of investment in subsidiaries
and joint venture companies is based on estimates and
assumptions regarding in particular the future cash
flows associated with the operations of the investee
Company. Any changes in these assumptions may
have a material impact on the measurement of the
recoverable amount and could result in impairment.
8. Income taxes
Significant estimates are involved in determining
the provision for current and deferred tax, including
amount expected to be paid/recovered for uncertain
tax positions.
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