Schedules forming part of the Profit and Loss Account for the year ended 31st March, 2008Year Ended31st March 2008Year Ended31st March 2007Rs. in Crores Rs. in Crores Rs. in Crores Rs. in CroresSchedule 18Manufacturing and Asset MaintenancePower and Water Charges 568.89 503.22Repairs and MaintenancePlant and Machinery 82.21 78.54Buildings 35.22 25.78Others 25.66 4.88143.09 109.20Plant and Equipment Hire Charges 29.38 27.18Labour and Sub Contract Charges 105.44 93.70Insurance 12.59 12.74859.39 746.04Schedule 19Administrative ExpensesTraveling and Conveyance Expenses 48.89 34.38Postage, Telephone and Fax 13.77 7.14Printing and Stationery 3.18 1.93Legal and Professional Fees 56.74 34.80Operating Lease Rent 21.43 7.87Rates and Taxes [includes wealth tax provision Rs. 0.14 Crore (Previous YearRs. 0.14 Crore)] 6.24 2.85Auditors’ Remuneration (Refer note 18 of schedule 23) 1.67 1.23Directors' Sitting Fees 0.06 0.03Vehicle Hire and Maintenance Charges 21.37 16.38Service charges 2.26 1.10Loss on sale/write off of Fixed Assets (net) 1.75 —Loss / Reversal of profit on sale of long term investments (Refer note 27 ofschedule 23) — 14.73Miscellaneous Expenses 38.62 23.70215.98 146.14Schedule 20Selling and Distribution ExpensesCommission 45.00 197.05Freight Outward (net) 1<strong>65</strong>.47 137.32Discount 0.42 0.<strong>65</strong>Other Selling Expenses 4.23 2.11Bad Debts written off — 22.90Provision for Doubtful Debts (net) (0.62) (0.62) (21.77) 1.13214.50 338.26Schedule 21Finance Cost (net)Plant and Equipment Lease Rentals 21.56 13.81Guarantee and Other Bank Charges 198.02 168.20Mark to Market loss on derivative contract 39.30 —Exchange Variation (net) (83.98) (50.38)Intereston Term Loans 441.45 373.86on Debentures 4.18 18.41to Banks and Others 164.26 171.35609.89 563.62784.79 695.25Less:Interest on advances, deposits, customers' balances, income-tax refund, etc.[Tax deducted at source Rs. 4.40 Crores -(Previous year Rs.2.70 Crores)] 28.82 52.29Gain on cancellation of Forward Exchange Contracts (Net of Premium paid /Amortised) 29.57 58.39 25.02 77.31726.40 617.94Schedule 22Prior Period ItemsFinance Cost — 3.59Raw Materials (Freight) — 19.22— 22.8121
Essar Steel LimitedSchedule forming part of the Accounts for the Year ended 31st March, 2008Schedule 23Notes to Accounts1. Nature of OperationsThe Company has an integrated steel manufacturing unit of flatrolled products in Hazira, District Surat. The Company also has abenefication plant at Kirandul and a pelletisation plant at Vizag.2. Statement of Significant Accounting Policies(a) Basis of preparationThe financial statements have been prepared to comply inall material respects with the notified accounting standardby Companies Accounting Standards Rules, 2006 andthe relevant provisions of the Companies Act, 1956. Thefinancial statements have been prepared under the historicalcost convention on an accrual basis. The accounting policieshave been consistently applied by the Company and exceptfor the changes in accounting policy discussed more in detailbelow, are consistent with those used in the previous year.(b) Use of EstimatesThe preparation of financial statements is in conformitywith Generally Accepted Accounting Principles requiresmanagement to make estimates and assumptions that effectthe reported amount of assets and liabilities and disclosureof contingent liabilities at the date of financial statements andresult of operations during the reported year. Although theseestimates are based upon management’s best knowledge ofcurrent events and actions, actual results could differ fromthese estimates.(c) Change in Accounting Policies(i) Till March 31, 2007, the Company was providingfor gratuity based on actuarial valuation as per LICcertificate. In current year, the Company has adoptedthe Accounting Standard 15 (Revised) which ismandatory from accounting period commencingon or after from December 7, 2006. Accordinglythe Company has provided for gratuity based onactuarial valuation done as per projected unit creditmethod. Further in accordance with the transitionalprovision in the revised accounting standard,Rs. 1.87 Crores (net of tax liability Rs. 0.24 Crore) hasbeen adjusted to opening profit and loss account.(ii) As per the ICAI Announcement, accounting forderivative contracts, other than those covered underAS-11, are marked to market on a portfolio basis, andthe net loss after considering the offsetting effect onthe underlying hedge item is charged to the incomestatement. Net gains are ignored. In the previous year,no gains / losses were recognised. Had the previousyear policy been followed the profit before tax wouldhave been higher by Rs. 39.30 Crores and currentliabilities would have been lower by Rs. 39.30 Crores.(iii) Till March 31, 2007, exchange differences relating toborrowings in foreign currency for acquisition of fixedassets in respect of fixed assets acquired from outsideIndia including those exchange differences werecapitalised as part of fixed assets. From accountingperiod commencing on or after April 01, 2007, exchangedifferences in respect of fixed assets purchased,including foreign currency liabilities relating thereto,are recognised as income or expenses in the periodin which they arise. This change is not having materialimpact on the profit for the current year or on openingliability.(d) Fixed AssetsFixed assets are stated at cost, less accumulateddepreciation and impairment losses, if any. Cost comprisesthe purchase price and any attributable cost of bringing theasset to its working condition for its intended use. Borrowingcosts relating to acquisition of fixed assets which takessubstantial period of time to get ready for its intended useare also included to the extent they relate to the period tillsuch assets are ready to be put to use.(e) Capital Work-in-ProgressAll expenditure, including advances given and interest costduring the project construction period, are accumulated anddisclosed as capital work-in-progress until the assets areready for commercial use. Assets under construction arenot depreciated. Income earned from investments of surplusborrowed funds during the construction/trial run period isreduced from capital work-in-progress. Expenditure/incomearising during trial run is added to/reduced from capital workin-progress.(f) Expenditure on substantial expansionAll direct capital expenditure on expansion are capitalised. Asregards indirect expenditure on expansion, only that portionis capitalised which represents the marginal increase in suchexpenditure involved as a result of capital expansion. Bothdirect and indirect expenditure are capitalised only if theyincrease the value of the asset beyond its original standardof performance.(g) Depreciation(i) Fixed assets are depreciated at the rates and in themanner specified in Schedule XIV of the CompaniesAct, 1956 on written down value method, except forplant and machinery and railway sidings which aredepreciated on a straight-line basis. Depreciation onadditions to / deletions from fixed assets is provided onpro-rata basis from / up to the date of such addition /deletion as the case may be. Depreciation on additionsto assets due to exchange variation, forward coverpremium charges, etc. is provided over the remaininguseful life of the assets.(ii) Costs relating to softwares, which are acquired, arecapitalized and amortized @40% on written down valuemethod. The Company estimates useful life of 5 to 6years of such softwares.(h) Impairment of Assets(i) The carrying amounts of assets are reviewed ateach balance sheet date if there is any indication ofimpairment based on internal/external factors. Animpairment loss is recognized wherever the carryingamount of an asset exceed its recoverable amount.The recoverable amount is the greater of the assets netselling price and value in use. In assessing value in use,the estimated future cash flows are discounted to theirpresent value at the weighted average cost of capital.(ii) After impairment, depreciation is provided on the revisedcarrying amount of the assets over its remaining usefullife.(i) Revenue RecognitionRevenue is recognised to the extent that it is probable thatthe economic benefits will flow to the Company and therevenue can be reliably measured.Sale of GoodsRevenue is recognised when the significant risks andrewards of ownership of the goods have passed to the buyer.Sales is disclosed net of quality claims and rebates. ExciseDuty deducted from turnover (gross) is the amount of exciseduty that is included in the amount of turnover (gross) andnot the entire amount of liability arised during the year.Export BenefitsExport benefits under duty entitlement passbook scheme isaccrued whenever ascertainable.InterestRevenue is recognised on a time proportion basis taking intoaccount the amount outstanding and the rate applicable.DividendsRevenue is recognised when the shareholders’ right toreceive payment is established by the balance sheet date.Dividend from subsidiaries, if any, is recognised even ifsame are declared after the balance sheet date but pertains22