By Himanshu V. Kishnadwala | Chartered Accountant
From Published Accounts
1 ITC
Limited — (31-3-2009)
Significant Accounting Policies
It is corporate policy :
Convention :
To prepare financial statements
in accordance with applicable Accounting Standards in India.
A summary of important
accounting policies is set out below. The financial statements have also been
prepared in accordance with relevant presentational requirements of the
Companies Act, 1956.
Basis of accounting :
To prepare financial statements
in accordance with the historical cost convention modified by revaluation of
certain Fixed Assets as and when undertaken as detailed below.
Fixed assets :
To state Fixed Assets at cost of
acquisition inclusive of inward freight, duties and taxes and incidental
expenses related to acquisition. In respect of major projects involving
construction, related pre-operational expenses form part of the value of assets
capitalised. Expenses capitalised also include applicable borrowing costs.
To capitalise software where it
is expected to provide future enduring economic benefits. Capitalisation costs
include licence fees and costs of implementation/system integration services.
The costs are capitalised in the
year in which the relevant software is implemented for use.
To charge off as a revenue
expenditure all upgradation/enhancements unless they bring similar significant
additional benefits.
Depreciation :
To calculate depreciation on
Fixed Assets and Intangible Assets in a manner that amortises the cost of the
assets after commissioning, over their estimated useful lives or, where
specified, lives based on the rates specified in Schedule XIV to the Companies
Act, 1956, whichever is lower, by equal annual instalments. Leasehold properties
are amortised over the period of the lease.
To amortise capitalised software
costs over a period of five years.
Revaluation of assets :
As and when Fixed Assets are
revalued, to adjust the provision for depreciation on such revalued Fixed
Assets, where applicable, in order to make allowance for consequent additional
diminution in value on considerations of age, condition and unexpired useful
life of such Fixed Assets; to transfer to Revaluation Reserve the difference
between the written-up value of the Fixed Assets revalued and depreciation
adjustment and to charge Revaluation Reserve Account with annual depreciation on
that portion of the value which is written up.
Investments :
To state Current Investments at
lower of cost and fair value; and Long-Term Investments, including in Joint
Ventures and Associates, at cost. Where applicable, provision is made where
there is a permanent fall in valuation of Long-Term Investments.
Inventories :
To state inventories including
work-in-progress at lower of cost and net realisable value. The cost is
calculated on weighted average method. Cost comprises expenditure incurred in
the normal course of business in bringing such inventories to its location and
includes, where applicable, appropriate overheads based on normal level of
activity. Obsolete, slow moving and defective inventories are identified at the
time of physical verification of inventories and, where necessary, provision is
made for such inventories.
Sales :
To state net sales after
deducting taxes and duties from invoiced value of goods and services rendered.
Investment income :
To account for Income from
Investments on an accrual basis, inclusive of related tax deducted at source.
Proposed dividend :
To provide for Dividends
(including income-tax thereon) in the books of account as proposed by the
Directors, pending approval at the Annual General Meeting.
Employee benefits :
To make regular monthly
contributions to various Provident Funds which are in the nature of defined
contribution scheme and such paid/payable amounts are charged against revenue.
To administer such Funds through
duly constituted and approved independent trusts with the exception of Provident
Fund and Family Pension contributions in respect of unionised staff which are
statutorily deposited with the Government.
To administer through duly constituted and approved independent trusts, various Gratuity and Pension Funds which are in the nature of defined benefit/contribution schemes. To determine the liabilities towards such schemes, as applicable, and towards employee leave encashment by an independent actuarial valuation as per the requirements of Accounting Standard-15 (revised 2005) on ‘Employee Benefits’. To determine actuarial gains or losses and to recognise such gains or losses immediately in Profit and Loss Account as income or expense.
To charge against revenue, actual disbursements made, when due, under the Workers’ Voluntary Retirement Scheme.
Lease rentals?:
To charge rentals in respect of leased equipment to the Profit and Loss Account.
Research and Development?:
To write off all expenditure other than capital expenditure on Research and Development in the year it is incurred. Capital expenditure on Research and Development is included under Fixed Assets.
Taxes on income?:
To provide current tax as the amount of tax payable in respect of taxable income for the period.
To provide deferred tax on timing differences between taxable income and accounting income-subject to consideration of prudence. Not to recognise deferred tax assets on unabsorbed depreciation and carry forward of losses unless there is virtual certainty that there will be sufficient future taxable income available to realise such assets.
Foreign currency translation?:
To account for transactions in foreign currency at the exchange rate prevailing on the date of transactions. Gains/Losses arising out of fluctuations in the exchange rates are recognised in the Profit and Loss Account in the period in which they arise. To account for differences between the forward exchange rates and the exchange rates at the date of transactions, as income or expense over the life of the contracts.
To account for profit/loss arising on cancellation or renewal of forward exchange contracts as income/ expense for the period.
To account for premium paid on currency options in the Profit and Loss Account at the inception of the option.
To account for profit/loss arising on settlement or cancellation of currency option as income/expense for the period.
To recognise the net mark-to-market loss in the Profit and Loss Account on the outstanding portfolio of options as at the Balance Sheet date, and to ignore the net gain, if any.
To account for gains/losses in the Profit and Loss Account on foreign exchange rate fluctuations relating to monetary items at the year end.
Caims?:
To disclose claims against the Company not acknowledged as debts after a careful evaluation of the facts and legal aspects of the matter involved.
Segment reporting?:
To identify segments based on the dominant source and nature of risks and returns and the internal organisation and management structure.
To account for inter-segment revenue on the basis of transactions which are primarily market-led.
To include under ‘Unallocated Corporate Expenses’ revenue and expenses which relate to the enterprise as a whole and are not attributable to segments.
