Manual-formatted

21.2.1 Volume discounts 21.2.1.1 Background These are target bases incentives given to the customers on achievement on volume-based targets. This type of schemes is generally available in Petro Chemical Business. Volume discounts are being granted by the Company to its customers. Targets are granted on annual basis to the customers (financial year wise). 21.2.1.2 Accounting for volume discounts Incentives extended to the customers shall be adjusted from the transaction price as elements of “Variable Consideration”. Since the Company has a practice of offering volume discounts to the customers meeting predetermined purchase targets, it is highly probable that significant revenue reversal will subsequently occur. Accordingly, volume discounts shall be adjusted from the transaction price, if it results in significant revenue reversal. 21.2.1.3 Measurement of volume discounts At the inception date of contract, the company should estimate the amount of volume discount using the expected value method. The Company should apply this consistently throughout the contract and should true up at each reporting date. 21.2.2 Cash discounts 21.2.2.1 Background These are prompt payment discounts given to the customers on account of payment of their dues before due date. This type of schemes is generally available in Petro Chemical Business, Pipeline Division (in relation to sale of wind power) and in Marketing Division (in relation to lube sale and sale of petroleum products to institutional customers). Cash discounts are extended to the customers [distributors (where arrangement is on Principal to Principal basis) and direct sales made to customers] for making payments before due date. 21.2.2.2 Accounting for cash discounts Incentives classified as cash incentives will be accrued when the sales transaction occurs and will be considered a deduction from the transaction revenue. Cash discount extended to the customers shall be adjusted from the transaction price as “Variable Consideration”. Since the Company has a practice of offering such cash discounts to the customers, it is highly probable that significant revenue reversal will subsequently occur. Accordingly, such cash discounts shall be adjusted from the transaction price, if it results in significant revenue reversal. 21.2.2.3 Measurement of cash discounts Revenue Page 474

At the inception date of contract, the company should estimate the amount of cash discount using the expected value method. The Company should apply this consistently throughout the contract and should true up at each reporting date. 21.2.3 Target based incentives 21.2.3.1 Background The Company is having the following schemes in relation to target based incentives (This type of schemes is generally available in Marketing division): Scheme 1: Commission to SSA/SSI/Resellers (lubes) – Under this scheme, the Company offers commission to SSA/SSI/Resellers in relation to sale of lubricants if they achieve certain sales targets on monthly basis. Scheme 2: Discount on bulk sales (FO, Bitumen, LDO, ATF, etc.) – Under this scheme, the Company offers discount on slab basis which is applicable for the entire duration of the agreement with the customer. Scheme 3: Foreign Tours/ Gold Coins - The Company gives gold coins or arrange foreign tours for its distributors (in relation to lube sale) and to retail outlets who achieve certain sales targets (set on daily, fortnightly, monthly ,quarterly, half-yearly and yearly basis). 21.2.3.2 Accounting for target-based incentives The Company needs to estimate the amount of incentives payable to the customer and net off the same against the revenue recognised against the corresponding sales in the corresponding period on an accrual basis. 21.2.3.3 Measurement of target-based incentives At the inception of the contract, the Company needs to estimate the amount of target-based incentive using the expected value method on an accrual basis. The Company should apply this consistently throughout the contract and should true up at each reporting date. 21.2.4 Customer Loyalty Points 21.2.4.1 Background IOCL has following three types of reward schemes for its customers – • Fleet Card Program; • XtraRewards Scheme; and • Servo Sadbhavna scheme for the resellers of lubes Fleet Card Program: Under this scheme, the Company issues fleet cards to transporters only. These cards can be used just like a pre-paid card, wherein the card is topped-up with an amount which can then be used to purchase fuel by the transporters at the IOCL retail outlets. At the time of top-up of the fleet cards, the card holder earns certain points (15 points to 170 points for every Rs 100 of recharge, depending on the amount of recharge). 1 point has Revenue Page 475

a worth of Re 0.01. These points keep on accumulating in the card holder account and can be redeemed in the following 3 ways: • Redemption by purchase of fuel at IOCL retail outlets; • Redemption by converting the accumulated points to cash which is used to top up the fleet card balance; • Redemption against gifts. There is expiry period of 5 years from the date of generation of customer loyalty points. In case the card holder opts to go for the utilization of points to purchase gifts, the card holder is required to login to a specific website which is maintained by Verifone. Whenever the customer redeems his points in exchange of gifts, Verifone charges the same amount to IOCL (i.e. same as the value of the product). The card holders also have an option to redeem the accumulated points against an Amazon gift card. The mode of operation is same as for any other product purchased against redemption of points. However, the only difference is that in this case, the cost to IOCL is less than the value of points redeemed by the card holder. XtraRewards Scheme: This is a loyalty card issued by IOCL to its customers. Points are earned on purchase of fuel from participating retail outlets, just by registering the amount of purchase of fuel on the card. For every purchase of Rs. 75/- cardholder gets 1- point worth Re 0.33. Points can be redeemed as follows: • purchasing fuel / lubes at the retail Outlet • purchasing gifts from the catalogue through XtraRewards website • There is no expiry period for the points being accumulated and these can be redeemed any time by the card holder. Servo Sadbhavna: IOCL operates a \"Servo Sadbhavna\" scheme for the resellers (retail outlets) of lubes, whereby the resellers (retail outlets) earn points on the basis of sales made by them. Points can be redeemed by purchasing gifts from the catalogue through third party website Minimum 1000 points are required for redemption otherwise the same shall be carried forward Maximum 1000 points can be carried forward. Practically holder used to redeem all the points provided the points are more than 1000 There is no expiry period other than cap as stated above. Points are redeemed by way of purchase of gifts from the program manager website, the program manager charges cost to IOCL is less than the value of points redeemed by the card holder. In other words, IOCL is getting some margin on the same. 21.2.4.2 Accounting for customer loyalty points Revenue Page 476

Options to purchase additional goods or services (e.g., customer loyalty points) represent separate performance obligations if they provide the customer with a material right. The Company operates a program where points can also be redeemed with a third party. As the company is an agent in this arrangement, the company should recognise revenue on net basis. The Company satisfies its performance obligation when the points are transferred to the customer account, irrespective of when the customer redeems the points with the third party. The Company should recognise a liability for the amount the entity expects to pay to the party that will redeem the points. The transaction price allocated to customer loyalty points based on their relative estimated standalone selling price shall be reduced from revenue from sale of goods. The commission income in relation to tie up with Amazon under Fleet card program and Servo Sadbhavna scheme needs to be recorded on net basis by recording the sales promotion expense (adjusted against revenue) on gross basis. 21.2.4.3 Measurement of customer loyalty points The transaction price is allocated to performance obligations (including the option) based on relative standalone selling prices Estimate of standalone selling price of option reflects the discount a customer receives when exercising the option, adjusted for – • any discount that the customer would receive without exercising the option and • the likelihood the option will be exercised Refer section G for IOCL practices and procedures in relation to commission and discount 21.3 BARTER TRANSACTIONS 21.3.1 Background MDP (Monthly distribution plan) meeting is held between all industry members including private refiners (RIL /MRPL, etc.) to finalize the monthly product requirement of PSU marketing oil companies & product sale & purchase quantities proposed for the next month. The sale/purchase quantities are linked to availability as per the production by all refineries. Based on product availability/demand projections, procurement is finalized based on economics. OMC having refinery in a particular region and surplus, supplies to other OMCs who are not having refinery. Quantity/product required to be exchanged may vary on account of availability/pricing/economics. While deciding the above, quantity offered by standalone refineries (RIL/EOL/MRPL/CPCL) are also considered. Products covered under this agreement- MS, HSD, SKO for public distribution system, ATF & LPG for domestic us. The settlement of product is as per the refinery transfer price (RTP), prevailing excise duty & applicable freight of the location where sale is being made. Revenue INDEX Page 477

• Selling Price (As applicable at location on the date of actual movement i.e. The price risk is with the buyer) = Basic Price (RTP) +Terminalling charges (for using the facilities of terminal) + Excise Duty+ Sales Tax • Basic Price (RTP) is decided in the following manner- • Trade parity price (80 % of Import Parity Price & 20 % of Export Parity Price) is the basis of RTP for MS, HSD. • For PDS SKO /ATF on Import Parity Price. The transactions in respect of such are determined based on principal to principal basis. The payment for all such transactions during the month at all locations are aggregated at Marketing HO and then net settlement is made with those OMC companies. The Company is not bound by any rule that they will be required to transfer any specified units of a product if the said product is transferred by other OMC to the Company at different location. The objective of above arrangement is to meet the demand with least cost to maximize profit otherwise OMCs will have to incur additional cost in form of logistic cost & OMC’s would incur additional revenue and infrastructure capital expenditure to meet demand. The basic purpose of the agreement is that the GOI never wanted the creation of excess infrastructure, which in effect would result into funding by GOI. 21.3.2 D3.2: Accounting for barter transactions (exchange of goods) In respect of the Company’s exchange transactions, the following is the assessment: • The objective of above arrangement is to meet the demand with least cost to maximize profit otherwise OMCs will have to incur additional cost in form of logistic cost & OMC’s would incur additional revenue and infrastructure capital expenditure to meet demand. The basic purpose of the agreement is that the GOI never wanted the creation of excess infrastructure, which in effect would result into funding by GOI. • Quantity to exchange is agreed based upon monthly distribution plan. The sale/purchase quantities are linked to availability as per the production by all refineries. • The transaction is carried out on principal to principal basis. • The settlement of product is as per the refinery transfer price (RTP), prevailing excise duty & applicable freight of the location where sale is being made. - Selling Price (as applicable at location on the date of actual movement i.e. The price risk is with the buyer) = Basic Price (RTP) +Terminalling charges (for using the facilities of terminal)+ Excise Duty+ Sales Tax • The payment for all such transactions during the month at all locations are aggregated at Marketing HO and then net settlement is made with those OMC companies. • The Company is not bound by any rule that they will be required to transfer X units of a product if the said product is transferred by other OMC to the Company at different location. Based upon above, the arrangement between OMCs is not in the nature of exchange. The risk and rewards of the ownership of the goods are getting transferred to the buyer on Revenue Page 478

principal to principal basis. The settlement of product is as per the refinery transfer price (RTP), prevailing excise duty & applicable freight of the location where sale is being made. Accordingly, the Company should recognise revenue as per the principles of revenue recognition relating to sale of goods. 21.4 CUSTOMER’S RIGHT TO RETURN (GOODS SOLD) 21.4.1 Background The Company receives sales returns on account of sales of LPG Cylinder to Distributor and sale of Lubes to Distributor (collectively referred as customers). 21.4.2 Accounting for customer’s right to return goods as per Ind AS Rights of return is a form of variable consideration. Revenue recognition is limited to amounts for which it is “highly probable” that a significant reversal will not occur (i.e. it is highly probable the goods will not be returned). Accordingly, a refund liability is established for the expected amount of refunds and credits to be issued to customers. Corresponding adjustment to cost of sales is recorded for items expected to be returned. 21.4.3 Measurement of customer’s right to return goods A refund liability is established for the expected amount of refunds and credits to be issued to customers. 21.5 HIGH SEA SALES The Company is having two types of transactions in relation to high sea sales: 21.5.1 High sea sales to other Oil Marketing Companies (OMC’s) AND CPCL 21.5.1.1 Background IOCL undertakes High sea sales of crude oil to other OMCs. IOCL IOCL endorse the ownership OMCs (HPCL or BPCL of goods to OMCs before entering into India’s water or CPCL) territorial limits IOCL invoiced to OMCs at cost plus 0.5% Margin Revenue INDEX Page 479

After the crude oil has been shipped by the vendor, but before the vessel has entered the territorial waters of India, IOCL endorses the Bill of Lading in name of other OMCs to the extent of crude oil required by them. Sale is made at the same price at which purchase is booked. However, there is a difference in the purchase and sale amount due to foreign exchange fluctuation. Purchase is booked on the date of bill of lading and sale is booked on the endorsement date. Payment terms with both the vendor and OMCs are separate. Insurance Cover: Entire insurance cover is taken by IOCL till the endorsement. 21.5.1.2 Accounting for high sea sales to OMC’s Assessing whether the Company is acting as a Principal or acting as an agent on behalf of other OMC’s: Indicators that conclude that IOCL is acting as a Principal a. Whether IOCL is primarily responsible for fulfilling the contract? Till the endorsement of ownership of goods to other OMCs, IOCL is the prime obligor to fulfil the contract. After the endorsement of ownership of goods, respective OMCs are responsible for their further actions. b. Whether IOCL bears the Inventory risk? Till the endorsement of ownership of goods to other OMCs inventory risk lies with IOCL. After the endorsement of ownership of goods to other OMCs, the inventory risk lies with the respective OMCs. In case of high sea sales, entire insurance cover is taken by IOCL till endorsement. c. When IOCL has discretion in establishing prices? Crude oil under high sea sales is sold at the price at which it is purchased. This price does not change as IOCL also makes purchases from other OMCs and therefore, higher prices will not be mutually beneficial collectively for the OMCs. Hence, the prices are usually kept constant. However, there is a difference in the purchase and sale amount due to foreign exchange fluctuation. Purchase is booked on the date of bill of lading and sale is booked on the endorsement date. d. Whether consideration is in the form of commission? There is no commission in the arrangement. e. Whether IOCL bears the credit risk? IOCL is exposed to credit risk in relation to sales of goods to other OMCs. In the case if the other OMCs default in making payment, the credit risk lies with the IOCL. Payment terms of vendors are separate and need to be fulfilled by IOCL independently Measurement of revenue from high sea sales to OTHER OMCs Company should recognize revenue at total sale value. Revenue Page 480

21.5.2 D5B. Crude procurement for Chennai Petroleum Corporation Limited (CPCL) - Channelizing commission 21.5.2.1 Background Chennai Petroleum Corporation Limited (CPCL) has entered into an agreement with Indian Oil Corporation Limited (IOCL) for procurement of crude oil based on the requirements of CPCL. Bill of lading is in the name of CPCL as “CPCL on account of IOCL”. IOCL IOCL is facilitating the CPCL procurement of crude oil for which IOCL is receiving commission Rights/ Obligations of IOCL (Facilitator): • IOCL to execute agreements with the suppliers based on requirements provided by CPCL. • IOCL to provide suitable tonnage for transportation of crude oil for quantity as agreed between IOCL & CPCL. • IOCL is responsible for compliance of terms and conditions of agreements with supplier/vessel owner. • IOCL to scrutinize bills/claims received from supplier/vessel owner and process the same for payment & make settlement on net basis with CPCL on fortnightly basis through Marketing Division. Rights/ Obligations of CPCL: • All the term and conditions agreed between the Crude Oil Suppliers/vessel owners and IOCL will be applicable to CPCL. • CPCL undertake insurance covers for their cargos. • IOCL shall pay freight, demurrage and port charges to foreign vessel owners on behalf of CPCL. • CPCL shall make payments to custom authorities on their own. • The cost of arbitration arising out of dispute between supplier/vessel owner and IOCL (for CPCL cargoes) shall borne by CPCL. Consideration to IOCL: As per agreement, the consideration to IOCL is 0.05% on C&F basis subject to upper ceiling of Rs. 2.5 crores p.a. Revenue Page 481

Credit Terms: Settlement in respect of crude procured on behalf of CPCL is carried out on fortnightly basis through Marketing Division while payment terms of IOCL with supplier are generally for thirty days. 21.5.2.2 CRUDE Accounting for CPCL Assessing whether the Company is acting as a Principal or acting as an agent on behalf of CPCL: Indicators that conclude that IOCL is acting as an Agent a. Whether IOCL is primarily responsible for fulfilling the contract? Bill of lading is in the name of CPCL as “CPCL on account of IOCL”. IOCL is facilitating the procurement of crude oil for which IOCL is receiving commission. b. Whether IOCL bears the Inventory risk? IOCL does not carry the inventory risk as bill of lading is in the name of CPCL only. Also, any loss, pilferage during the transit is borne by CPCL only. CPCL undertakes insurance cover for their cargos. c. When IOCL has discretion in establishing prices? Crude oil is sold by IOCL at the price at which it is purchased by IOCL from the vendor. IOCL purchase crude oil from the vendor at the agreed price. The same price is charged from CPCL also. Hence, IOCL does not have latitude in establishing prices. d. Whether consideration is in the form of commission? IOCL charges fixed commission of 0.05% on C&F basis subject to upper ceiling of Rs. 2.5 crores p.a. as per agreement. e. Whether IOCL bears the credit risk? IOCL is exposed to credit risk in respect of collection from CPCL. In the case if CPCL default in making payment, the credit risk lies with the IOCL. Payment terms of vendors are separate and need to be fulfilled by IOCL independently. For this, IOCL charges facilitation fees in the form of commission. Although this indicator is in favour of Principal to Principal basis, however, as all the other indicators are in favour of Principal to Agent basis, hence, IOCL can be concluded as an agent in this transaction. 21.5.2.3 Measurement of revenue from high sea sales to CPCL The Company should recognise revenue only to the extent of channelizing commission receivable from CPCL. 21.6 SERVICE CONCESSION ARRANGEMENTS 21.6.1 Background The Company has entered in the following type of contracts: Power purchase agreements in relation to Wind Power plant at Andhra Pradesh for a term of 20 & 25 Years PPA with Southern Power Distribution Company of Andhra Pradesh Revenue INDEX Page 482

Power purchase agreements in relation to Solar Power plant at Rajasthan for a term of 25 Years with NTPC Vidyut Vyapar Nigam Ltd. The price charged is linked to production. 21.6.2 Accounting for service concession arrangements IOCL is a Government undertaking (public sector enterprise). IOCL has entered into power purchase agreements with DISCOM’s who are also Government undertakings (public sector enterprises). Guidance in relation to service concession arrangements is directly applicable to public-to- private service concession arrangements. Accordingly, service concession arrangement guidance is not applicable to the Company and accordingly no accounting as prescribed under that guidance is required to be applied by the Company in relation to such PPA’s. 21.7 CONSTRUCTION CONTRACTS 21.7.1 Background The Company undertakes contacts for the construction and installation of equipment/ facilities including fuel storage tanks, pipelines, canopy, approach road, dispensing units etc. The contract operates on a cost-plus basis on Principal to Principal basis. 21.7.2 Accounting for construction contracts In case of construction contracts, contract revenue and contract costs associated with the construction contract shall be recognised as revenue and expenses respectively by reference to the Output method or input method, as appropriate, at the end of the reporting period (refer Step-5 above). An expected loss on the construction contract shall be recognised as an expense immediately. 21.8 RENDERING OF SERVICES 21.8.1 Background Consulting, installation and other charges This should include the following: a. Consulting services provided to clients in and outside India. b. Specific Margins' recovered/recoverable from other oil companies on transfer of products under purchase/sale agreements ex-main installations and depots. c. Service charges recovered/recoverable for rendering hospitality assistance to OMCs. d. Main installation/handling charges receivable on account of product assistance rendered to OMCs. e. LPG/Bitumen filling charges recovered/ recoverable from other oil companies. f. Any other charges which are recovered/ recoverable from other oil companies for rendering product / service assistance. Revenue INDEX Page 483

g. Charges recoverable from the parties under the category of \"Parallel Marketing Companies\" for storage of their products. 21.8.2 Accounting for rendering of services Revenue from all services which are performed over periods ranging into months/years, shall be recognized over the period of the contract using output method. Accordingly, proportionate unbilled revenue from consulting services should be recognised on pro rata basis up to the period-end reporting date. 21.8.3 Measurement of revenue from rendering of services Revenue should be recognised at fair value of consideration receivable using output method 21.9 OTHER OPERATING REVENUES / OTHER INCOME 21.9.1 Nonfuel income 21.9.1.1 Background The various kinds of non-fuel income as mentioned under: Forecourt campaign Royalty – variable amount recovered from the operators who utilize the RO forecourt for sales or conducting promotions/ campaigns etc. This amount is generally a fixed amount depending on number of days. Overriding Commission (ORC) – variable amount received quarterly/ annually from the alliance partner for the sale of their products/ services at IOC ROs. This amount is generally a fixed percentage of the sales by IOC dealers. Typical example is ORC from sale of Dabur, Bosch etc. Channel Access Fee – fixed amount received on one-time basis/ annually from the alliance partners for making available IOC’s network for the tie-up. Typical example is set up fee paid by Reliance Capital (RCL) or annual amount paid by Dabur, Emamai, and NSC. Revenue Share from Dealers – fixed amount recovered for the provision of services like Service Stations, PUC, and Weigh Bridge etc. in the RO premises. 21.9.1.2 Accounting for non-fuel income Non-fuel income should be recognised as follows: Fixed charges like license fees, channel access fee and revenue share from dealers should be accounted for on accrual basis. Variable amount of overriding commission is normally a percentage of sales made by IOCL’s dealers. The variable amount needs to be accounted for on accrual basis. 21.9.2 Non-Refundable Upfront Fee 21.9.2.1 Background The Company obtains Non-refundable deposits for new retail outlets from dealers. 21.9.2.2 Accounting for non-refundable upfront fee as per Ind AS INDEX Revenue Page 484

The Company charges non-refundable fees for new retail outlets from dealers. Under the old Ind-AS-18, these are recorded as Income immediately on receipt whenever a new dealership agreement is signed. As per Ind-AS-115, receipt of non-refundable fees does not result in transfer of any promised good or service to the customer and therefore, this is to be considered as an advance payment for performance obligations to be satisfied in future. Hence, non-refundable fees are recognized as revenue when those future goods or services are provided to dealers. As goods are sold on regular basis to customer over the dealership agreement, the same is required to be amortised over the dealership period. 21.9.3 Net Claim/(Surrender) of SSC (State Specific Surcharge Scheme) 21.9.3.1 Background SSC scheme has been notified by Government of India to recover cost incurred by OMCs on State Specific taxes on inputs (e.g. Entry tax, Octroi, etc.) through the Sales Price. Recovery of SSC is made through sales at the rates decided by Industry and based on the expenses incurred and recovery made by all OMC’s, settlement is done periodically among them and standalone refiners. As per SSC scheme, in the long term there should not be any deficit/surplus as collection are matched with incidence of incurrence by way of adjusting the SSC rate. The Company is not entitled to make any profits on such recovery, i.e., the amount recovered must be equal to the amount incurred. SSC pooling is mechanism where Incurrence of one company can be compensated by Other companies after collecting the same from consumer, it is not to make margin/profit out of SSC pooling scheme. 21.9.3.2 Accounting for SSC Entry tax incurred forms part of Raw Material cost for Refineries; Entire SSC recovered is booked as part of Sales/Revenue; Share of SSC recovered pertaining to costs incurred by other OMC’s and standalone refiners is credited to “Other Liabilities’ by debiting the Profit & Loss ‘Revenue from Operations’. Any amount recoverable from other OMC’s is also booked in this head. 21.9.4 Government Grants 21.9.4.1 Grant related to income: Grants are recognised in profit or loss on a systematic basis over the periods in which the entity recognises as expenses the related costs for which the grants are intended to compensate. The following are the types of revenue grants- Subsidies on sales of SKO (PDS) and LPG (Domestic) • Subsidies on sales of SKO (PDS) and LPG (Domestic) in India as per the schemes notified by Government. The same is presented under the head “Subsidy on sale of SKO (PDS) & LPG (Domestic) in India” under the head “Revenue from Operations” Revenue Page 485

• Subsidies on sales of SKO & LPG to customers in Bhutan as per the schemes notified by Government. The same is presented under the head “Subsidy on sale of SKO & LPG in Bhutan” under the head “Revenue from Operations” Compensation against under recoveries • Budgetary Support towards under-recovery on sale of SKO (PDS). The same is presented under the head “Grant from Government of India” under the head “Revenue from Operations” • Discounts from ONGC/OIL on crude oil purchased towards part of the under recovery suffered on sale of SKO (PDS) is adjusted against purchase of raw material and against purchase of stock-in-trade respectively. Grant in respect of revenue expenditure for research projects Revenue grant in respect of meeting out revenue expenditure such as Manpower, Consumables, Travel & Contingency etc. for research projects undertaken with various agencies. The same is presented under “Other Operating Revenues” Incentive on sale of power Incentive from Department of Renewable Energy, GOI for wind power generation of Electricity at the rate of Re. 0.50 for per unit of power generated. The same is presented under “Other Operating Revenues” EPCG grant EPCG grants are grant received in respect of duty waiver on procurement of capital goods under EPCG scheme of Central Govt. which allows procurement of capital goods including spares for pre-production and post production at zero duty subject to an export obligation of 6 times of the duty saved on capital goods procured. Under Ind AS, waiver of expenses may also qualify as government grants because in substance there is a transfer of resources, although it is in the form of a waiver of expenses. Therefore, such waiver of expenses should be treated as government grant. Government grant should be recognised when management is reasonably assured that they will fulfil the obligation attached to such grant. Such government grant is treated as revenue grant since: • To claim benefit of custom duty, export obligation is required to fulfil, which indicates that such grant is in the nature of revenue grant. • Further, The Company is getting benefit in custom duty in relation to import of capital goods with a purpose to promote exports in India. The same is presented under “Other Operating Revenues” Excise duty benefit in North East IOCL is entitled to recover 100% excise from customers and pay only 50% to the Govt. for setting up refinery in North-East India. The benefit is linked to production and sales Revenue Page 486

The duty recovered is reflected separately on the invoice raised to the customer. The duty recovered from customers is presented as part of “Sale of goods” and the duty payable to the Govt. is presented under Expenses. Under Ind AS, it is in the nature of Govt. Grant. It is in the nature of revenue grant since it is linked to production and sales. Entry Tax exemption Grant in respect of entry tax exemption of crude/ Naphtha purchased in Panipat Refinery, Panipat Naphtha Cracker Complex and Paradip Refinery which is recognised in cost of materials consumed/ Purchase of Stock-in Trade. 21.9.4.2 Grant related to assets: Grant related to assets shall be presented at fair value by setting up the grant as deferred income. Such deferred income is recognised in profit or loss on a systematic basis over the useful life of the asset. The amortisation of Capital Grant is presented under the head “Other Operating revenue”. The following are the types of Capital grant: OIDB Government Grant for strengthening distribution of SKO (PDS) Grants from OIDB (Oil Industry Directorate Board) for strengthening distribution of PDS Kerosene as per the directions of MoP&NG to be used in construction of 20KL underground Tank, Mechanical Dispensing Units & Barrel Shed. DBTL Capital Grant Grant for roll out of DBTL scheme launched by MOPNG towards development, acquisition of software/licenses & data processing equipment for effective implementation of platform for dispensing of subsidy to customers purchasing LPG under DBTL scheme. Capital Grant in respect of Excise duty & Custom duty waiver Grant in respect of Custom duty waiver on import on capital goods & Excise duty waiver on purchase of goods from local manufacturer in India under the certificate issued by Department of Scientific & Industrial Research (DSIR). The goods so imported or procured from local manufacturer shall not be transferred or sold for a period of five years from date of installation. Capital Grant in respect of Research projects Grants from various agencies in respect of procurement/ setting up of Capital assets for research projects undertaken. Capital Grant in respect of Entry Tax Exemption from Odisha Govt. Entry Tax exemption received from Odisha Government for Paradip Refinery Project Capital Grant in respect of demonstration unit Grant received from OIDB for setting up of demonstration unit at Guwahati refinery with the Group's R&D developed IndaDeptG technology. Capital Grant in respect of interest subsidy Grant in respect of interest subsidy on loans taken from OIDB for capital projects. As per Ind AS 20 benefit of government loans with below market rate of interest should be accounted for as government grant measured as difference between initial carrying amount of loan determined in accordance with Ind AS 109 and proceeds received. Revenue Page 487

21.9.4.3 Marketing division practices in respect of DBTL accounting/ other LPG schemes: Cash Subsidy: Subsidy amount represents the subsidy amount eligible to be claimed under DBTL Scheme 2013 in respect of LPG domestic cylinder delivery to Cash Transfer Compliant (CTC) customers. DBTL Scheme has come into effect from 01.06.2013. Under DBTL scheme, eligible Cash Subsidy (Difference in Subsidized & Non-Subsidized price) is given to eligible CTC customers for LPG domestic cylinder for households for cylinders supplied within CAP. Consumer becomes CTC when Aadhaar seeded in LPG and Bank Data base. IOCL supplies domestic LPG cylinder at market rate to Distributor and Distributor in-turn bills to the customer at market rate. Claim for cash subsidy is lodged by HO finance on monthly basis based on the DRC wise Batch wise report submitted by HO IS to HO finance. There are certain elements in DBTL non subsidized price such import cost differential, delivery charges which are not reimbursed in cash subsidy scheme i.e. uncompensated cost. State/region pricing is updating condition type ZTCC i.e. Total Cash Subsidy in SAP on each price revision. Marketwise total Cash subsidy per cylinder is updated in Centralized INDSOFT by HO system based on ZTCC condition maintained in SAP. Based on data as per centralized INDSOFT, batches are processed centrally at Head office for Cash Subsidy for transferring payment to eligible customers. Batches are also made for re posting cash subsidy for rejected transactions as per DBTL Scheme. Data for cash transfers under DBTL (PAHAL) sent to SBI on daily basis. Batch-wise amounts debited to IOCL’s account and data forwarded by SBI to NPCI for further transmission to beneficiary banks. Response files received from NPCI by SBI are consolidated & provided for updation in IOCL’s database for marking transactions as Success/ Failure. SBI is debiting IOCL account for full value of batch amount and crediting for rejected transaction based on the confirmation from NPCI. Permanent advance recovery Initially at the time of launch of DBTL scheme one-time subsidy was e given as permanent advance to the consumer for the first refill. With Effective from April 2016 Government stopped the scheme of giving permanent advance to the customer. The permanent advance paid till Mar 16 has been paid by MOP & NG to Oil companies. Accordingly as per the scheme , permanent advance to be refunded by the customer on termination of connection which needs to be surrendered to MOP & NG. State offices are required to transfer credit to HO for amount of permanent advance recovered by distributor on account of surrender of LPG connection by customers on quarterly basis. The amount refunded by the consumer is surrendered to the Mop & NG on quarterly basis. Expenditure incurred for project management/implementation of DBTL Expenditure incurred in relation with DBTL project management/implementation should be booked as amount claimable under separate GL. State offices to provide details of DBTL expenditure in the format duly audited to HO Finance. It is to be ensured that the District code as per SAP master is correctly mentioned in the data. Amount received against Revenue Page 488

expenditure claim will be transferred to state office on receipt of claim from MOP & NG and till such time, same is to be kept in state office books. Expenditure incurred towards Bank Charges for transferring the DBTL cash subsidy to be claimed under DBTL project management/implementation and be booked as amount claimable under GL. The amount as provided by the SBI to be cross verified by the Banking section with the amount transferred to the beneficiaries account. Give It up Campaign Expenditure incurred in relation with “Give It up Campaign’ should be booked as amount claimable under separate GL Pradhan Mantri Ujjwala Yojna (PMUY) Scheme - Claim and loan Under the scheme called “Pradhan Mantri Ujjwala Yojana (PMUY)”, free LPG connections are issued by Oil Marketing Companies (OMCs) to the women Below Poverty Line (BPL) households. This will cover the initial cost of Rs 1600/- or Rs.1150/- for providing a connection and this called the cash assistance which will be supported by the Govt for each connection under PMUY. PMUY cash assistance claim (Rs 1600 for 142. Kg/1150 for 5 kg) is lodged by HO finance based on the data from HO IS for the new connections released under PMUY scheme. Under PMUY customer is having the option of choosing the cost of a cooking stove and first refill under EMI option. The EMI amount has to be recovered by the OMCs from the subsidy amount due to the consumer on each refill. State offices to monitor booking of PMUY entries in SAP with the Report made available in CIIP and should obtain monthly confirmation from Area manager for PMUY connections delivered during the Month. MIS furnished by area office should be reconciled with SAP posting. PMUY loan outstanding should be monitored by state offices as per the instructions given by HO LPG Finance. Similar to regular Security Deposit amount, the Security Deposit amount under PMUY GL “2141050060” should tally with the SD amount for number of PMUY connections delivered as per centralised indsoft. The confirmation of PMUY connections delivered during the quarter to be obtained from LPG group as per Attachment “Ujjwala Scheme formats”. Wherever State Governments are sponsoring fund under PMUY/SKO free schemes, State offices to monitor booking of State Govt claim (PMUY/SKO Free) entries in SAP with CIIP report and ensure claim is lodged for all connections delivered. Outstanding from State Government for PMUY/SKO Free schemes to be monitored by respective State Offices. IEC/PME under PMUY: Under PMUY Scheme, there is provision of 2% expense towards Information, education and communication (IEC) and Project Management Expenses-PME (which includes cost of administration, evaluation, technology support, etc.). Accordingly New GL codes viz 3443260010 and 3443260020 have been created in SAP to book IEC and PM expense claims respectively. Revenue Page 489

SKO Loss Claim SKO loss claim for each quarter for the sale of PDS SKO subsidized sale from the depot to SKO agent will be considered for claiming the cash compensation from the Government. Claim amount will be the difference between the cost price (Price for a depot calculated on the import parity basis as per methodology given in the ‘PDS Kerosene and LPG subsidy scheme 2002’ and as amended from time to time) applicable to a depot and the selling price to the SKO agent before statutory and other local levies (i.e. Excise duty/VAT/local freight and dealer commission, etc.). Direct Benefit Transfer of SKO: Direct Benefit transfer in PDS kerosene Scheme, 2016 (DBTK) implemented w.e.f 01.08.2016 and the scheme will be administered by the State Govts/UTs through district level agencies. Each beneficiary household will have digitized ration card having a unique ID. Each beneficiary will have an Aadhar number with linked bank account and digitized ration card ID through which subsidy can be transferred directly to the linked bank account. The State Governments/ UTs will be transferring the monthly Cash Subsidy to the beneficiary bank account. The cost price (Price for a depot calculated on the import parity basis as per methodology given in the ‘PDS Kerosene and LPG subsidy scheme 2002’ and as amended from time to time) applicable to a depot before statutory and other local levies (i.e. Excise duty/VAT/local freight and dealer commission, etc.) to be billed for PDS Kerosene by Oil Marketing Companies will be informed to PPAC for approval and after due approval the same will be considered for releasing the Subsidy payment to State Govts/UTs. Based on the actual upliftment of PDS Kerosene under this Scheme from each depot and the admissible subsidy per litre declared by PPAC, OMCs will transfer the entitled monthly subsidy by 10th of the subsequent month to Implementing Agency under the State Government/UT for enabling subsequent transfer of cash subsidy to the beneficiaries through their bank accounts not later than the end of the subsequent month. OMCs shall raise monthly claims with PPAC for the amount of Cash Subsidy released to the Implementing Agency under State Government/UT. 21.9.5 Others 21.9.5.1 Interest income Interest income comprise mainly of the following: Interest on: Financial items: Deposits with Banks a) Fixed Deposits with Banks b) Short Term Deposits with Banks Customers Outstandings i) from Related Parties ii) from Others Oil Companies GOI SPL Bonds Revenue Page 490

Other Financial Items i) from Related Parties ii) from Others e.g. employee loans Revenue arising from the use by others of IOCL’s assets yielding interest shall be recognized when: • it is probable that the economic benefits associated with the transaction will flow to the entity; and • The amount of the revenue can be measured reliably. Revenue shall be recognised on account of interest using the effective interest rate method. For effective interest rate method, refer to Financial Instrument Chapter. 21.9.5.2 Dividend income Dividend income comprise of the following: Dividend: a) From Related Parties b) From Other Companies Revenue arising from the use by others of IOCL’s assets yielding dividends shall be recognized when: • it is probable that the economic benefits associated with the transaction will flow to the entity; and • The amount of the revenue can be measured reliably. Dividend income shall be recognized when the shareholder’s right to receive payment is established. 21.9.5.3 Royalty income Royalty income shall be recognized on an accrual basis in accordance with the substance of the relevant agreement. 21.9.5.4 Profit on sale of investments Profit on sale of investments should be worked out for each investment separately. The difference between realised value and cost should be considered as profit on sale of investments. 21.9.5.5 Sale of power and water Income from sale of power and water to the DISCOMS through Wind Power Plants/ Solar Power Plants/ contractors/outside party should be accounted for based on the terms of agreement. Revenue Page 491

21.9.5.6 Profit on Sale and Disposal of Assets a. The profit on sale and disposal of assets should be worked out separately for each asset and should not be netted against the loss on sale and disposal of assets. b. Profit on sale and disposal of assets should be worked out with reference to the written down value (net block) of the assets concerned. The difference between the realised value and the written down value should be considered as the profit on sale and disposal of the asset. In case the written down value of an asset at the time of disposal is nil, the entire amount of realisation should be accounted as profit on sale and disposal of asset. 21.9.5.7 Unclaimed/unspent liabilities written back a. A detailed review of all the outstanding liabilities/unclaimed balances (viz. railway, credit notes, security deposits, earnest money deposits, etc.) should be carried out at the end of each quarter/financial year. b. On review, if it is established that some of the outstanding liabilities or the unclaimed balances are not payable to any party, the same should be transferred to Unclaimed/Unspent Liabilities Written Back Account. However, it should be ensured that this head of account is operated only when 100% write back of the liability or the unclaimed balances is resorted to. In case such adjustments are to be carried out in respect of part of the liabilities or part of the unclaimed balances representing the excess provisions made in the earlier years, the same should be credited to the natural head of Expenditure/Miscellaneous Income / Prior Year Income depending upon the amount involved and the facts of the case. 21.9.5.8 Provision for doubtful debts/advances, claims and stores written back A detailed review should be carried out in respect of provisions for doubtful debts, advances, claims and stores at the end of the quarter/financial year. Doubtful provision against debts, advances, claims and stores made in the earlier period which have been either written off or otherwise adjusted during the quarter/financial year should be reversed by crediting the same to Provision for Doubtful Debts, Advances, Claims and Stores Written Back. Detailed reconciliation of the Provision Account should be made by considering the opening provision, provision created/made during the quarter/financial year and the provision written back. Debts, Advances, Claims and Stores written off during the quarter/financial year should not be considered as an item of reconciliation because the effect of such write offs is already taken into account while writing back the provision made against such 'write offs'. However, the information regarding the amounts written off in the MIS may continue to be given in the existing format. 21.9.5.9 Recoveries from employees Recoveries from employees, i.e. rent on furniture, etc. should be booked on accrual basis. Revenue Page 492

21.9.5.10 Retail Outlet License Fees Retail Outlet License Fees should be accounted based on agreement with the parties. 21.9.5.11 Collection charges for outstation cheques Collection charges for outstation cheques should be booked in the accounts based on the Bank advice. 21.9.5.12 Exchange fluctuation a. It should be ensured that necessary provision for exchange fluctuations has been made in all cases at the end of the quarter/financial year in line with the existing accounting policy. b. The balance appearing in the Exchange Fluctuation Account should be analysed in detail and it should be ensured that all adjustments relating to exchange fluctuation admissible in the pool account have been carried out. The balance amount in the Exchange Fluctuation Account should only represent the amount to be absorbed by IOC as income or expense. c. If the net balance in the Exchange Fluctuation Account is a credit balance, the same should be accounted for as income. d. If the net balance of the Exchange Fluctuation Account is a debit balance, the same should be accounted for as expense. 21.9.5.13 MTM gain on financial instruments classified as FVTPL Refer chapter on financial instruments for details 21.9.5.14 MTM Gain on derivatives Refer chapter on financial instruments for details 21D. PRESENTATION AND DISCLOSURES 21.10 EXCISE DUTY Excise duty is considered as part of revenue and the corresponding cost is considered as part of expenses. Revenue INDEX Page 493

Presentation of revenue in financial statement Revenue Page 494

Revenue Page 495

Revenue Page 496

21E. EXTRACTS FROM GUIDANCE NOTE ON IND AS COMPLIANT SCHEDULE III Revenue from operations The aggregate of Revenue from operations needs to be disclosed on the face of the Statement of Profit and Loss as per Schedule III. The revenue from operations is to be separately disclosed in the notes, showing revenue from: • Sale of products (including Excise Duty); • Sale of services; and • Other operating revenues Indirect taxes such as Sales tax, Service tax, etc. are generally collected from the customer on behalf of the government in majority of the cases. However, this may not hold true in all cases and it is possible that a company may be acting as principal rather than as an agent in collecting these taxes. Whether revenue should be presented gross or net of taxes should depend on whether the company is acting as a principal and hence responsible for paying tax on its own account or, whether it is acting as an agent i.e. simply collecting and paying tax on behalf of government authorities. In the former case, revenue should also be grossed up for the tax billed to the customer and the tax payable should be shown as an expense. However, in cases, where a company collects tax only as an intermediary, revenue should be presented net of taxes. However, as per the Guidance Note on Value Added Tax (VAT), VAT, Sales tax, Goods and Service tax (GST) and Service tax are collected from the customers on behalf of the relevant authorities and, therefore, its collection from the customers is not an economic benefit for the enterprise and it does not result in any increase in the equity of the entity”. Accordingly, these taxes should not be recorded as Revenue of the enterprise and revenue should be presented net of taxes. At the same time, the payment of such taxes should not be treated as an expense in the Financial Statements of the company. Further, as per the definition of Revenue in the Guidance Note on Terms Used in Financial Statements, “It excludes amounts collected on behalf of third parties such as certain taxes”. The Guidance Note on VAT further states, “where the enterprise has not charged VAT separately but has made a composite charge, it should segregate the portion of sales which is attributable to tax and should credit the same to ‘VAT Payable Account’ at periodic intervals”. Moreover, recovery of excise duty flows to the entity on its own account because it is a liability of the manufacturer which forms part of the cost of production, irrespective of whether the goods are sold or not. Since the recovery of excise duty flows to the entity on its own account, revenue should include excise duty. Accordingly, revenue from sale of products is to be presented gross (i.e. including excise duty) and excise duty should be presented as a separate line item on the face of Statement of Profit and Loss. Moreover, SEBI issued clarification, regarding its format for publishing financial information by listed entities, that ‘Income from Operations’ may be disclosed inclusive of excise duty. Revenue INDEX Page 497

The term “other operating revenue” is not defined. This would include Revenue arising from a company’s operating activities, i.e., either its principal or ancillary revenue-generating activities, but which is not revenue arising from sale of products or rendering of services. Whether a particular income constitutes “other operating revenue” or “other income” is to be decided based on the facts of each case and detailed understanding of the company’s activities. The classification of income would also depend on the purpose for which the particular asset is acquired or held. For instance, a group engaged in manufacture and sale of industrial and consumer products also has one real estate arm. If the real estate arm is continuously engaged in leasing of real estate properties, the rent arising from leasing of real estate is likely to be “other operating revenue”. On the other hand, consider a consumer products company which owns a 10 storied building. The company currently does not need one floor for its own use and has given the same temporarily on rent. In that case, lease rent is not an “other operating revenue”; rather, it should be treated as “other income”. To take other examples, sale of Property, Plant and Equipment is not an operating activity of a company, and hence, profit on sale of Property, Plant and Equipment should be classified as other income and no other operating revenue. On the other hand, sale of manufacturing scrap arising from operations for a manufacturing company should be treated as other operating revenue since the same arises on account of the company’s main operating activity. Other Income The aggregate of ‘Other income’ is to be disclosed on face of the Statement of Profit and Loss. ‘Other Income’ shall be classified as: (a) Interest Income;(b) Dividend Income; (c) Other non-operating income (net of expenses directly attributable to such income). All kinds of interest income should be disclosed under this head such as interest on fixed deposits, interest from customers on amounts overdue, etc. As per the requirements of para 82 of Ind AS 1, Interest Income calculated using the effective interest method should be shown as a separate line item in the Statement of Profit and Loss. For other non-operating income, income should be disclosed under this head net off expenses directly attributable to such income. However, the expenses so netted off should be separately disclosed. Revenue Page 498

CHAPTER 22 : NOTES TO ACCOUNTS A. PROVISIONS, CONTINGENT LIABILITIES AND CONTINGENT ASSETS 22.1 PROVISION OF IND-AS 37 (PROVISIONS, CONTINGENT LIABILITIES AND CONTINGENT ASSETS) IN BRIEF 22.1.1 Provision - A provision is a liability of uncertain timing or amount. 22.1.2 Liability - A liability is a present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits. 22.1.3 Contingent Liability - A contingent liability is: 22.1.4 a. a possible obligation that arises 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 entity; or b. a present obligation that arises from past events but is not recognised because: • it is not probable that an outflow of resources embodying economic benefits will be required to settle the obligation; or • the amount of the obligation cannot be measured with sufficient reliability. Contingent Asset - A contingent asset is a possible asset that arises 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 entity. 22.1.5 Onerous contract – It is a contract in which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it. 22.1.6 Recognition 22.1.6.1 A provision shall be recognised when: a. an entity has a present obligation (legal or constructive) as a result of a past event; b. it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation; and c. a reliable estimate can be made of the amount of the obligation. d. If these conditions are not met, no provision shall be recognised. 22.1.6.2 An entity shall not recognise a contingent liability. A contingent liability is disclosed, unless the possibility of an outflow of resources embodying economic benefits is remote. 22.1.6.3 An entity shall not recognise a contingent asset. Contingent assets are not recognised in financial statements since this may result in the recognition of income that may never be realised. However, when the realisation of income is virtually certain, then the related asset is not a contingent asset and its recognition is appropriate. A contingent asset is disclosed, where an inflow of economic benefits is probable. Notes to Accounts INDEX Page 499

22.1.7 Measurement 22.1.7.1 The amount recognised as a provision shall be the best estimate of the expenditure required to settle the present obligation at the end of the reporting period. The risks and uncertainties that inevitably surround many events and circumstances shall be taken into account in reaching the best estimate of a provision. 22.1.7.2 Where the effect of the time value of money is material, the amount of a provision shall be the present value of the expenditures expected to be required to settle the obligation. 22.1.7.3 The discount rate (or rates) shall be a pre-tax rate (or rates) that reflect(s) current market assessments of the time value of money and the risks specific to the liability. The discount rate(s) shall not reflect risks for which future cash flow estimates have been adjusted. 22.1.7.4 Future events that may affect the amount required to settle an obligation shall be reflected in the amount of a provision where there is sufficient objective evidence that they will occur. 22.1.7.5 Where some or all of the expenditure required to settle a provision is expected to be reimbursed by another party, the reimbursement shall be recognised when, and only when, it is virtually certain that reimbursement will be received if the entity settles the obligation. The reimbursement shall be treated as a separate asset. The amount recognised for the reimbursement shall not exceed the amount of the provision. 22.1.8 Provisions shall be reviewed at the end of each reporting period and adjusted to reflect the current best estimate. If it is no longer probable that an outflow of resources embodying economic benefits will be required to settle the obligation, the provision shall be reversed. 22.2 COMPLIANCE IN IOCL 22.2.1 In order to comply with Ind-AS 37, Divisions are required to analyze and categorize each of the Contingent Liability as Probable, Possible and Remote. However, divisions are required to provide full details of contingent liabilities in respect of each of the above categories. Further, for the purpose of reporting “Disputed Statutory Dues” under CARO, all cases (including remote cases) are required to be disclosed without any materiality limit. 22.2.1.1 Probable - In case the contingent liability is considered as Probable, suitable provision in respect of such contingencies is required to be recognized in Profit and Loss account under natural heads like raw material consumed, finance cost etc. Further in case some or all of the expenditure required to settle such probable contingent liability is expected to be reimbursed by another party (such as PPAC etc.), reimbursement should also be recognized only when it is certain that the reimbursement will be received on settlement of such obligation. It should be ensured that the amount recognized as reimbursement should not exceed the provision. The amount so recognized as reimbursement shall be disclosed as “Reimbursement against Contingencies” and shown separately under “Other Financial Assets”. However, the amount of provision should be net of the reimbursement of another party. 22.2.1.2 Possible - In case the contingent liability is considered as Possible, the same is to be disclosed as contingent liability suitably. Notes to Accounts INDEX Page 500

22.2.1.3 Remote - In case the contingent liability is considered as Remote, the accounting standard does not require to disclose same as contingent liability. 22.2.2 Materiality limit - Show cause notices should not be considered as part of contingent liability and disputed demand above ` 50 lakhs are only to be considered as contingent liabilities for their evaluation. 22.2.3 The broad principles to be adopted for classifying the contingent liability under Probable, Possible and Remote are given below. However, the same needs to be decided based upon the facts, circumstances and merits of each case. Category A: In respect of Excise, Customs, GST, Sales Tax and Entry Tax cases: PROBABLE POSSIBLE REMOTE 1 When there is clear decision Whether after reading the Whether after reading the on similar issues against demand order, IOC feels that demand order, IOC feels that Corporation's contention although the Dept. has built (a) the demand order is and there is no support up a case against IOC, but IOC frivolous and that there is no either through department feels that (a) all relevant laws prima facie case in favor of circulars or any other has not been considered by Deptt. (b) IOC is absolutely Supreme Courts view the Deptt.(b) the Deptt. has confident of winning the case contradicting the view of raised its demand based on considering that Supreme Supreme Court relied by the erroneous interpretation of Court has already given Deptt. The same will be any judicial citation, or the decision on similar issue in provided as Probable. facts of the cases relied upon favor of IOC / other assesses by the Deptt. can be (c) All the existing evidences, In other cases, including distinguished from the facts the provision of law, and the sales tax cases, following of the cases for IOC (c) there facts available to support will be followed: are some judgments in favor IOC’s contention (d) the of Deptt. and some in favor Deptt. has failed to take note The first appellate order of IOC rendering a clear case of any recent judgment confirming the demand will for IOC to contest (d) any favoring IOC which was not be analyzed and where IOC writ/ representation filed by available to Deptt. at the time feels there is a very strong IOC which has been admitted of raising the demand (e) prima facie case for the by the jurisdiction court. (e) disputed cases are relating to Deptt. Considering (a) the All disputed cases are procedural lapses which are provisions of the law (b) the relating to the procedural insignificant in nature. documentation actually lapses other than followed (c) the judiciary insignificant in nature. (f) In all such cases, IOC will treat pronounced in the favor of either declaration forms/ such contingent liability as the Deptt. (d) Even if IOC is certificates etc. for which “Remote” and there is no capable of submitting a demand is raised are need to report this item as rejoinder it will not be able available with IOC complete contingent liability merely to support its case because in all respects, or forms/ because IOC is contesting of non- availability of certificates are available, but such demand. documents (e) that, similar they are to be issue has been decided in ratified/corrected by Notes to Accounts Page 501

favor of the Deptt. And customers and customers are against IOC in other either in existence and /or Commissionerate or other still taking supplies from IOC Courts i.e. (f) there are and hence IOC is of the similar instances within or strong opinion that IOC will outside the Oil industry be in a position to collect wherein all the similar issues forms/certificates etc. from which were adjudicated/ the customer. decided in favor the Deptt. (g) there are sales tax In such cases, no provision demand for want of should be made in the Books declaration forms, of the Accounts but certificates, etc. and the disclosure in terms of Ind-AS customers from whose such 37 has to be made as forms are to be obtained are contingent liability grouping not in existence as these items under the established by any category of “Possible”. investigation agency and accepted by IOC and such forms/Certificates cannot be obtained from such customers (h) demand is for want of declaration form/certificate from the customer; customer is also in existence but due to some reason, he would not be in position to give declaration form and confirmed that IOC could raise debit note for the differential tax; then while debiting to customer , liability may be created in our books to ST deptt. In such cases, provisions are to be made in the Books of the Accounts on the ground that there is a strong probability of the cases being decided against IOC notwithstanding the fact that IOC decides to contest it. Notes to Accounts Page 502

Category B – Other cases including arbitration and suit filed cases. Since each of the cases are relating to specific issues which may not be of common nature and the outcome is depending on final verdict, all such cases are to be classified as Probable, Possible and Remote based on the facts and circumstances of each case. However, cases lying with arbitrator are generally to be treated as Possible and disclosed as Contingent liabilities. Further, based on the merits and developments, the same may be analysed on case-to-case basis. Category C – Interest on liabilities categorized as ‘PROBABLE’ & ‘POSSIBLE’ • Probable: Since the obligation is 'more likely than not' and therefore necessary provision is created in the books of account, the consequential interest on such obligation should also be provided in line with demand / applicable law in this regard. • Possible: Since the crystallization of principal obligation is itself dependent on occurrence/ non-occurrence of future events, the element of interest should be disclosed only when the same has been specifically demanded. Therefore, Interest in the following cases may be considered for disclosure along with the principal in the following scenarios: - Where the amount of interest has been quantified and included in the demand order; & - Where rate of interest has been specifically mentioned or indicated with reference to the section of the applicable Act in the demand order. Interest as mentioned above is for the period mentioned in the demand order or the date of order as the case may be. Wherever the demand order is silent on interest, no interest has to be considered. 22.2.4 Discounting of liabilities – In line with the requirement of Ind-AS 37, where the effect of the time value of money is material, the amount of a provision shall be the present value of the expenditures expected to be required to settle the obligation. Discount rate to be used for this purpose shall be the incremental borrowing rate of IOCL for the relevant period, which forms part of treasury guidelines. Onerous contracts - An onerous contract is a contract in which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it. All the onerous contracts needs to be identified and the present obligation (an obligation if, based on the evidence available, its existence at the balance sheet date is considered probable, i.e., more likely than not) under the contract shall be recognized and measured as a provision. 22.3 CONTINGENT ASSETS 22.3.1 As per Ind-AS 37, a contingent asset is a possible asset that arises 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 entity. Example of contingent assets includes claims for faulty goods which is probable of being recovered. Contingent Notes to Accounts INDEX Page 503

assets shall not be recognized however, the same needs to be disclosed along with the description of its nature and its financial effect. 22.3.2 Guidelines for accounting and disclosure of Contingent Assets: 22.3.2.1 The claims that arise from past events and are virtually certain are not contingent assets and they have to be recognised in books as normal assets. 22.3.2.2 In case of taxation related claims, since these claims arise on account of provisions of law or jurisprudence, settled principles of law and precedence, same are deemed to be virtually certain of realisation and thus the amount of claim is recognised in accounts at the time of filing refund, rebate or drawback claims with the concerned authorities. 22.3.2.3 In case of non-taxation related claims, if the possibility of realisation i.e. inflow of economic benefits is probable then these are to be disclosed as Contingent Assets in accounts. 22.3.2.4 In case of non-taxation claims, which primarily arise on account of contracts or agreements, the following has to be tested for certainty or contingency: a. There should be a contract or agreement with the party having a clause that allows the company to make a valid claim against the party within the provisions of the contract or agreement even though the event(s) giving rise to the claim may occur beyond or outside the contract or agreement; b. Sufficient documentary or other evidences exist as required by the Contract/agreement or Law to sustain claim; c. There should be a claim in writing by way of Debit note, letter, e-mail or otherwise effectively conveying the claim of the company to the party; and Divisions are advised to exercise caution while classifying items under contingent assets to ensure that the company claims/ rights are not rejected by any authority (or arbitrator etc.) to ascertain that inflow of economic benefits continues to be probable i.e. more likely than not. 22.3.2.5 All cases other than cases which are either recognised as assets or disclosed as contingent assets (i.e. claims other than taxation claims realisation of which is not even probable) are to be tracked and reported separately through MIS for subsequent monitoring and classification. 22.4 PROVISION FOR CONTINGENCIES – CHANGE IN ACCOUNTING MANNER 22.4.1 Creation of provision for probable contingencies: a. The provision for probable contingencies to be debited to the natural account heads in P&L instead of separate account head “Provision for probable contingencies”. The amounts related to statutory liabilities may be reflected under the head “Octroi, Other levies and irrecoverable taxes”. For other probable contingencies, the expenditure to be reflected in respective natural heads. Notes to Accounts INDEX Page 504

b. The corresponding liability to be continued to be accounted under the account code “Provision for probable contingencies”. 22.4.2 Liquidation of provision for probable contingencies: In case of any development/settlement of the dispute during subsequent years, the payment of the actual liability crystallized to be debited to provision for probable contingencies (Liability code). If the crystallized liability is more than provision, the differential amount to be debited to the account heads mentioned at sl. No A.(i) above. In case the liability crystallized is less than the provision, differential amount to be credited to write back account code “Provision for contingencies written back”. 22.5 DISCLOSURE REQUIREMENT Following disclosures are required to be made in notes to Accounts as per the provisions of Ind AS 37 & IND AS Schedule III to the Companies Act 2013: 22.5.1 Contingent Liabilities 22.5.1.1 In respect of each class of provision made for Probable cases, the following disclosures shall be given in accounts for Provisions - • a brief description of the nature of the obligation and the expected timing of any resulting outflows of economic benefits; • an indication of the uncertainties about the amount or timing of those outflows. Where necessary to provide adequate information, an entity shall disclose the major assumptions made concerning future events; and • the amount of any expected reimbursement, stating the amount of any asset that has been recognized for that expected reimbursement. • Carrying amount at the beginning and the end of the period. • Additional provision made in the period, including increases to existing provisions. • Amounts incurred and charged against the provisions during the period; and • Unused amount reversed during the period. 22.5.1.2 In respect of each class of possible cases, the same shall be disclosed as Contingent Liability specifically mentioning the interest considered in each case. 22.5.1.3 In respect of remote cases, though the standard does not require any disclosure to be made, Divisions are requested to compile the information and submit the same along with the accounts. 22.5.2 Contingent Asset – Following shall be disclosed: a. brief description of the nature of the contingent assets at the end of the reporting period; and b. an estimate of financial effect for contingent assets. Notes to Accounts INDEX Page 505

22.5.3 Other Disclosures – Schedule III to the Companies Act 2013, requires certain additional disclosures as regards to the following: a. Guarantees excluding financial guarantees - Ind AS Schedule III requires guarantees other than financial guarantees to be disclosed as a part of contingent liabilities, since financial guarantees are recognized on the balance sheet in accordance with Ind AS 109. Ind AS 107 specifies certain disclosure in respect of the exposure to credit risk on financial guarantee contracts as a part of the disclosures on ‘credit risk exposures’, which an entity should provide in its Notes to Accounts. b. Other money for which the company is contingently liable - As per Para 8.2.14 of Guidance Note to IND AS Schedule III to the Companies Act 2013, Corporation is also required to disclose Other money for which the company is contingently liable. Cases in respect of additional compensation, if any, payable to the landowners and the Govt. for certain lands acquired for which no liability could be determined are reported under this heading. c. Capital Commitments - In IOCL, estimated amount of contracts remaining to be executed on capital accounts are disclosed in each case above Rs.50 lakh. All applicable statutory taxes & duties (including GST) should be included for working out the Capital Commitment. d. Other Commitments - Commitments like pending EPCG obligations, other major commitments of the Corporation during a particular financial year may also be disclosed. Notes to Accounts Page 506

22.5.4 Sample Disclosure Notes to Accounts Page 507

NOTE- 36 COMMITMENT AND CONTINGENCIES Notes to Accounts Page 508

Notes to Accounts Page 509

B. SEGMENT REPORTING 22.6 PROVISION OF IND-AS 108 (OPERATING SEGMENTS) IN BRIEF 22.6.1 Core Principle - An entity shall disclose information to enable users of its financial statements to evaluate the nature and financial effects of the business activities in which it engages and the economic environments in which it operates. 22.6.2 Scope: If a financial report contains both the consolidated financial statements of parent that is within the scope of this IND AS as well as the parent’s separate financial statements, segment information is required only in the consolidated financial statements. However IOCL has opted to report segment information in the standalone Financial Statements as well for additional disclosure of information to the user of financial statements. 22.6.3 Operating Segments - An operating segment is a component of an entity: a. that engages in business activities from which it may earn revenues and incur expenses (including revenues and expenses relating to transactions with other components of the same entity), b. whose operating results are regularly reviewed by the entity’s chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance, and c. for which discrete financial information is available. 22.6.4 Aggregation criteria Operating segments often exhibit similar long-term financial performance if they have similar economic characteristics. For example, similar long-term average gross margins for two operating segments would be expected if their economic characteristics were similar. Two or more operating segments may be aggregated into a single operating segment if aggregation is consistent with the core principle of this Ind AS, the segments have similar economic characteristics, and the segments are similar in each of the following respects: • the nature of the products and services; • the nature of the production processes; • the type or class of customer for their products and services; • the methods used to distribute their products or provide their services; and • if applicable, the nature of the regulatory environment, for example, banking, insurance or public utilities. 22.6.5 Quantitative thresholds for identifying Reportable segments – An entity shall report separately information about an operating segment that meets any of the following quantitative thresholds: a. Its reported revenue, including both sales to external customers and intersegment sales or transfers, is 10 per cent or more of the combined revenue, internal and external, of all operating segments. Notes to Accounts INDEX Page 510

b. The absolute amount of its reported profit or loss is 10 per cent or more of the greater, in absolute amount, of (i) the combined reported profit of all operating segments that did not report a loss and (ii) the combined reported loss of all operating segments that reported a loss. c. Its assets are 10 per cent or more of the combined assets of all operating segments. Operating segments that do not meet any of the quantitative thresholds may be considered reportable, and separately disclosed, if management believes that information about the segment would be useful to users of the financial statements. An entity may combine information about operating segments that do not meet the quantitative thresholds with information about other operating segments that do not meet the quantitative thresholds to produce a reportable segment only if the operating segments have similar economic characteristics and share a majority of the aggregation criteria listed in paragraph 1.4. If the total external revenue reported by operating segments constitutes less than 75 per cent of the entity’s revenue, additional operating segments shall be identified as reportable segments (even if they do not meet the criteria mentioned above) until at least 75 per cent of the entity’s revenue is included in reportable segments. 22.6.6 Disclosure Requirements - an entity shall disclose the following for each period for which a statement of profit and loss is presented: a. information about reported segment profit or loss, segment assets, segment liabilities, depreciation and amortisation, material non-cash items other than depreciation and amortisation; and b. reconciliations of the totals of segment revenues, reported segment profit or loss, segment assets, segment liabilities and other material segment items to corresponding entity amounts. Reconciliations of the amounts in the balance sheet for reportable segments to the amounts in the entity’s balance sheet are required for each date at which a balance sheet is presented. 22.7 REPORTABLE SEGMENTS IN IOCL 22.7.1 Based on the criteria of identifying reportable segments as prescribed in Ind-AS 108 Operating Segments and on the basis of nature of business, following reportable segments are identified in IOCL: 22.7.2 a. Petroleum Products b. Petrochemicals c. Other Business comprising of: • Sale of Gas • Explosives & Cryogenics • Windmill & Solar Power Generation • Oil & Gas Exploration Activities There are no reportable geographical segments in IOCL. Notes to Accounts INDEX Page 511

22.8 REPORTING OF SEGMENT INFORMATION TO CORPORATE FINANCE (CF) Segment reporting involves reporting of following parameters: 22.8.1 Segment Revenue - Revenue to be reported as segment revenue shall include all the components of Revenue from operations including other operating income for that segment. Segment revenue shall not include the items designated as Other Income in financial statements. Items of other income are considered as unallocable income for segment reporting purposes. Segment revenue needs to be reported in the following two bifurcations: 22.8.1.1 External Revenue: The revenue generated from sale of products and services to external customers shall be included in “External Revenue”. 22.8.1.2 Inter Segment Revenue: The revenue generated from transfer of products and services of one segment to other segment of IOCL shall be included in “Inter-Segment Revenue”. The inter-segment transfer may be inter-divisions, intra-division or within the same unit. 22.8.2 Segment Results – Segment results means the operating profit for that segment. It shall be computed in the following manner: Segment Revenue XXXXX Add: Exchange Gain other than on borrowings and loans to JV/ Subsidiaries XXXX Less: Segment Expenses (Other than following unallocable expenditures – Finance Cost, Loss on Sale XXXXX of Investments, Provision for diminution in Investments, Loss on sale and disposal of Assets, Exchange Loss on borrowings and loans to JV/ XXXX Subsidiaries, MTM Loss on Derivatives, Fair value Loss on Financial instruments classified as FVTPL, Amortisation of FC Monetary Item Translation) Segment Results Note: While computing segment results Exchange Gain/ Loss other than on borrowings and loans to JV/ Subsidiaries needs to be considered as segmental exchange gain/loss. This exchange gain/ loss considered as part of segment results needs to be specifically shown in the divisional submission to CF for segment reporting. 22.8.3 Segment Assets – All the assets pertaining to the segment as per the financial statements shall be included as part of segment assets for reporting except the following assets which are designated as corporate assets (un-allocable): • Interdivision/ intra-divisional Division Balances INDEX • Investments (current and non-current) • Advances for investments • Income tax and current tax asset • Deferred tax asset • Interest accrued on investments/ bank deposits Notes to Accounts Page 512

22.8.4 • Loans (Current & Non-Current) • Derivative asset • lease receivables • Segment Liabilities – All the liabilities pertaining to the segment as per the financial statements shall be included as part of segment liabilities for reporting except the following liabilities which are designated as corporate liabilities (un-allocable): 22.8.5 • Liability for Dividend • Dividend Tax • Income tax and current tax liability • Borrowings (short term and long term) • Current maturities of long-term debt • Interest accrued and due on non-financial liabilities • Deferred tax liability • Interest accrued but not due on non-financial liabilities • Derivative liabilities Capital Expenditure – Capital expenditure incurred during the period in the reporting segment needs to be reported. Capital expenditure shall be computed by aggregating the following: a. Additions to Gross Block of Tangible Assets during the period (including transfers from CWIP and net of disposal/deductions and reclassifications) b. Additions to Gross Block of Intangible Assets during the period (including transfers from CWIP and net of disposal/deductions and reclassifications) c. Change in Tangible Capital work-in-progress during the period d. Change in Intangible assets under development during the period 22.8.6 Depreciation and Amortization – The depreciation and amortisation on capital assets charged during the period needs to be reported separately for each reporting segment. 22.8.7 Material non-cash items other than depreciation and amortisation – Any material non-cash item other than depreciation and amortisation relating to the segment needs to be reported separately for disclosure at corporate level. 22.8.8 Geographical information – As per the requirements of Ind-AS 108, geographical bifurcation of total External Revenue and total Non-Current Assets of the company between revenue attributable/ assets located to/ in the entity’s country of domicile and in all other foreign countries i.e. in India and outside India is required. Accordingly, the bifurcation is required to be given and the non-current assets for this purpose shall mean non-current assets other than financial instruments, deferred tax assets, post-employment benefit assets, and rights arising under insurance contracts. 22.8.9 Revenue from Major products and services – As per the requirements of Ind-AS 108, external revenue from major products and services needs to be reported. Accordingly, external revenue from following products shall be reported: Notes to Accounts Page 513

• Motor Spirit (MS) • High Speed Diesel (HSD) • Superior Kerosene Oil (SKO) • Liquified Petroleum Gas (LPG) • Aviation Turbine Fuel (ATF) • Others 22.8.10 Revenue from Major customers – Ind-AS 108 requires that, if revenues from transactions with a single external customer amount to 10 per cent or more of an entity’s revenues, then the entity shall disclose that fact. Therefore, in case the external revenue from one customer exceeds 10% of total revenue of the company then the fact should be disclosed. However, there is no requirement of disclosing the identity of the customer. 22.9 SPECIAL POINTS Unrealised margin – Unrealised margin on closing stock of reportable segment (other than petroleum) arising due to inter-divisional transfer should be separately reported by Registered office as segmental profit/loss and segment asset of respective segment in line with accounts. In IOCL apart from divisions profit elimination entries are also passed in Registered Office accounts. The unrealised margin so accounted in registered office needs to be segregated into respective reportable segments and the details thereof need to be provided to CF. 22.10 DIVISIONAL SUBMISSION TO CF – SIGNED COPY AND IN PACE 22.10.1 Saving the segment information in PACE – Formats are developed for collection of data from divisions in PACE. These formats are in the form of input forms which allows divisions to save the data directly in the required format on PACE server. Screen shots of the PACE input forms are as under: Notes to Accounts INDEX Page 514

22.10.2 After saving the above information, divisions are required to take the printout of the same and get it signed from their respective statutory auditors and forward to CF along with audited accounts. 22.10.3 Same format for the corresponding period of previous year shall also be provided along with the accounts. In case there is any regrouping required in the previous year figures saved in PACE, the same is required to be incorporated in the signed statement of previous year and is to be specifically communicated to CF for reporting. 22.10.4 It is to be ensured that segmental information should be accompanied by an analysis of variations wherein the reasons for variation in Segmental Results vis-à-vis corresponding period of Previous Year, Current Quarter vis-à-vis Previous Quarter and corresponding quarter of Previous Year should be included along with relevant details. Further, there should not be any unrealized margin in closing stock. Format for reporting at IOCL level Sample disclosure of segment reporting as per Ind-AS 108 at IOCL level is as under: Notes to Accounts Page 515

Notes to Accounts Page 516

Notes to Accounts Page 517

C. FAIR VALUE DISCLOSURES 22.11 SCOPE a. Fair value disclosures are applicable only in case of financial instruments (Ind-AS-109) i.e. financial assets and financial liabilities covered and investment property (Ind-AS-40). All non- financial assets and liabilities are outside the scope of fair value disclosures b. Fair value disclosures are not required in case of investments covered under Ind-AS-27 i.e. investment is subsidiaries, JVs and associates c. Financial assets and liabilities whose carrying value approximates fair values are exempt from required disclosures. Based on the management assessment, - fair value of Trade Receivables, Cash and Cash Equivalents, Bank Balances, Deposit for Leave Encashment Fund, Recoverable from Employee Benefits Trusts, Other Non-derivative Current Financial Assets, Finance lease Receivable, Security Deposit paid and received, Short- term Borrowing, Trade Payables, Floating Rate Borrowings/ Receivables, Other Non- derivative Current Financial Liabilities and Liabilities towards financial guarantees falls under exempt category. d. In case of financial assets and liabilities which are measured at FVTOCI or FVTPL, fair value disclosures are required. In addition, fair value needs to be worked out specifically at each annual reporting date for disclosures purposes also in respect of financial assets/ liabilities carried at amortized cost. Some of the instances applicable to IOC are listed below: Financial assets Loans to employees Loan measured at amortized cost Financial liability Borrowings (excluding floating rate borrowings) 22.12 SUMMARIZED PROVISIONS AND REQUIREMENTS The guidance on fair value disclosures are covered in the following standards: • Ind-AS-107 -Financial instruments – disclosures • Ind-AS-113- Fair Value measurements The requirement of disclosure is summarized below: • Ind-AS-113 prescribes exit price model to be used for fair valuation. Exit price is the price that would be received to sell an asset or paid to transfer a liability. • Fair value for each class of financial assets and liabilities is required to be disclosed in a way that permits it to be compared with it’s carrying amount • Methods and significant assumptions applied in determining fair value for each class of financial assets and liabilities • Change in valuation technique, if any and reason for making the change Notes to Accounts INDEX Page 518

• Fair value measurements to be disclosed following a fair value hierarchy that reflects the significance of inputs used in making the measurements: - Quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1) - Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices) (Level 2) - Inputs for the asset or liability that are not based on observable market data (unobservable inputs) (Level 3) • Details of any ‘significant’ transfers between Level 1 and Level 2 and the reasons for the transfers • Level of fair value hierarchy within which the fair value measurement is categorized shall be determined on the basis of the lowest level input that is significant to the fair value measurement in its entirety. • Assessing the significance of a particular input to the fair value measurement in its entirety requires judgment, considering factors specific to the asset or liability (Level 3) • For Level 3 fair value measurements, Reconciliation is required between the beginning and ending balances, including: - Total gains or losses for the period split between those recognised in P&L and those recognised in OCI - Purchases, sales, issues and settlements - Transfers into and out of Level 3, with ‘significant’ transfers into the category disclosed separately from transfers out, along with the reasons for those transfers • Fair value should be based on quoted prices and external sources, wherever applicable. In other cases, in case of in-house calculation, it is to be calculated based on discounted cash flow technique which requires present value of cash flows for the remaining maturity using the applicable discount rate. • Discount rates are advised by CO in the treasury guidelines shared during quarterly closing Various input forms are created in PACE for collection of data. Divisions are requested to refer to the chapter on PACE. 22.13 FAIR VALUE HIERARCHY AND CALCULATION METHODOLOGY 22.13.1 Level 1 Hierarchy: a. Quoted equity shares: Closing quoted price (unadjusted) in National Stock Exchange of India Limited b. Quoted Government securities: Closing published price (unadjusted) in Clearing Corporation of India Limited c. Foreign Currency Bonds - US Dollars: Closing price for the specific bond collected from Bank 22.13.2 Level 2 Hierarchy: INDEX Notes to Accounts Page 519

a. Derivative instruments at fair value through profit or loss: Replacement cost quoted by institutions for similar instruments by employing use of market observable inputs. b. Loans to employees: Discounting future cash flows using rates currently available for items on similar terms, credit risk and remaining maturities c. Non-Convertible Redeemable Bonds, Foreign Currency Bonds - Singapore Dollars and Senior Notes (Bank of America): Discounting future cash flows using rates currently available for items on similar terms, credit risk and remaining maturities (Excluding floating rate borrowings) d. Term Loans from Oil Industry Development Board (OIDB): Discounting future cash flows using rates currently available for similar type of borrowings (OIDB Borrowing Rate) using exit model as per Ind AS 113 22.13.3 Level 3 Hierarchy: a. Unquoted equity instruments: Fair values of the unquoted equity shares have been estimated using a DCF model. The valuation requires management to make certain assumptions about the model inputs, including forecast cash flows, discount rate, credit risk and volatility. The probabilities of the various estimates within the range can be reasonably assessed and are used in management’s estimate of fair value for these unquoted equity investments. b. Non-Convertible Redeemable Preference shares, Compulsorily Convertible Debentures and Loan to Related parties - Suntera: The fair value of Preference shares, Debentures and Loan to Suntera is estimated with the help of external valuer by discounting future cash flows. The valuation requires management to use unobservable inputs in the model, of which the significant unobservable inputs are disclosed in Appendix-I below. Management regularly assesses a range of reasonably possible alternatives for those significant unobservable inputs and determines their impact on the total fair value. c. PMUY Loan : Fair value of PMUY loans is estimated by discounting future cash flows using approximate interest rates applicable on loans given by Banks duly adjusted for significant use of unobservable inputs in estimating the cash flows comprising of specific qualitative and quantitative factors like consumption pattern, assumption of subsidy rate, deferment of loan etc. 22.14 ACCOUNTING POLICY ON FAIR VALUE MEASUREMENT 22.14.1 The Company measures financial instruments, such as, derivatives at fair value at each balance sheet date. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. 22.14.2 The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either in the principal market for the asset or liability, Notes to Accounts INDEX Page 520

or In the absence of a principal market, in the most advantageous market for the asset or liability The principal or the most advantageous market must be accessible by the Company. 22.14.3 The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest. 22.14.4 A fair value measurement of a non-financial asset takes into account a market participant’s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use. 22.14.5 The Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs. 22.14.6 All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole: Level 1 — Quoted (unadjusted) market prices in active markets for identical assets or liabilities Level 2 — Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable Level 3 — Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable For assets and liabilities that are recognised in the financial statements on a recurring basis, the Company determines whether transfers have occurred between levels in the hierarchy by re- assessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period. In case of Level 3 valuations, External valuers are also involved in some cases for valuation of assets and liabilities, such as unquoted financial assets, loans to related parties etc. For the purpose of fair value disclosures, the Company has determined classes of assets and liabilities on the basis of the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy as explained above. DISCLOSURE FORMATS Notes to Accounts Page 521

Notes to Accounts Page 522

Notes to Accounts Page 523