CONTENTS Proxy Form 65

Essar Steel Orissa LimitedSCHEDULE 10 - NOTES FORMING PART OF THE ACCOUNTS FOR THE YEAR ENDED MARCH 31, 2008A. Background and Nature of OperationsThe Company was incorporated on June 14, 2006 as EssarSteel Orissa Limited with Registrar of Companies, Mumbai,Maharashtra. The Company is in process of setting up a SteelPlant in the state of Orissa.B. Significant Accounting Policiesa. Basis for PreparationThe financial statements have been prepared to comply inall material respects with the notified Accounting Standardsby the Companies Accounting Standard Rules, 2006 andthe relevant provisions of the Companies Act, 1956. Thefinancial statements have been prepared under the historicalcost convention on an accrual basis except in case of assetsfor which provision for impairment is made and revaluationis carried out.b. Use of EstimatesThe preparation of financial statements in conformitywith generally accepted accounting principles requiresmanagement to make estimates and assumptions that affectthe reported amounts of assets and liabilities and disclosureof contingent liabilities at the date of the financial statementsand the results of operations during the reporting period end.Although these estimates are based upon management’sbest knowledge of current events and actions, actual resultscould differ from these estimates.c. Fixed AssetsFixed assets are stated at cost less accumulateddepreciation and impairment losses if any. Cost comprisesof the purchase price and any attributable cost of bringingthe assets to its working condition for its intended use.Borrowing costs relating to acquisition of fixed assets whichtakes substantial period of time to get ready for its intendeduse are also included to the extent they relate to the periodtill such assets are ready to be put to use.d. DepreciationFixed Assets are depreciated at the rates and in the mannerspecified in Schedule XIV of the Companies Act, 1956 onwritten down value method. Depreciation on additions to /deletions from fixed assets is provided on pro-rata basis from/ up to the date of such addition / deletion as the case maybe. Fixed Assets individually costing less than Rs. 5,000are fully depreciated in the year of acquisition.e. Expenditure during Construction PeriodAll Costs including finance cost till commencement ofcommercial production is capitalized. Indirect expenditureincurred during construction period is capitalized as partof the indirect construction cost to the extent to whichthe expenditure is indirectly related to construction or isincidental thereto. Other indirect expenditures incurredduring the construction period which are not related to theconstruction activity nor is incidental thereto is chargedto the Profit and Loss Account. Income earned fromdeposits earmarked against financing facilities duringconstruction period is deducted from the total of the indirectexpenditure.All indirect expenses relating to project incurred uptocommencement of commercial production are classified asPre operative Expenditure and disclosed under Schedule2 – Pre-operative expenditure (net of income earned duringproject development stage).52f. Revenue Recognition on Bank DepositsInterest Income is recognized on a time proportion basis takinginto account the amount outstanding and the rate applicable.g. Foreign Currency Transaction(i) Initial RecognitionForeign currency transactions are recorded in the reportingcurrency, by applying to the foreign currency amount theexchange rate between the reporting currency and theforeign currency at the date of the transaction.(ii) ConversionForeign currency monetary items are reported using theclosing rate. Non-monetary items which are carried interms of historical cost denominated in a foreign currencyare reported using the exchange rate at the date of thetransaction; and non-monetary items which are carried atfair value or other similar valuation denominated in a foreigncurrency are reported using the exchange rates that existedwhen the values were determined.(iii) Exchange DifferencesExchange differences arising on the settlement of monetaryitems or on reporting Company’s monetary items at ratesdifferent from those at which they were initially recordedduring the year, or reported in previous financial statements,are recognized as ‘Preoperative Expenditure’ in the yearin which they arise except those arising from investmentsin non-integral operations. Exchange differences arisingin respect of fixed assets acquired from outside India arecapitalized as a part of fixed asset.h. Earning Per ShareBasic earning per shares are calculated by dividing the net profitor loss for the period attributable to equity shareholders by theweighted average numbers of equity shares outstanding duringthe year.For the purpose of calculating diluted earnings per share, thenet profit or loss for the period attributable to equity shareholdersand the weighted average number of shares outstanding duringthe year are adjusted for the effects of all dilutive potential equityshares.i. Retirement and other employee benefits.(i) Employee Benefits(a) Defined Contribution PlansRetirement benefit in the form of Provident Fund isdefined contribution scheme and the contributionsare charged to the pre operative expenses of theyear when the contributions to the respective fundsare due. There are no other obligations other than thecontribution payable to the respective trusts.(b) Defined Benefit PlansThe Company has for all employees Defined BenefitPlans for post employment benefits in the form ofGratuity. Liability for Defined Benefit Plans is providedon the basis of valuations, as at the balance sheet date,carried out by an independent actuary. The actuarialvaluation method used by independent actuary formeasuring the liability is the Projected Unit Creditmethod. Obligation is measured at the present valueof estimated future cash flows using discounted ratethat is determined by reference to market yields at theBalance Sheet date on Government Securities wherethe currency and terms of the Government Securities