ACCOUNTING STANDARDS An overview and applicability to POWERGRID

1. WELCOME TO THE PARTICIPANTS ACCOUNTINGSTANDARDS An overview and applicability to POWERGRID A H CHAR Chief Manager(F&A) SRTS II

2. What is an Accounting Standard ? In layman terms, accounting standards are the written documents issued by the expert accounting body (ICAI) or Government or other regulatory body covering various aspects of measurement, treatment, presentation and disclosure of accounting transactions. What are the objectives of Accounting Standards? The basic objective of Accounting Standards is to remove variations in the treatment of several accounting aspects and to bring about standardization in presentation. They intent to harmonize the diverse accounting policies followed in the preparation and presentation of financial statements by different reporting enterprises so as to facilitate intra-firm and inter-firm comparison.

3. Who issues Accounting Standards in India? The Institute of Chartered Accountants of India (ICAI) recognizing the need to harmonize the diverse accounting policies and practices at present in use in India constituted Accounting Standards Board (ASB) on April 21, 1977. The main role of ASB is to formulate Accounting Standards from time to time. Compliance with Accounting Standards issued by ICAI : Sec 211 (3A) of Companies Act, 1956 requires that every Profit/Loss Account and Balance Sheet shall comply with the Accounting Standards. Board of Directors’ Responsibility: Sec 217(2AA)(1) of Companies Act,1956 states that directors’ responsibility statement should indicate that in the preparation of annual accounts the applicable Accounting Standards had been followed along with proper explanation relating to material departure.

4. Statutory Auditors’ Responsibility : Auditors are duty bound while discharging their attest function to ensure that the Accounting Standards issued and made mandatory by the ICAI are implemented. The statutory auditors are required to make qualification in their report in case any item is treated differently from the prescribed Accounting Standard. However, while qualifying, they should consider the materiality of the relevant item. Sec227(3) of Companies Act,1956 requires the auditors to report whether in his opinion the Profit/Loss Account and Balance Sheet comply with the Accounting Standards referred to in Section 211(3C) of Companies Act,1956.

5. STATEMENT OF ACCOUNTING STANDARDS ISSUED BY THE ICAI :

6. STATEMENT OF ACCOUNTING STANDARDS ISSUED BY THE ICAI : (Contd.,)

7. POWERGRID Accounting Policies Vs Accounting Standards

8. DISCLOSURE OF ACCOUNTING POLICIES : (AS-1) Mandatory wef 01-04-1993 Accounting Policies refer to specific accounting principles and the method of applying those principles adopted by the enterprises in preparation and presentation of the financial statements. Every Annual Accounts should contain the Accounting Policies and they should be placed before the Balance Sheet and Profit & Loss A/c for proper disclosure. • All areas where acceptable alternatives of accounting treatment are available the policy adopted by a company should be disclosed. The areas generally are : • Method of depreciation. (SLM/WDV) • Treatment of expenditure during construction. (Write off/Capital/ • Deferment) • Translation of foreign currency items. (Average rate/TT Buying • rate) • Valuation of inventories. (FIFO/Wt. Average/Std. cost)

9. DISCLOSURE OF ACCOUNTING POLICIES : (AS-1) (Contd.,) • Valuation of investment. • Treatment of retirement benefits. • Recognition of Profits on long term contracts. • Valuation of fixed assets. • Treatment of contingent liabilities. • Need for Disclosure: • Better understanding of Financial statements. • Disclosures should form part of Financial statements. • Disclosure is necessary If fundamental assumption is not followed viz. • Going concern concept • Consistency concept • Accrual concept (POWERGRID’s Accounting Policy on Surcharge) • A change in Accounting Policy Should be made only if • It is necessary as per Statue • It is required as per any Accounting Standard • It provides more appropriate Presentation of Financial data.

10. VALUATION OF INVENTORIES (AS-2) Mandatory wef 01-04-1999 • Valuation of Inventories • Inventories are assets held for : • sale or , • in the process of production for such sale or , • in the form of materials or supplies to be consumed in the • production process. • The AS does not deal with : • Work in progress under construction contracts • Work in progress arising out of ordinary course of business of • service provider • Shares, debenture & other financial instruments • Inventories of livestock, agricultural & forest products, mineral • oils, ores & gases. where inventories are valued at net • realizable value. • Shares, Debentures and Bonds etc held as stock-in trade.

11. What is the AS on Valuation of Inventories? • Valuation of Inventory • Lower of cost or net realizable value. • 2. Method used for valuation of Inventory • Valuation generally based on FIFO,Weighted Average Cost,Standard Cost or Retail Method. • Disclosure Requirements: • Accounting policy adopted in measuring inventories. • The cost formula used. • The total carrying amount of inventories and its classification appropriate to the enterprise. • POWERGRID classifies Inventories as Towers, Conductors, Other Line Material, Sub-station, HVDC,ULDC, Telecom • Case Study of POWERGRID’s Inventory Valuation methodology

12. CASH FLOW STATEMENT (AS-3) Mandatory wef 01-04-2001 • Cash Flow Statement is additional information to user of financial statement. This statement exhibits the flow of incoming and outgoing cash on historical basis. • This statement assesses the ability of the enterprise to generate cash, cash equivalents and utilize cash. • This statement is one of the tools for assessing the LIQUIDITY AND SOLVENCY of the enterprise. • The cash flows have to be classified activity-wise into operating, investing and financing activities.

13. CASH FLOW STATEMENT (AS-3) Contd., Mandatory wef 01-04-2001 • Cash comprises cash in hand and demand deposits with banks. • Cash equivalents are short term, highly liquid investments that are readily convertible into known amounts of cash. (say within three months period) • Cash flows are inflows and outflows of cash and cash equivalents • The cash flow statement should be classified in operating, investing and financing activities

14. CASH FLOW STATEMENT (AS-3) Contd., Mandatory wef 01-04-2001 • Operating activities are the principal revenue-producing activities of the enterprise. • EXAMPLES: • Cash receipts from customers, royalties, fees, commission, and • other revenue. • Cash payments to suppliers for goods and services. • Cash payments to and on behalf of employees • Investing activities are the acquisition and disposal of long-term assets and other investments not included in cash equivalents. • EXAMPLES : cash payments to acquire fixed assets. • cash receipts from disposal of fixed assets • Interest & dividend received • Financing activities are activities that result in changes in the size and composition of the owner’s capital (including preference share capital in the case of a company) and borrowings of the enterprise. • EXAMPLES : Proceeds from issue of share capital. • Proceeds from long term borrowings. • Repayment of long term borrowings

15. CONTINGENCIES AND EVENTS OCCURING AFTER THE BALANCE SHEET DATE – (AS-4) Mandatory wef 01-04-1998 • This statement deals with the treatment in the financial statements of: • Contingencies and • Events occurring after the Balance Sheet date. A Contingency is a condition or situation, the ultimate outcome of which, gain or loss will be known or determined only on the occurrence or non occurrence of one or more uncertain events. Events occurring after the balance sheet date are those significant events, both favorable and unfavorable, that occur between the balance sheet date and the date on which the financial statements are approved by Board of Directors.

16. CONTINGENCIES AND EVENTS OCCURING AFTER THE BALANCE SHEET DATE – (AS-4) Contd., Mandatory wef 01-04-1998 • Contingencies and events occurring after the balance sheet date which affects the financial position to a material extent at balance sheet date, are, if possible to be quantified and disclosed in the balance sheet. If it is likely that contingency will result in a loss, it is prudent to provide for that loss. • Contingent gains are not recognised in financial statements since their recognition may result in the recognition of revenue which may never be realised. However, when the realisation of a gain is virtually certain, then such gain is not a contingency and accounting for the gain is appropriate. • Disclosures of contingency should include • The nature of contingency • The uncertainties which may affect the future outcome. • An estimate of the financial effect or a statement that such an estimate cannot be made.

17. CONTINGENCIES AND EVENTS OCCURING AFTER THE BALANCE SHEET DATE – (AS-4) Contd., Mandatory wef 01-04-1998 • Events occurring after Balance Sheet Date : • Where such events related to circumstances existing on the date of Balance Sheet : • Accounting Treatment : Loss should be accounted in the accounts and assets & liabilities to be adjusted. • Where such events NOT related to circumstances existing on Balance Sheet date, ie., entirely new events after the Balance Sheet date • Disclosure by way of notes to accounts only, no adjustment in accounts. • In case of disclosure – • The nature of event • Estimate of the financial effect or a statement that such an estimate cannot be made.

18. NET PROFIT OR LOSS FOR THE PERIOD, PRIOR PERIOD ITEMS AND CHANGES IN ACCOUNTING POLICIES – (AS-5) Mandatory wef 01-04-1996 • Ordinary activities are any activities and other incidental activities which are undertaken by an enterprise as part of its business. • Extraordinary items are income or expenses that arise from non recurring events and transactions. • Prior period items are income or expenses, which arise, in the current period as a result of errors or omissions in the preparation of the financial statements of one or more prior periods. • Accounting policies are the specific accounting principles and the methods of applying those principles in the preparation and presentation of financial statements.

19. NET PROFIT OR LOSS FOR THE PERIOD, PRIOR PERIOD ITEMS AND CHANGES IN ACCOUNTING POLICIES – (AS-5) Contd., Mandatory wef 01-04-1996 DISCLOSURE REQUIREMENTS Ordinary items: When items of income and expense from ordinary activities are of such size, nature or incidence that their disclosure is relevant to explain the performance of the enterprise for the period, the nature and amount of such items should be disclosed separately. Extraordinary items: The nature and the amount of each extraordinary item should be separately disclosed in the statement of profit and loss in a manner that its impact on current profit or loss can be perceived.

20. NET PROFIT OR LOSS FOR THE PERIOD, PRIOR PERIOD ITEMS AND CHANGES IN ACCOUNTING POLICIES – (AS-5) Contd., Mandatory wef 01-04-1996 DISCLOSURE REQUIREMENTS Prior period items: The nature and amount of prior period items should be separately disclosed in the profit and loss statement in such a way that their impact on the current profit or loss can be perceived. Accounting estimates: The nature and amount of a change in an accounting estimate which has a material effect in the current period or which is expected to have a material effect in subsequent periods, should be disclosed. If the effect cannot be quantified, this fact should be disclosed. Accounting policies: The effect of any change in an accounting policy, if material, should be disclosed in thefinancial statements of the period quantifying the impact. Where the effect cannot be quantified, wholly or in part, the fact should be disclosed.

21. DEPRECIATION ACCOUNTING – (AS-6) Mandatory wef 01-04-1995 DEPRECIATIONIs a measure of the wearing out, consumption or other loss of value of a depreciable asset arising from use, effluxion of time or obsolescence due to technology and market changes. • DEPRECIABLE ASSETS are assets which: Are used for more than one year • Have a limited useful life • Are held by an enterprise for use in : • - the production or supply of goods and services • - for renting to others • - for administrative purposes • - not for the purpose of sale in the ordinary course of • business.

22. DEPRECIATION ACCOUNTING – (AS-6) Contd., Mandatory wef 01-04-1995 DEPRECIABLE AMOUNT OF AN ASSET :Is its historical cost, or other amount substituted for historical cost in the financial statements, less the estimated residual value.Depreciable amount of a depreciable asset should be allocated on a systematic basis to each accounting period during its useful life. Depreciation Amount = ( Cost less Residual Value)/Estimated useful life (years) METHODS FOLLOWED 1. STRAIGHTLINE METHOD 2. WRITTEN DOWN VALUE METHOD If a change in the method of depreciation is made, depreciation is recalculated in accordance with the new method from the date of the asset coming into use. The deficiency or surplus arising from retrospective re-computation is adjusted in the profit and loss account in the year in which the method of depreciation is changed.

23. DEPRECIATION ACCOUNTING – (AS-6) Contd., Mandatory wef 01-04-1995 • DISCLOSURE REQUIREMENTS • The historical cost each class of assets; • Total depreciation for the period. • The related accumulated depreciation; • Depreciation methods used; and • Depreciation rates (only if they are different from the principal rates specified in the statute governing the enterprise.)

24. CONSTRUCTION CONTRACTS – (AS-7) Mandatory wef 01-04-2003 A CONSTRUCTION CONTRACT is a contract for the construction of an asset or of a combination of assets which together constitute a single project. TYPES OF CONTRACTS 1. Fixed price contracts. 2. Cost plus contracts. METHODS FOLLOWED 1. PERCENTAGE OF COMPLETION METHOD OR 2. COMPLETED CONTRACT METHOD The method of accounting selected represents an accounting policy and therefore if there is any change in the accounting policy the effect of the change and its amount needs to be disclosed.

25. CONSTRUCTION CONTRACTS – (AS-7) Contd., Mandatory wef 01-04-2003 PERCENTAGE OF COMPLETION METHOD Revenue is recognized as the contract activity progresses based on the stage of completion. This method can be used only if the outcome of the contract can be reliably estimated. Normally, the profit is not recognized in fixed price contracts unless the work on a contract has progressed to a reasonable extent (20 to 25% of the work) MEASUREMENT OF COMPLETION TAKING INTO ACCOUNT ALL RELEVANT FACTORS 1. The proportion that costs incurred to date bear to the estimated total costs of the contract. 2. By the surveys which measure work performed. While recognizing the profit under percentage of completion method, an appropriate allowance for future unforeseeable factors should be made on either a specific or a percentage basis.

26. CONSTRUCTION CONTRACTS – (AS-7) Contd., Mandatory wef 01-04-2003 COMPLETED CONTRACT METHOD Revenue is recognized only when the contract is completed or substantially completed Costs and progress payments received are accumulated during the course of the contract but revenue is not recognised until the contract activity is substantially completed. DISCLOSURE The amount of construction work-in-progress Progress payments received and advances and retentions on account of contracts included in construction work-in-progress The amount receivable in respect of income accrued under cost plus contracts not included in construction work-in-progress.

27. REVENUE RECOGNITION – (AS-9) Mandatory wef 01-04-1993 PURPOSE: Recognizing revenue arising in the course of the ordinary activities of the enterprise SCOPE It includes the following activities: The sale of goods. The rendering of services. The use by others of enterprise resources yielding interest, royalties and dividends.

28. REVENUE RECOGNITION – (AS-9) Contd., Mandatory wef 01-04-1993 REVENUE RECOGNITION IN SALE OF GOODS CONDITIONS: The property in goods in transferred for a price. All significant risks and rewards have been transferred and no effective control is retained. No significant uncertainty exists regarding the amount of consideration. It is reasonable to expect ultimate collection of consideration. REVENUE RECOGNITION IN RENDERING OF SERVICES CONDITIONS: Service is recognised either on completed service or proportionate completion method. No Significant uncertainty exists regarding amount of consideration. It is reasonable to expect ultimate collection of consideration.

29. REVENUE RECOGNITION – (AS-9) Contd., Mandatory wef 01-04-1993 REVENUE RECOGNITION IN USE OF ENTERPRISE RESOURCES BY OTHERS Interest: Revenue is recognized on the time basis determined by the amount outstanding and the rate applicable. Royalty : Revenue is recognized in accordance with the terms of the relevant agreement. Dividends: Revenue is recognized only when a right to receive payment is established. DISCLOSURE REQUIREMENTS When recognition of revenue is postponed due to the effect of uncertainties, an enterprise should disclose the circumstances in which revenue recognition has been postponed.

30. ACCOUNTING FOR FIXED ASSETS– (AS-10) Mandatory wef 01-04-1993 • Fixed asset is an asset held with the intention of being used for the purpose of producing or providing goods or services and is not held for sale in the normal course of business. • Identification of Fixed Assets – Matter of judgment. • Long term benefit • Not held for sale in the ordinary course • Materiality • Spares are generally expensed, but mandatory spares are capitalized along with the principal item

31. ACCOUNTING FOR FIXED ASSETS– (AS-10) Contd., Mandatory wef 01-04-1993 • Fixed assets are shown at Historical cost and includes • Purchase price • Import duties & other taxes • Directly attributable cost • Delivery, handling, installation costs & Commissioning costs • Price adjustments, directly attributable interest costs, loss or gain on deferred payment of foreign currency liability (Substituted by AS-11 read with AS-16) • REVALUATION • Revaluation is restricted to net recoverable amount of fixed assets. • Revaluation is done through appraisers. • Increase in value is credited to Revaluation reserve and decrease is charged off to Profit and loss account.

32. ACCOUNTING FOR FIXED ASSETS– (AS-10) Contd., Mandatory wef 01-04-1993 • REPAIR & MAINTENANCE • If expected future benefits do not change - Charge off • If future benefits have changed such costs are capitalized • ADDITION & EXTENSION • which are integral part of fixed assets – Capitalized and depreciated over the remaining life. • If separate identity and capable of used after disposal of existing assets, it is accounted for separately. • RETIRED ASSETS • These are stated at lower of net book value and net realizable value. Any expected loss is recognized immediately.

33. ACCOUNTING FOR FIXED ASSETS– (AS-10) Contd., Mandatory wef 01-04-1993 • DISPOSALS • Gains or losses are recognized in profit and loss account. • Loss on previously revalued assets is adjusted against revaluation reserve and balance if any is charged off. • Balance of revaluation reserve after an asset is disposed is credited to P&L account. • DISCLOSURES • Gross and net book values of fixed assets at the beginning and at the end of accounting period showing additions, disposal, acquisitions and other movements. • Expenditure incurred on account of fixed assets in the course of construction or acquisition. • Revalued amount – method adopted, whether external valuer engaged

34. EFFECTS OF CHANGES IN FOREIGN EXCHANGE RATES– (AS-11) Mandatory wef 01-04-2004 PURPOSE Accounting for transactions in foreign currencies and in translating the financial statements of foreign branches for inclusion in the financial statements of the reporting enterprise RELEVANT DEFINITIONS Reporting currency is the currency used in presenting the financial statements. Example : INR (Indian Rupee) Foreign currency is a currency other than the reporting currency of an enterprise. Example : US$, GBP, EURO, YEN Exchange rate is the ratio for exchange of two currencies. Average rate is the mean of the exchange rates. Forward rate is the exchange rate established by the terms of an agreement for exchange of two currencies.

35. EFFECTS OF CHANGES IN FOREIGN EXCHANGE RATES– (AS-11) Contd., Mandatory wef 01-04-2004 RELEVANT DEFINITIONS (Contd.,) Closing rate is the exchange rate at the Balance Sheet date. Monetary itemsinclude foreign currency notes, balances in bank accounts denominated in a foreign currency, receivables, payables and loans denominated in a foreign currency. Non-monetary items are assets and liabilities other than monetary items e.g. fixed assets, inventories, investments in equity shares. Settlement date is the date at which a receivable is due to be collected or a payable is due to be paid. Recoverable amount is the amount, to be recovered from the future use of an asset, including its residual value on disposal

36. EFFECTS OF CHANGES IN FOREIGN EXCHANGE RATES– (AS-11) Contd., Mandatory wef 01-04-2004 • RECORDING A FOREIGN EXCHANGE TRANSACTION • (Initial Recognition) • A transaction in a foreign currency should be recorded in the reporting currency by applying to the foreign currency amount the exchange rate between the reporting currency and the foreign currency at the date of the transaction. For practical reasons, a rate that approximates the actual rate is often used.

37. EFFECTS OF CHANGES IN FOREIGN EXCHANGE RATES– (AS-11) Contd., Mandatory wef 01-04-2004 • Foreign loans contracted before 01/04/2004 (AS 11 -1994.Pre revised) Exchange differences arising on the statement of monetary items or on reporting an enterprise’s monetary items at rates different from those at which they are initially recorded during the period, or reported in previous financial statements, should be recognised as income or as expenses in the period in which they arise, with the exception of exchange differences in respect of Fixed Assets acquired from Foreign Loans. (All the Loans drawn other than under ADB-III and IBRD-III). • Foreign loans contracted on or after 01/04/02004 (AS 11 (revised 2003) • Exchange differences arising on foreign currency transactions should be recognised as income or as expense in the period in which they arise. The Loans drawn after 01.04.2004 in case of POWERGRID are Loans drawn under ADB-III and IBRD-III.

38. EFFECTS OF CHANGES IN FOREIGN EXCHANGE RATES– (AS-11) Contd., Mandatory wef 01-04-2004 l

39. EFFECTS OF CHANGES IN FOREIGN EXCHANGE RATES– (AS-11) Contd., Mandatory wef 01-04-2004

40. ACCOUNTING FOR GOVERNMENT GRANTS – (AS-12) Mandatory wef 01-04-1994 Government grants are assistance by Government in cash or kind to an enterprise for past or future compliance with certain conditions but they exclude those forms of Government assistance which cannot be valued. They also exclude the normal trading transactions of the enterprise with the Government. ACCOUNTING TREATMENT : Two methods of presentation in financial statements of grants (or the appropriate portions of grants) related to specific fixed assets are regarded as acceptable alternatives. Under First method (also known as CAPITAL APPROACH): The grant is shown as a deduction from the gross value of the asset concerned in arriving at its book value. The grant is thus recognised in the profit and loss statement over the useful life of a depreciable asset by way of a reduced depreciation charge. Where the grant equals the whole, or virtually the whole, of the cost of the asset, the asset is shown in the balance sheet at a nominal value. The grant is thus treated as part of shareholder’s funds.

41. ACCOUNTING FOR GOVERNMENT GRANTS – (AS-12) Contd Mandatory wef 01-04-1994 The second method (also known as Income Approach): Thegrants related to depreciable assets are treated as deferred income which is recognised in the profit and loss statement on a systematic and rational basis over the useful life of the asset. Such allocation to income is usually made over the periods and in the proportions in which depreciation on related assets is charged. Grants related to non-depreciable assets are credited to capital reserve under this method, as there is usually no charge to income in respect of such assets. However, if a grant related to a non-depreciable asset requires the fulfilment of certain obligations, the grant is credited to income over the same period over which the cost of meeting such obligations is charged to income. The deferred income is suitably disclosed in the balance sheet pending its apportionment to profit and loss account. For example, in the case of a company, it is shown after ‘Reserves and Surplus’ but before ‘Secured Loans’ with a suitable description, e.g., ‘Deferred Government Grants’.

42. ACCOUNTING FOR GOVERNMENT GRANTS – (AS-12) Contd., Mandatory wef 01-04-1994 • DISCLOSURE REQUIREMENTS • The accounting policy adopted for government grants should be disclosed along with the methods of presentation in the financial statements. • Nature and extent of government grants recognized in the financial statements including grants of non monetary assets given at a concessional rate or free of cost. • The deferred income is suitably disclosed in the balance sheet.

43. ACCOUNTING FOR INVESTMENTS – (AS-13) Mandatory wef 01-04-1995 • A current investment is an investment that is by its nature readily realisable and is intended to be held for not more than one year from the date on which such investment is made. • A long term investment is an investment other than a current investment. • Carrying cost of investment is : • Current Investment : Lower of cost or fair value • Long Term : At cost unless there is diminution in the value of investment. • Disclosure Requirements: • Accounting policy followed for valuation of Investment. • Classifications • Aggregate amount of quoted and unquoted securities separtely. • Income should be shown separately (By way of interest, dividend rentals or profit/loss on sale) • POWER Grid's Accounting Policy : • Long term investments are carried at cost less provisions, if any, for permanent diminution in the value of such investments.

44. ACCOUNTING FOR AMALGAMATIONS – (AS-14) Mandatory wef 01-04-1995 This statement deals with accounting for amalgamations and the treatment of any resultant goodwill or reserves. This statement is directed principally to the Companies registered under the Companies Act,1956. • If • Purchase Consideration > Net Asset valueGOODWILL • Purchase Consideration < Net Asset valueCAPITAL RESERVE

45. ACCOUNTING FOR RETIREMENT BENEFITS – (AS-15) Mandatory wef 01-04-1995 • AS-15 (revised 2005) ‘Employee Retirement Benefits’ is made mandatory w.e.f 01-04-2007 ( from FY 2007-08) • This is accounted for as per the Actuarial Valuation due its calculation of liability being uncertain and cannot be determined in the ordinary course. • Whatare retirement benefits ? • Provident Fund • Superannuating/Pension • Gratuity • Leave encashment benefits on retirement • Post-retirement health and welfare scheme

46. ACCOUNTING FOR RETIREMENT BENEFITS – (AS-15) Contd., Mandatory wef 01-04-1995 Types of Retirement Benefits : Defined Contribution Scheme : Amount to be paid under the scheme is determined by the contribution made to the fund and accumulated income thereon. Example : Contributory Provident Fund. Defined Benefit Scheme : Amount to be paid under this scheme is determined usually by reference to employee’s salary and length of service. Accrued liability under defined benefit plan is ascertained by actuarial valuation. Examples : Gratuity, Leave Encashment, Pension etc

47. ACCOUNTING FOR RETIREMENT BENEFITS – (AS-15) Contd., Mandatory wef 01-04-1995 • Actuarial Assumptions • Principal assumptions used for actuarial valuation are: • i) Method used - Projected Unit Credit ( PUC) • ii) Discount rate - 8% • iii) Expected rate of return on assets (Gratuity only) - 8.50% • iv) Future salary increase - 5.50% • Disclosure : • Method by which retirement benefit costs for the period have been determined. • In case of Gratuity and other defined benefit scheme based on actuarial valuation, the financial statement must disclose the date of actuarial valuation.

48. ACCOUNTING FOR BORROWING COSTS – (AS-16) Mandatory wef 01-04-2000 • What are Borrowing Costs? • Interest, Guarantee Fees and commitment charges on bank & other short term borrowings • Finance charges of assets acquired under finance leases or • under other similar arrangements • Exchange differences arising from foreign currency borrowings to the extent that they are regarded as an adjustment to interest costs As per this Accounting Standard, Borrowing Cost, which is directly related to the acquisition, construction or production of qualifying asset should be capitalized.

49. ACCOUNTING FOR BORROWING COSTS – (AS-16) Contd., Mandatory wef 01-04-2000 • Amount of Borrowing Costs eligible for Capitalisation : • When amount borrowed is specifically for the purchase/construction of a qualifying asset . Example : Particular series of Bonds earmarked for a particular project of POWERGRID. =>Actual Borrowing Cost incurred during the period less any income on the temporary investment of borrowed amount. • When the amount borrowed is generally used for the purpose of obtaining qualifying asset. => Amount of BC to be capitalised should be determined by applying a capitalisation rate to the expenditure on that asset. The capitalisation rate should be weighted average of borrowing cost. DISCLOSURE : The financial statement should disclose: • The accounting policy adopted for borrowing cost. • The amount of borrowing cost capitalized during the period.

50. ACCOUNTING FOR BORROWING COSTS – (AS-16) Contd., Mandatory wef 01-04-2000