Manual-formatted

software cost shall be treated as an intangible asset and accounted for in accordance with the provisions of Ind-AS-38 – Intangible Assets. b. In case any specific computer software is purchased/ developed which will result in future economic benefits such as Optimisation Module, the specific expenditure incurred for such computer software shall be recognized as Intangible Asset and the same shall be amortised over a period of 3 years from the year it is put to use. c. Further, where such software are still in the development stage as on the balance sheet date, the expenditure incurred on such software should be reflected as in Note -3.1 \"Intangible assets under development\" and as and when the said software is ready/put to use, the total expenditure incurred on such software should be reflected under Intangible Asset under Note-3 and amortised over a period of 3 years. d. Any expenditure for operating/ maintaining the package such as payment towards support services, annual maintenance contracts etc. should be treated as revenue expenditure and shall be charged off in the year of incurrence. e. Additional expenditure incurred on SAP shall also continue to be recognized as expenditure and charged to Profit & Loss Account as per the existing practice. 2.13.4 In some cases, expenditure is incurred to provide future economic benefits to an enterprise, but no intangible asset or other asset is acquired or created that can be recognized. Examples of such expenditure that is recognized as an expense when it is incurred include: • Expenditure on Start-up Activities of commissioned plants • Expenditure on Training Activities • Expenditure on Advertising and promotional activities • Expenditure on relocating or re-organizing part or all of an enterprise 2.13.4.1 Expenditure on Startup Activities In case the expenses incurred on startup activities are eligible for inclusion in the cost of Fixed Assets as per the provisions of Ind AS-16 “Accounting for Property, Plant and Equipment”, the same shall be capitalised along with the related Fixed Assets or shall be allocated to the group of assets in a ratio determined in consultation with technical department. All expenses other than those included in the cost of the fixed asset under this head, shall be recognized as expenditure as and when the same is incurred. Start-up costs may consist of expenditure to open a new facility or business (pre-opening costs) or expenditures for commencing new operations or launching new products or processes (pre-operating costs); 2.13.4.2 Expenditure on Training Activities, Advertisement, Promotional Activities and relocation or re- organizing part or all of an enterprise Any amount incurred on any of these heads (including when incurred for Projects) shall be recognized as expenditure as and when the same is incurred and charged off to revenue in the year of incurrence. The expenditure on training imparted by the licensors under the terms of their agreement are mainly towards running, maintenance and operational aspects of the plant and accordingly should be expensed out. These expenses are no way contributing towards the construction of the plant and hence should not be capitalised. However, any training which is linked solely with the construction activity or construction monitoring can be considered for capitalisation as an allocable cost to the fixed assets. For example, training for project Fixed Assets Page 92

scheduling software - PRIMA VERA used during construction is a training which contributes to the construction of the plant and thus should be capitalised. 2.13.5 Internally generated intangible assets 2.13.5.1 Research Phase No intangible asset arising from research (or from the research phase of an internal project) shall be recognised. Expenditure on research (or on the research phase of an internal project) shall be recognised as an expense when it is incurred. (Para 54 of Ind AS 38) Examples of research activities are: a. activities aimed at obtaining new knowledge; b. the search for, evaluation and final selection of, applications of research findings or another knowledge; c. the search for alternatives for materials, devices, products, processes, systems or services; and d. the formulation, design, evaluation and final selection of possible alternatives for new or improved materials, devices, products, processes, systems or services. (Para 56 of Ind AS 38) 2.13.5.2 Development Phase An intangible asset arising from development (or from the development phase of an internal project) shall be recognised if, and only if, an entity can demonstrate all of the following: a. the technical feasibility of completing the intangible asset so that it will be available for use or sale. b. its intention to complete the intangible asset and use or sell it. c. its ability to use or sell the intangible asset. d. how the intangible asset will generate probable future economic benefits. Among other things, the entity can demonstrate the existence of a market for the output of the intangible asset or the intangible asset itself or, if it is to be used internally, the usefulness of the intangible asset. e. the availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset. f. its ability to measure reliably the expenditure attributable to the intangible asset during its development. (Para 57 of Ind AS 38) Examples of development activities are: a. the design, construction and testing of pre-production or pre-use prototypes and models; b. the design of tools, jigs, molds and dies involving new technology; c. the design, construction and operation of a pilot plant that is not of a scale economically feasible for commercial production; and d. the design, construction and testing of a chosen alternative for new or improved materials, devices, products, processes, systems or services. (Para 59 of Ind AS 38) Internally generated brands, mastheads, publishing titles, customer lists and items similar in substance shall not be recognised as intangible assets. (Para 63 of Ind AS 38). Since the expenditure on internally generated brands, mastheads, publishing titles, customer lists and Fixed Assets Page 93

items similar in substance cannot be distinguished from the cost of developing the business as a whole. Therefore, such items are not recognised as intangible assets. (Para 64 of Ind AS 38) 2.14 DISCLOSURES (Para 118 of Ind AS 38) An entity shall disclose the following for each class of intangible assets, distinguishing between internally generated intangible assets and other intangible assets: a. whether the useful lives are indefinite or finite and, if finite, the useful lives or the amortisation rates used; b. the amortisation methods used for intangible assets with finite useful lives; c. the gross carrying amount and any accumulated amortisation (aggregated with accumulated impairment losses) at the beginning and end of the period; d. the line item(s) of the statement of comprehensive income in which any amortisation of intangible assets is included; e. a reconciliation of the carrying amount at the beginning and end of the period showing: (i) additions, indicating separately those from internal development, those acquired separately, and those acquired through business combinations; (ii) assets classified as held for sale or included in a disposal group classified as held for sale in accordance with Ind AS 105 and other disposals; (iii) increases or decreases during the period resulting from revaluations under paragraphs 75, 85 and 86 and from impairment losses recognised or reversed in other comprehensive income in accordance with Ind AS 36 (if any); (iv) impairment losses recognised in profit or loss during the period in accordance with Ind AS 36 (if any); (v) impairment losses reversed in profit or loss during the period in accordance with Ind AS 36 (if any); (vi) any amortisation recognised during the period; (vii) net exchange differences arising on the translation of the financial statements into the presentation currency, and on the translation of a foreign operation into the presentation currency of the entity; and (viii) other changes in the carrying amount during the period • (Para 122 of Ind AS 38) An entity shall also disclose: a. for an intangible asset assessed as having an indefinite useful life, the carrying amount of that asset and the reasons supporting the assessment of an indefinite useful life. In giving these reasons, the entity shall describe the factor(s) that played a significant role in determining that the asset has an indefinite useful life. b. a description, the carrying amount and remaining amortisation period of any individual intangible asset that is material to the entity’s financial statements. c. for intangible assets acquired by way of a government grant and initially recognised at fair value • the fair value initially recognised for these assets; • their carrying amount; and • whether they are measured after recognition under the cost model or the revaluation model. Fixed Assets INDEX Page 94

d. the existence and carrying amounts of intangible assets whose title is restricted and the carrying amounts of intangible assets pledged as security for liabilities. e. the amount of contractual commitments for the acquisition of intangible assets. Illustrative disclosures are given in Annexure – 2.4 Fixed Assets Page 95

2D. IMPAIRMENT OF ASSETS 2.15 PROVISION OF IND-AS 36 (IMPAIRMENT OF ASSETS) IN BRIEF 2.15.1 Core Principle - The objective of this Standard is to prescribe the procedures that an entity applies to ensure that its assets are carried at no more than their recoverable amount. 2.15.2 Testing of impairment - An entity shall assess at the end of each reporting period whether there is any indication that an asset may be impaired. If any such indication exists, the entity shall estimate the recoverable amount of the asset. Indications may be internal indications or external indications showing that there is a significant decline in the recoverable amount of the asset. However, irrespective of whether there is any indication of impairment, an entity shall also: 2.15.3 a. test an intangible asset with an indefinite useful life or an intangible asset not yet available for use for impairment annually by comparing its carrying amount with its recoverable amount. b. test goodwill acquired in a business combination for impairment annually. Carrying amount – It is the amount at which an asset is recognised after deducting any accumulated depreciation (amortisation) and accumulated impairment losses thereon. 2.15.4 Recoverable Amount - The recoverable amount of an asset or a cash-generating unit is the higher of its fair value less costs of disposal and its value in use. 2.15.5 Fair value - 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. 2.15.6 Value in use - It is the present value of the future cash flows expected to be derived from an asset or cash-generating unit. 2.15.7 Recognition of Impairment Loss - An impairment loss shall be recognised immediately in profit or loss, unless the asset is carried at revalued amount. In case the asset is carried at revalued amount, the impairment loss needs to be adjusted (to the extent possible) from the revaluation surplus of that asset. After the recognition of an impairment loss, the depreciation (amortisation) charge for the asset shall be adjusted in future periods. Allocation of impairment loss to CGU - The impairment loss shall be allocated to reduce the carrying amount of the assets of the unit (group of units) in the following order: a. first, to reduce the carrying amount of any goodwill allocated to the cash-generating unit (group of units); and b. then, to the other assets of the unit (group of units) pro rata on the basis of the carrying amount of each asset in the unit (group of units). These reductions in carrying amounts shall be treated as impairment losses on individual assets 2.15.8 Reversal of Impairment Loss - An impairment loss recognised in prior periods for an asset other than goodwill shall be reversed if, and only if, there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognised. If this is the case, the carrying amount of the asset shall be increased to its recoverable amount. That increase is a reversal of an impairment loss. However, The increased carrying amount of an asset other than goodwill attributable to a reversal of an impairment loss shall not exceed the carrying amount that would have been determined (net of amortisation or depreciation) had no Fixed Assets INDEX Page 96

2.15.9 impairment loss been recognised for the asset in prior years. An impairment loss recognised for goodwill shall not be reversed in a subsequent period. A reversal of an impairment loss for an asset other than goodwill shall be recognised immediately in profit or loss, unless the asset is carried at revalued amount. Any reversal of an impairment loss of a revalued asset shall be treated as a revaluation increase in accordance with that other Indian Accounting Standard. After the reversal of an impairment loss, the depreciation (amortisation) charge for the asset shall also be adjusted in future periods. Disclosure Requirements - An entity shall disclose the following for each class of assets and also segment wise: a. the amount of impairment losses recognised in profit or loss during the period and the line item(s) of the statement of profit and loss in which those impairment losses are included. b. the amount of reversals of impairment losses recognised in profit or loss during the period and the line item(s) of the statement of profit and loss in which those impairment losses are reversed. c. the amount of impairment losses on revalued assets recognised in other comprehensive income during the period. d. the amount of reversals of impairment losses on revalued assets recognised in other comprehensive income during the period. 2.16 TESTING OF IMPAIRMENT IN IOCL 2.16.1 2.16.2 As per accounting policy of the company, IOCL tests its assets for impairment annually as on the last day of each financial year i.e. 31st March. 2.17 Discount rate to be used for discounting of cash flows shall be the pretax weighted average cost of capital (WACC) for the first nine months of the financial year at the end of which impairment testing is done. This rate shall be communicated by corporate finance to all divisions annually. IDENTIFICATION OF CASH GENERATING UNIT (CGU) AND PROCEDURE TO BE FOLLOWED IN IOCL In line with existing practice identification of CGUs in IOCL is as under: a. Each Refinery (excluding special product plants, petrochemical units) including crude oil pipelines, Marketing Locations (such as Installations, LPG filling plants, TOPs, Depots, RPOs, AFS and cross-country product pipelines) attached to the refinery shall be considered as separate CGU. b. Special product plants at Refineries shall be considered as separate CGU c. Petrochemical Plants shall be considered as separate CGU d. Marketing locations that are receiving products mainly from other oil companies shall be considered as separate CGU. For this purpose, LPG filling plants, which are not attached to own refinery, to be considered as separate CGU and all other assets put together to be considered as separate CGU. e. All activities relating to lube blending, filling, drum manufacturing etc. including lube marketing activities to be considered as a single CGU. Fixed Assets INDEX Page 97

f. All the activities relating to each Windmill and Solar Power generation plant as separate CGU g. BD group to consider each of the producing E&P asset (if any) as a separate CGU. h. Gas as a CGU consisting of Gas Pipelines and Gas trading business of Pipelines and BD Division i. For CGD business, each Geographical Area to be considered as separate CGU. 2.18 MODALITIES TO BE FOLLOWED ARE AS UNDER: Based on the above, the steps to be followed by each of the Divisions for testing the impairment are summarized below: 2.18.1 Step 1 – Identification of CGUs Refineries Division a. For each of the Refinery, the special product units and petrochemical units should be identified and all such units shall be considered as separate CGUs for the purpose of testing for impairment. b. The refining activities for each of the Refinery shall be considered as a separate CGU to which crude pipelines, product pipelines and various marketing locations (the details of which to be provided by respective Division) is to be included for the purpose of testing for impairment. Pipelines Division a. Each of the crude pipeline shall be linked to a particular Refinery based on refinery logistics. b. Each of the product pipeline shall also be linked to a particular Refinery based on refinery logistics and the same shall be advised to Refineries Division for consolidating in the particular CGU. c. Each Windmill and Solar Power generation plant as separate CGU d. Gas pipelines used should be treated as a separate CGU. e. For CGD business, each Geographical Area to be considered as separate CGU. Marketing Divisions a. To identify the marketing locations to determine whether they fall under the CGU of own refinery or CGU for trading area based on the pricing point concept. b. For all such units falling under the CGU of own refinery (including Digboi Refinery), the marketing locations such as Installations, LPG filling plants, TOPs, Depots, RPOs, AFS etc. shall be further linked to a particular Refinery on the basis of pricing point concept. This is to be done on Refinery CGU wise. c. For all such locations falling under CGU for trading, LPG plants are to be considered as a separate CGU and the balance locations put together on regional basis should be considered as a separate CGU. Deposits received against the LPG cylinders should be reduced while carrying out impairment assessment. d. All lube blending, filling plants, drum manufacturing etc. along with the lube marketing activity to be considered as one CGU. e. Each windmill shall be considered as a separate CGU. Fixed Assets INDEX Page 98

BD a. In case of E&P Assets, the Company generally considers a project as cash generating unit. However, in case where the multiple fields are using common production/transportation facilities and are sufficiently economically interdependent the same are considered to constitute a single cash generating unit (CGU). b. Gas trading business of BD Division should be treated as a separate CGU. R&D Centre All assets of R&D center shall fall under the category of Corporate Assets. Corporate Assets The following shall fall under the category of Corporate Assets: a. All assets of R&D Centre b. Assets of the Head Quarters of the Divisions, Regional Offices of Marketing Division, IIPM and Corporate Office c. Townships not attached to any refinery/pipeline/marketing locations d. Intangible assets not attached to any particular CGU 2.18.2 Step 2 – Determining the carrying value of Fixed Assets and Intangible Assets as on 31st March for each of the identified CGU as per Step-1. a. Carrying Value of Land should be excluded for determining the carrying value for each of the CGUs. b. All assets (other than Land and identified Corporate Assets) which can be directly attributable to a particular CGU as indicated under step-1 should be included in the carrying value of that CGU, including ROU created under Ind AS 116 (except land ROU). Other common assets (which cannot be directly attributable to a particular CGU) should be allocated by respective Division amongst the CGUs on a reasonable basis and the allocated carrying amount shall be included in the carrying value of the respective CGUs. c. A summary statement indicating the class of assets (as categorized in Note-2 and Note-3) should be prepared for each of the CGU by the respective Divisions. d. Each of the Divisions should ensure that the cumulative carrying value of assets allocated to various CGUs, Land and identified Corporate Assets put together for various classes of assets should be reconciled to Net Depreciated Block as per Note-2 – Tangible Assets and Note-3 – Intangible Assets of the respective Divisions as on 31st March. 2.18.3 Step 3 – Determining the Cash Flows for each of the identified CGU as per Step-1 by respective Divisions. a. Cash flows (before depreciation and tax) should be forecasted for a period of 15 years starting from the next financial year. b. The residual value at the terminal year of cash flows (i.e. at the end of fifteen years) shall be estimated @ 30% of the original cost of the assets. c. For estimating the cash flows, normal budgeted desired margin estimate for next year is to be considered. d. Volume escalation to be considered based on the average of last 3 years actual volume escalations of the respective products. Fixed Assets Page 99

e. In respect of Pipelines, COT @75% of NRF (except for PNGRB regulated and other pipelines where the COT rates are fixed for which the COT is to be taken as per these rates only) is to be considered and operating cost (excluding depreciation) should be considered for estimating the cash flows for the next 15 years. Other Division should ensure the above COT is considered as expenditure while estimating the future cash flows. f. While forecasting the Cash Flows, any yield/capacity improvement as a result of capex planned for future period (from next financial year) should not be considered as the same is not forming part of the carrying value of the assets as on 31st March of current financial year. g. Operating cost/overheads per unit shall be considered at constant level as the margins are also at constant level and in case of common operating costs incurred for more than one CGU, the same should be allocated on a reasonable basis. 2.18.4 Step 4 – Aggregating of Carrying Value and Cash Flow estimates for each of the identified CGU as per Step-1. a. Pipeline Division to advise the details of carrying amount and cash flows for each of the crude and product pipeline linked to particular CGU to Refineries Division. Similarly, the details relating to Gas Pipeline should be advised to BD division for consolidation as Gas CGU. b. In respect of Marketing Locations which have been linked to own refineries, Marketing Division shall advise the cumulative carrying amount and cash flows for each of the refinery identified as CGU to Refineries Head Office. Marketing Division to consolidate the carrying amount and Cash flows CGU-wise for other trading location not attached to any refinery i.e. Lubes, LPG and other trading activities. c. Refinery Division to consolidate the carrying amount and cash flow for each of the refinery CGU considering the data provided by Pipelines and Marketing division also as explained above. In respect of other CGUs identified within the Refineries, Refineries Division to work out carrying amount and cash flows separately. d. BD division to consolidate the carrying amount and cash flow for Gas CGU for its trading business and details received from pipelines. 2.18.5 Step 5 – Testing for Impairment of Assets for each of the identified CGU as per Step-1. a. Compare the sum total of Discounted Cash flows for each of the identified CGUs with its Carrying Value as on 31st March. In case the Discounted Cash flows exceeds the carrying value, no further testing needs to be done as there is no impairment loss. In case the carrying value exceeds discounted cash flows, then the Net fair value (fair value less cost of disposal) as on 31st March of the assets covered under a particular CGU needs to be estimated. In case, the Net fair Value as on 31st March is also lower than the carrying amount, then impairment loss is to be computed for the difference between a) carrying amount and b) higher of Net Fair Value as on 31st March and Discounted Cash flows. b. In case there is impairment loss in a particular CGU, the impairment loss shall be allocated between the various classes of assets included in the carrying amount of that CGU on the basis of Net Depreciated Block for each class of asset included in that CGU by the respective divisions. Fixed Assets Page 100

c. In case there is impairment loss in refinery CGU, then impairment loss shall first be allocated between the respective Refinery, Crude Pipeline and Marketing Locations included in that CGU on the basis of their respective carrying amount. Refineries Headquarters shall advise the impairment loss allocated to Pipelines (both crude and product pipeline) and Marketing Location respectively to Pipelines Division, Marketing Division (in case of marketing locations attached to own refineries CGU). Then, each division shall further allocate their share of impairment loss among various class of assets covered under that CGU on the basis of Net Depreciated Block of respective class of assets. d. Corporate Assets shall not be tested for impairment since these primarily consists of land & buildings, on which scope of impairment is remote. e. The Impairment of Investments shall be carried out on the basis of combined fair valuation of all the CGUs of such Entity. 2.19 SPECIAL POINTS TO BE CONSIDERED WHILE TESTING THE ASSETS FOR IMPAIRMENT 2.19.1 Budgeted Margins including escalation: As regards Refinery margins and petrochemical margins, review of applicability of budgeted margins (considered in the budget) for beyond the budgeted period, for determining the 15- year cash flow to be evaluated and margins, including revisions in margins, may be considered accordingly factoring escalations in this regard. As regards Marketing margins, since beyond the budget period, desired margins are being considered as per the approved pricing mechanism, no escalation need be taken into account for Marketing Division. 2.19.2 CGU for Petrochemicals: In respect of CGU for Petrochemicals products, cost would be determined considering input cost of petroleum products e.g. Naphtha EPP price and other manufacturing and distribution cost directly attributable for the petrochemical activity. The sales realization on petrochemicals product should be reduced by the cost of feed/ input used for petrochemicals as determined above for arriving at the margins for working out cash- flow for the petrochemical CGU. Normal escalation in the margin beyond the budgeted period should be reckoned. 2.19.3 Impairment testing in case of Development and producing assets In case of E&P related development and producing assets, expected future cash flows are estimated using management’s best estimate of future oil and natural gas prices, production volumes, proved & probable reserves volumes and discount rate. The expected future cash flows are estimated on the basis of value in use concept. The value in use is based on the cash flows expected to be generated by the projected oil or gas production profiles up to the expected dates of cessation of production of each producing field, based on current estimates of proved and probable reserves and on reasonable & supportable fiscal assumptions that represent management’s best estimate of the range of economic conditions that will exist over the remaining useful life of the asset. Management takes a long-term view of the range of economic conditions over the remaining useful life of the asset and, are not based on the Fixed Assets INDEX Page 101

relatively short-term changes in the economic conditions. However, impairment of exploration and evaluation assets is to be done in line with para 14.6.2 2.19.4 Impairment in case of Exploration and Evaluation assets Exploration and Evaluation assets are tested for impairment where an indicator for impairment exists. In such cases, while calculating recoverable amount, in addition to the factors mentioned in 14.6.1, management’s best estimate of total current reserves and resources are considered (including possible and contingent reserve) after appropriately adjusting the associated inherent risks. Impairment loss is reversed subsequently, to the extent that conditions for impairment are no longer present. Fixed Assets Page 102

Annexure – 2.1 IOCL PRACTICES AND PROCEDURES REFINERIES DIVISION Inter-unit and Inter-divisional transfer of movable assets shall be done through the stores Department. The asset to be transferred shall be returned under a Material Return Voucher to the Stores who shall arrange for the dispatch of the asset item to the transferee unit/division. This rule is not applicable in case of asset which moves with officer from on unit to another. It should be ensured that necessary adjustment have been carried out in case of difference between the physical balance and the book balance after obtaining proper approval, wherever necessary. Free Issue Material • After commissioning of the Refinery/Pipeline, a reconciliation of the material purchased, issued to the contractors, installed in the works, received back from the contractor and/ or lying with the contractor should be prepared in respect of each contractor separately for indigenous and imported materials. After the work of reconciliation of the material with the contractors is over, an installation Report containing jobwise/ plant-wise/ station-wise details of the quantity and value of the materials installed should be prepared. • GL Code 5220100100 (Consumption-materials-projects) represents the free issue material against individual purchase orders. The same being a control account is cleared at the time of closing of accounts. It is desirable that the amount appearing in the GL code should be transferred to individual AUC for jobs in progress and shall be capitalised along with assets in respect of completed jobs. • PO wise reconciliation of free issue materials should be carried out. For same SAP report YM54 can be utilized which depicts all the free issue material issued to a contractor under a Purchase/ Work Order. Methodology for allocation of Direct and Indirect Cost: Asset Valuation from contract value A single contract generally covers cost of many individual assets/ facilities under it. Similarly, sometimes many contracts together bring out the cost of an asset/ facility. Thus, the methodology for arriving at asset value from contract needs to be clear. The same is even more required in lumpsum contracts (LSTK). The LSTK Contract price is generally divided into two parts – Supply and Services. Supply part is generally further divided into Indigenous material, imported material and bulk material (like Cement, Reinforcement steel, Structural steel, Insulation, Painting etc.). Services include Design and Construction Services (Construction services are generally further divided into Civil, Structural, Mechanical, Electrical, Instrumentation, Commissioning, Pre-commissioning, Inland Transportation and PGTR work) Fixed Assets INDEX Page 103

a. Firstly, the facilities should be identified from the contract which can form assets of different nature like Plant & Machinery, Building, Tankage, Equipment. Then the cost under different Schedule of prices should be grouped to find the total identifiable cost of an asset/ facility b. Supply Cost includes indigenous material, imported material & bulk material. The Specific material (indigenous as well as imported) for an asset/ facility should be taken from schedule of prices of the contract. The common materials (other than bulk material) which are not specific are grouped into common pool which is allocated to assets/ facilities in an appropriate ratio based on the nature of contract. c. Bulk material may be allocated to assets/ facilities as under- • Cement & Reinforcement Steel may be allocated in the ratio of civil construction work services (if given for specific facilities) of schedule of prices or on the basis of the area covered under the envisaged facilities/ assets. • Structural Steel is allocated in the ratio of Structural work services (if given for specific facilities) of schedule of prices or on the basis of the area covered under the envisaged facilities/ assets. • Insulation material, where it is specific for some items then it is taken to the cost of said assets/facilities, otherwise the same is allocated in the ratio of Insulation work services of schedule of prices or in the ratio of area for which insulation works was carried out. • Painting material, where it is specific for some items then it is taken to the cost of said assets/ facilities, otherwise the same is allocated in the ratio of Painting work services of schedule of prices or in the ratio of area of the envisaged assets/ facilities. d. Service Cost is generally divided into two parts Construction service & Design engineering services. • The Specific Construction service cost (civil, Structural, mechanical, electrical, instrumentation) for an asset/ facility should be taken from schedule of prices of the contract. The common Construction service cost (other than Commissioning, Pre- Commissioning, Transportation) which are not specific are grouped into common pool which is allocated to assets/ facilities in an appropriate ratio based on the contract nature. • Design Engineering Services where it is specific for some items then it should be taken to the cost of said assets/facilities, otherwise the same should be allocated in the ratio of cost (construction and Supply cost) of different assets/ facilities. • Inland Transportation cost should be allocated in the ratio of Indigenous Supply value of different assets/ facilities. • Pre-Commissioning & Commissioning Service cost should be allocated in the ratio of cost (Construction & supply cost) of different assets/ facilities. e. Taxes generally include Custom Duty and GST (Net of Input Tax Credit) • GST (Net of ITC) should be allocated in the ratio of Indigenous supply (as derived above) of individual assets/ facilities. • Generally, GST (Net of ITC) on Bulk material items (cement, reinforcement & Structural Steel etc.) should be allocated in the ratio of bulk material cost (as derived above). • Custom duty should be allocated in ratio of imported material (not covered under EPCG scheme) cost as derived above to the various assets/ facilities. Fixed Assets Page 104

The above methodology for determining the value of individual assets out of one lump sum contract is only recommendatory. Based on the nature of contract and best available information's alternate mechanism with the due approval of unit finance head may be adopted. But in general, it must be ensured that the total direct cost of the job/ plant/ station shall be determined by adding the cost of the imported materials/indigenous materials installed in each job/ plant/ station as detailed in Installation Report and erection/ installation cost thereof. The construction period expenses including the establishment and other general administrative expenses shall be allocated to each job/ plant/ station on pro-rata basis based on the total direct cost incurred on each job/ plant/ station. MARKETING DIVISION PRACTICES Inter-Region/Division Transfer of Assets • Inter-regional/divisional transfers, both in respect of gross block and accumulated depreciation, should be duly confirmed by the respective region/division and reflected in the “Transfer in/Transfer out” column of Note -2. • Assets which are already debited to Capital Assets Account (i.e. capitalised) in the books of the transferor region/division and subsequently transferred to other Region/Division shall be shown under-Region/Division assets transfer. Therefore, the assets which have been directly purchased and not routed through the gross block of the transferor Region or transfer of WIP of transferor Region should not be reflected under inter-Region/Division transfer column of Note 2 '. However, the assets transferred in the year of addition should not be shown under inter Region/Division transfer and should be shown as additions during the year by the transferee Region. • In case, any amount from Work-in-Progress account has been transferred from the transferor Region/Division, the transferee Region/Division should first account for such items under Work- in-Progress only. In other words, transferee Region/Division should not account such transfer under inter-Region/Division transfer of assets in Note 2 even though the amount transferred may relate to the completed assets by the transferring Region. • Items of fixed assets nature transferred from the Capital Stores Account by the Central Inventory Point and not received by the receiving location before the end of the quarter/financial year should be treated as 'Capital Stores on hand' by the receiving location Fixed Assets Page 105

Annexure – 2.2 USEFUL LIVES Annexure-2 Useful Lives applicable to IOCL as per Schedule -II Nature of assets Useful Life As per Existing lives* NESD/ES Remarks Sch.- II D I. Buildings / Bridges/Roads [NESD] 60 58 NESD RCC frame structure only. Buildings 30 58 NESD (a) Buildings (other than factory buildings) RCC Frame Structure (b) Buildings (other than factory buildings) other than RCC Frame 30 28 NESD Only one category, No differentiation between RCC Structure and Non RCC (c) Factory buildings 5 3 58 NESD (d) Fences, wells, tube wells 28 NESD Except above four classes of building, all other assets (e) Others (including temporary structure, etc.) under building such as temporary structure, Kiosk, Roads 5 Porta-cabins etc. will fall under this category (a) Carpeted Roads-other than RCC 10 (b) Carpeted Roads-RCC 58 NESD 3 58 NESD Paver Blocks to be considered under this category. (c) Non-carpeted roads 58 NESD New assets class Bridges, culverts, bunders, etc. 30 58 NESD Jetty (Civil Construction to be considered under this category II. Plant and Machinery (i) General rate applicable to P&M not covered under special 15 20 ESD Plant and machinery at standalone administrative P&M building (DG set, Lifts, Firefighting equipment etc. (a) Plant and Machinery other than continuous process plant not covered under specific industries Useful life of Fire Fighting Equipments is to be considered as under : (i) Fire Fighting Equipments used for Plant and Facilities at Refinery, Pipeline and Marketing locations- 25 years. (iii) All other fire fighting equipment inc.at retail outlets and standalone offices etc. to be considered as general Plant and Machinery with 15 years life. (b) continuous process plant for which no special rate has been 25 18 NESD prescribed under (ii) below [NESD] 13 20 NESD Specialized transmission/network equipment. (ii) Special Plant and Machinery Example- Pipeline VHF, Specialized telecommunication equipment used in pipeline operations, exchanges etc. (A) Plant and Machinery used in Telecommunications [NESD] All other general telecom equipment should be covered under Office Equipment. Telecom transceivers, switching centres, transmission and other network equipment (B) Plant and Machinery used in exploration, production and 25 18 NESD All plant and machinery used in refining operations. refining oil and gas [NESD] 25 18 NESD All P&M at Lube Plant, LPG plant, Bitumen Plant etc., 1. Refineries Marketing locations like Depot, Installations, AFS inc. 2. Oil and gas assets (including wells), processing plant and 25 18 Re fullers, LPG import facility, and non portable facilities boilers (except retail outlets) can be considered under Fixed Assets processing plant and facilities. 3. Petrochemical Plant Page 106 Useful life of P&M used in Retail Outlets, LPG cylinders/PRs excluding storage tanks and related equipments shall be 15 years. NESD All plant and machinery used in petrochemical operations inc. pacakaging/bagging facilities INDEX

4. Storage tanks and related equipment 25 9-13 NESD All equipments which relates to receiving and dispatch of products /crude would be considered 9 under this category. Following are some of the examples: 8 Load & unload platform, product receiving/dispatch 8 facility, related pumps, Horton Sphere, Lpg Bullets, 8 Productt Handling Facty, Prdt Loading Facty, Sbm Sub Marine Sys, Sbm-Boring Sys-Pl, Vapour Extract Unit etc. 5. Pipelines 30 NESD This life iof 30 years to be considered ony for cross country product/crude/Gas pipelines excluding pumps and fittings. In case of cross country pipeline pumps/ fittings & Cathodic Prot unit, 25 years life to be considered. 6. Drilling Rig 30 NESD 7. Field operations (above ground) Portable boilers, drilling tools, 8 NESD well-head tanks, etc. 8 NESD 8. Loggers 40 18 Thermal/ Gas power generation plants should be (C )Plant and Machinery used in generation, transmission and 40 18 depreciated over useful life of 40 Years. distribution of power [NESD] 35 18 1. Thermal/ Gas/ Combined Cycle Power Generation Plant 2. Transmission lines, cables and other network assets However, power transmission/distribution to have 3. Electric Distribution Plant life of 25 years considering the plant specific nature of lines and other equipments. 4.Wind Power Generation Plant 22 9 NESD (D) Plant and Machinery used in medical and surgical operations 13 13 NESD X Ray Apparatus, Radiology &Photo Equ, and Medical [NESD] Diagn. Equip, E C G Machine and THERAP INSTR (HOSP) would fall under this category 1. Electrical Machinery, X-ray and electrotherapeutic apparatus and accessories thereto, medical, diagnostic equipments, namely, 13 NESD All other medical and surgical equipments - New Asset Cat-scan, Ultrasound Machines, ECG Monitors, etc. class to be opened 2. Other Equipments. 15 (E) Plant and Machinery used in civil construction 12 20-13 ESD Example- Road Rollers, Construction Equipments etc. 20 20-13 1. Concreting, Crushing, Piling Equipments and Road Markeing ESD This life is to be used in case of use of cranes in civil Equipments 8 construction. However, cranes fitted and used with 2. Heavy Lift Equipments— cranes with capacity of more than 100 existing P&M shall take the life of the existing Assets tons (e.g. EOT Cranes) 3. Heavy Lift Equipments— cranes with capacity of less than 100 15 ESD This life is to be used in case of use of cranes in civil tons construction. However, cranes fitted and used with existing P&M shall take the life of the existing Assets 4. Earth-moving equipments 9 (e.g. EOT Cranes) 5. Others including Material Handling/Pipeline/Welding 12 Equipments ESD 10 NESD (II) Furniture and fittings [NESD] (i) General furniture and fittings 15 NESD General furniture and fittings to be considered under this category. (ii) Furniture and fittings used in Guest houses,meeting halls etc. 8 10 NESD This category to be used for furniture in (III) Motor Vehicles [NESD] 10 schools/Holiday homes. 1. Motor cycles, scooters and other mopeds 8 2. Motor buses, motor lorries and motor cars other than those 10 NESD used in a business of running them on hire 8 NESD Fixed Assets Page 107

Further Clarifications on the useful life issues relating to Depreciable Assets: 1. Electrical substation equipment: Following is clarified: a. At plant location: Substation equipment are integrated with units/plants and to be classified with useful life of 25 years b. At administrative locations, townships: At these locations, substations are in the nature of administrative assets for transferring the power to the homes in township/offices and therefore, useful life of 15 years needs to be considered. 2. Boundary walls – RCC/non-RCC: Boundary walls in which steel bars are used should be classified under clause I (a) - Buildings (other than factory buildings) RCC Frame Structure with useful life of 60 years and all other boundary walls should be classified under clause I (b) – Buildings (other than factory buildings) other than RCC Frame Structure with useful life of 30 years Fixed Assets Page 108

3. Firefighting Equipment: Following is clarified: a. Where the useful life reference is given in report or study and not in the regulations- Existing life (15/25) as per DHS report to be continued b. Where the regulation applicable to our industry provides for the useful life - Same needs to be considered 4. Centralized AC plants (Air conditioning system): a. Centralized AC plants at administrative location are covered under clause IV (i) (a) with useful life of 15 years. However, no extra shift depreciation is required, since these Centralised AC plant are installed in the office premises which normally works on single shift during business hours. There may be rare instances where Centralised AC plant works on double or triple but keeping day wise track of working is not practical. b. Centralised AC plants at plant (process units) locations should be classified under clause IV (ii) (e) (2) with useful life of 25 years since these are installed in process units which are in the nature of continuous process plant and are used continuously. 5. Solar panels/ plants: a. Solar panels / lights with assets base should be classified under clause XIV – Electrical Installations and Equipment with useful life of 10 years. b. Solar Plants used in distribution – 25 years life to be considered Fixed Assets Page 109

Annexure – 2.3 COMPONENTIZATION GUIDELINES The implementation of Componentization as per Schedule II of the Companies Act, 2013 was made during FY 2015-16 under IGAAP. Similar provisions also exist in Ind-AS-16. Guidelines are further modified for better clarity on some issues: 1. As per Schedule-II, significant components having different useful life needs to be depreciated separately. IOCL has engaged consultant M/s DHS along with other OMCs to suggest for implementation of componentization in OMCs. 2. DHS has submitted that in case of IOCL, componentization is required for Plant and equipment category only. For other category of assets, there is no need to consider the componentization requirements. 3. DHS has submitted that existing level of capitalization is sufficient to comply with the componentization provisions in case of Pipeline and Marketing locations. However, they need to evaluate Major Overhaul repairs (MOR) based on the materiality levels as per 5 below. In case of Refineries, componentization needs to be carried in line with DHS report, provisions of Schedule- II and guidance note issued by ICAI. 4. As on the date of transition i.e. 01.04.2015, latest available cost of a unit needs to be taken for identification of units for componentization (For same reference can be taken from Paradip values and where asset/unit is not available in Paradip than in such case the values available for the respective unit can be taken). Identification of initial/ existing components to be done for units equals to or exceeding materiality threshold of Rs. 50 crore. 5. Going forward, following principles to be applied for componentization: • Identification of components to be done for units equals to or exceeding materiality threshold of Rs. 50 crore. • Significant component to be decided based on following thresholds: - Component cost is equal to or more than 10% of the mother assets - Further, Catalyst / Major Overhaul Repairs (MOR) equals to or more than ` 10 Crore shall also be considered as significant component. In addition to the materiality limit for MOR of ` 10 Crore or more, in case of pipelines, materiality limit of 25 kms of coal & wrap (C&W) refurbishment in a continuous stretch for each pipeline to be considered as MOR for capitalization. However, smaller continuous stretches of C&W refurbishment less than 25 Kms may be charged to revenue. • Repairs and maintenance of planned nature (i.e. after regular interval of more than a year) undertaken by the Company to ensure correct functioning of the equipment and also to avoid any unscheduled breakdown can only be considered in the MOR component referred above e.g. planned shutdowns, dry docking of Single Buoy Mooring System etc. However, other inspection and overhauling (i.e. day to day servicing, unplanned shutdown etc.) cannot be considered under MOR component. Fixed Assets INDEX Page 110

6. In case of refining units, following components are having different useful life as compared to mother asset which needs to be componentised: • Instrumentation (15 years), Residual Value-5% • Catalyst (Based on catalyst life), Residual Value- Based on extractable Nobel metal in the catalyst. However, where there is no Nobel metal content, NIL residual value to be considered • Major overhaul repairs (Based on periodicity of MOR), Residual Value-NIL 7. As the instrumentation is a significant component at company level, it is to be componentized irrespective of the threshold limit. Similarly, if the subsequent expenditure on Catalyst and/or Major overhauls repairs is Rs. 10 crore or more than the same needs to be reviewed for componentization even if the main asset cost is not meeting the first threshold of Rs. 50 crore. This is to ensure that profit and loss should not get abnormally impacted due to incurrence of such expenditure considering the principles of componentization. 8. Useful life of captive power plant is considered as 40 years. Electrical (25 years), instrumentation and Major Overhaul Repairs component of the captive power plant to be analyzed and if their useful life is different, then, these components needs to be tested based on criteria’s given at serial no. 5 above. 9. Value allocation to the identified component needs to be done as under: • In case of refinery units- Based on value allocation percentages submitted by DHS on the basis of Paradip refinery for similar applicable units. • In case of petrochemical units- Based on value allocation percentages arrived at actual cost basis • For capitalization from 01/04/2015, actual cost of component needs to be taken for value allocation. 10. Transition provisions – • Remaining WDV less residual value of the component to be depreciated in remaining useful life of the component • If the useful life of the component has expired on 31.03.2015, the difference between WDV and residual value to be charged to Opening Reserve, • In case of catalyst, unexpired useful life needs to be considered based on remaining life of most recent catalyst charged to revenue and related cost to be considered based on original cost of the unit/asset • In case of major overhaul repairs, unexpired useful life needs to be considered based on remaining life of most recent major overhaul repairs charged to revenue and related cost to be considered based on original cost of the unit/asset 11. Capitalization for FY 2015-16 onwards should be done considering the componentization requirement. Catalyst and Major Overhaul repairs spend in FY 2015-16 onwards needs to be tested based on criteria’s given at serial no. 5 above. In case of satisfaction of the criteria, the same should be capitalized as separate component Fixed Assets Page 111

Divisions to refer to the DHS report and provisions of Schedule-II & Guidance note while applying the above guidelines. Fixed Assets Page 112

Annexure – 2.4 SAMPLE NOTES Fixed Assets Page 113

Fixed Assets Page 114

Leases Page 124

Leases Page 125

Leases Page 126

Leases Page 127

Leases Page 128

CHAPTER 3 : LEASES 3.1 BACKGROUND MCA vide its notifications dated 30th March ‘2019 has notified Ind-AS-116 Leases which is applied from 1st April’2019 by the Company. Ind-AS 116 replaces Ind-AS 17 Leases. It sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for all leases under a single on-balance sheet model. At the commencement date of a lease, a lessee will recognise a liability to make lease payments (i.e., the lease liability) and an asset representing the right to use the underlying asset during the lease term (i.e., the right-of-use asset). Lessees will be required to separately recognise the interest expense on the lease liability and the depreciation expense on the right-of-use asset. The standard includes two exemptions from new lease accounting for lessees – leases of ’low- value’ assets and short-term leases (i.e., leases with a lease term of 12 months or less). Lessor accounting under Ind-AS 116 is substantially unchanged from accounting under Ind-AS 17. Lessors will continue to classify all leases using the same classification principle as in Ind-AS 17 and distinguish between two types of leases: operating and finance leases. Ind-AS 116, requires lessees and lessors to make more extensive disclosures than under Ind-AS 17. 3.2 SCOPE Ind AS 116 governs the accounting for lease arrangements other than - a. Leases to explore for or use minerals, oil, natural gas and similar non-regenerative resources; and b. Rights held by lessee under the licensing agreements for such items as motion picture films, video recordings, plays, manuscripts, patents and copyrights. c. Licenses of intellectual property granted by lessor within the scope of Ind-AS-115 A lessee may, but is not required to, apply this Standard to leases of intangible assets. 3.3 IMPORTANT DEFINITIONS • A lease is a contract, or part of a contract, that conveys the right to use an asset (the underlying asset) for a period of time in exchange for consideration. To determine whether the contract conveys right to control to the customer, an entity assesses whether, throughout the period of use, the customer has the right to obtain substantially all of the economic benefits from use of the identified asset and the right to direct the use of the identified asset. • Short-term lease is a lease that, at the commencement date, has a lease term of 12 months or less. A lease that contains a purchase option is not a short-term lease. Leases INDEX Page 129

• A finance lease is a lease that transfers substantially all the risks and rewards incidental to ownership of an asset. • An operating lease is a lease that does not transfer substantially all the risks and rewards incidental to ownership of an underlying asset • A Right-of-use asset is an asset that represents a lessee’s right to use an underlying asset for the lease term. • Commencement date of the lease is the date on which a lessor makes an underlying asset available for use by a lessee • Economic life is either: - the period over which an asset is expected to be economically usable by one or more users; or - the number of production or similar units expected to be obtained from the asset by one or more users. • The inception of the lease is the earlier of the date of the lease agreement and the date of commitment by the parties to the principal provisions of the lease. • The lease term is the non-cancellable period for which a lessee has the right to use an underlying asset, together with both: - periods covered by an option to extend the lease if the lessee is reasonably certain to exercise that option; and - periods covered by an option to terminate the lease if the lessee is reasonably certain not to exercise that option. An entity shall consider all relevant facts and circumstances (like significant leasehold improvements, specialized nature of asset, significant replacement/termination cost etc.) that create an economic incentive for the lessee to exercise the option to extend the lease, or not to exercise the option to terminate the lease. • Lease payments are the Payments made by a lessee to a lessor relating to the right to use an underlying asset during the lease term, comprising the following: - fixed payments (including in-substance fixed payments- payments that contain variability but that in substance are un-avoidable), less any lease incentives; - variable lease payments that depend on an index or a rate; - the exercise price of a purchase option if the lessee is reasonably certain to exercise that option; and - payments of penalties for terminating the lease, if the lease term reflects the lessee exercising an option to terminate the lease For the lessee, lease payments also include amounts expected to be payable by the lessee under residual value guarantees. Lease payments do not include payments allocated to non-lease components of a contract, unless the lessee elects to combine non-lease components with a lease component and to account for them as a single lease component. Leases Page 130

For the lessor, lease payments also include any residual value guarantees provided to the lessor by the lessee, a party related to the lessee or a third party unrelated to the lessor that is financially capable of discharging the obligations under the guarantee. Lease payments do not include payments allocated to non-lease components. • Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction. • Useful life is the period over which an asset is expected to be available for use by an entity; or the number of production or similar units expected to be obtained from an asset by an entity. • The interest rate implicit in the lease is The rate of interest that causes the present value of (a) the lease payments and (b) the unguaranteed residual value to equal the sum of (i) the fair value of the underlying asset and (ii) any initial direct costs of the lessor. • The lessee’s incremental borrowing rate of interest is The rate of interest that a lessee would have to pay to borrow over a similar term, and with a similar security, the funds necessary to obtain an asset of a similar value to the right-of-use asset in a similar economic environment. 3.4 IND-AS 116- IMPORTANT PROVISIONS 3.4.1 Identifying a lease A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Further to assess right to control the use, an entity shall assess whether, throughout the period of use, the customer has both of the following: a. the right to obtain substantially all of the economic benefits from use of the identified asset and b. the right to direct the use of the identified asset Leases INDEX Page 131

Whether there is an identified asset? The first criterion to determine whether a contract is a contract of lease is to determine whether there is an identified asset for which agreement has been made. This is consistent with the requirement that for a lease to exist, the customer must control the asset. Typically, an asset will be explicitly identified in a contract (for example, by specifying the registration or chassis number of a car as well as a description of the manufacturer and model). However, an asset can also be identified by being implicitly specified at the time that the asset is made available for use by the customer. However, even if the asset is specified in the contract, the customer does not have the right to use that asset if the supplier has the substantive right to substitute the Leases Page 132

asset throughout the period of use. A supplier’s right to substitute an asset is substantive only if both of the following conditions exist: a. the supplier has the practical ability to substitute alternative assets throughout the period of use and b. the supplier would benefit economically from the exercise of its right to substitute the asset. It is to be noted that the right with supplier to substitute shall be throughout the period of use and not only in case of breakdown or other emergency which requires the existing underlying asset to be replaced as it would neither be economically beneficial and nor a right throughout the period to be classified as substantive right. Customer has right to obtain substantially all of the economic benefits Whether the customer has the right to obtain substantially all of the economic benefits from use of the asset throughout the period of use. The customer shall obtain substantially all of the economic benefits from use of the asset within the defined scope of a customer’s right to use the asset. A customer can obtain economic benefits from use of an asset directly or indirectly in many ways, such as by using, holding or sub-leasing the asset. The economic benefits from use of an asset include its primary output and by-products (including potential cash flows derived from these items), and other economic benefits from using the asset that could be realised from a commercial transaction with a third party. Right to direct the use of an asset Another criterion is right to direct the use of an asset. A customer has the right to direct the use of an identified asset throughout the period of use only if either: Leases Page 133

a. the customer has the right to direct how and for what purpose the asset is used throughout the period of use; or b. the relevant decisions about how and for what purpose the asset is used are predetermined and: • the customer has the right to operate the asset or to direct others to operate the asset throughout the period of use, without the supplier having the right to change those operating instructions; or • the customer designed the asset in a way that predetermines how and for what purpose the asset will be used throughout the period of use. In assessing whether a customer has the right to direct the use of an asset, an entity shall consider only rights to make decisions about the use of the asset during the period of use. Certain decision-making rights are clearly more relevant than others. Those that affect the economic benefits derived from use of the asset are the most relevant in determining the right to direct the use of asset. This majorly covers the requirement to identify whether a contract contains a lease or not. 3.4.2 Allocation of Consideration In case of composite contracts, Lease and non-lease component is required to be separated ((unless impracticable) based on relative standalone prices (lease like arrangements to be relooked for separation) unless the practical expedient prescribed in the standard is opted. This is explained through the below example: Assume that a lessee enters into a lease of equipment. The contract stipulates the lessor will perform maintenance of the leased equipment and receive consideration for that maintenance service. The contract includes the following fixed prices for the lease and non-lease component is Rs 90,000 The stand-alone prices cannot be readily observed, so the lessee makes estimates, maximising the use of observable information, of the lease and non-lease components, as follows: Lease Rs 85,000 Maintenance Rs 15,000 Total Rs 100,000 Allocate the contract consideration to lease and non-lease components. Response The stand-alone price for the lease component represents 85% of total estimated stand-alone prices. The lessee allocates the consideration in the contract (Rs 90,000), as follows: Lease (85% x 90,000) Rs 76,500 Maintenance (15% x 90,000) Rs 13,500 Total Rs 90,000 As a practical expedient, a lessee may elect, by class of underlying asset, not to separate non- lease components from lease components, and instead account for each lease component and Leases Page 134

any associated non-lease components as a single lease component. However, Divisions to use such practical expedient in consultation with Corporate Office as it will impact all divisions. 3.4.3 Optional Exemptions A lessee can elect not to apply Ind AS 116’s recognition and requirements to: a. Short-term leases; and b. Leases for which the underlying asset is of low value (‘low value asset’) ‘Low-Value Asset’ Exemption: • Not to recognise lease assets or liabilities on the balance sheet. • Recognise lease expense on a straight-line basis over the lease term or another systematic basis. • An underlying asset can be of low value only if: (a) the lessee can benefit from use of the underlying asset on its own or together with other resources that are readily available to the lessee; and (b) the underlying asset is not highly dependent on, or highly interrelated with, other assets. (Para B5 of Ind-AS-116) • A lease of an underlying asset does not qualify as a lease of a low value asset if the nature of the asset is such that, when new, the asset is typically not of low value. For example, leases of cars would not qualify as leases of low-value assets because a new car would typically not be of low value. (Para B6 of Ind-AS-116) • Does not apply to head lease, if the lessee subleases or expects to sublease the asset. • Can be applied on a lease-by-lease basis. • Limit for Low value items: Leases except land and/or building lease where the annual lease payment is upto Rs 1 lakh. For this purpose, divisions should take the original lease payment at the inception of the contract i.e. without escalation during the term of the contract. ‘Short-Term Lease’ Exemption • Not to recognise lease assets or liabilities on the balance sheet. • Recognise lease expense on a straight-line basis over the lease term or another systematic basis. • Applies to leases with a lease term of 12 months or less • A lease that contains a purchase option does not qualify. • To be applied by class of underlying assets. It means that the short-term exemption is to be taken for a class as a whole and thus all leases in that class needs to be tested for short term classification. In other words, if there are two leases upto 12 months in a particular asset class then an entity cannot take a stand that one will be treated as short term and the other will not be treated as short term lease (i.e. either both leases will be treated as short term leases or no lease will be treated as short term lease). 3.4.4 Straight Lining of Lease Rentals in case of lessee Since all the lease are accounted for in the Balance sheet, the Straight Lining would be applicable only in case of leases, where short term lease and low value assets exemption is opted. There Leases Page 135

was as exception to the straight lining was provided under the erstwhile Ind-AS-17 if the increase in due to expected general inflation. Such relaxation of expected general inflation is not mentioned in the new standard. However, based on the past practice/ provisions and materiality, company has continued with the materiality threshold fixed earlier (annual increase up to 10%). 3.4.5 Leasehold Land In case of Leasehold Land, all land leases to be considered as ROU assets based on the applicable provisions of the standard. 3.5 CLASSIFICATION OF LEASES A lessor shall classify each of its leases as either an operating lease or a finance lease. There is no requirement of classification of leases for lessee. A lease is classified as a finance lease if it transfers substantially all the risks and rewards incidental to ownership of an underlying asset. A lease is classified as an operating lease if it does not transfer substantially all the risks and rewards incidental to ownership of an underlying asset. Whether a lease is a finance lease, or an operating lease depends on the substance of the transaction rather than the form of the contract. Examples of situations that individually or in combination would normally lead to a lease being classified as a finance lease are: a. the lease transfers ownership of the asset to the lessee by the end of the lease term; b. the lessee has the option to purchase the asset at a price that is expected to be sufficiently lower than the fair value at the date the option becomes exercisable for it to be reasonably certain, at the inception of the lease, that the option will be exercised; c. the lease term is for the major part of the economic life of the asset even if title is not transferred; d. at the inception of the lease the present value of the lease payments amounts to at least substantially all of the fair value of the leased asset; and e. the leased assets are of such a specialised nature that only the lessee can use them without major modifications. Indicators of situations that individually or in combination could also lead to a lease being classified as a finance lease are: a. if the lessee can cancel the lease, the lessor’s losses associated with the cancellation are borne by the lessee; b. gains or losses from the fluctuation in the fair value of the residual accrue to the lessee (for example, in the form of a rent rebate equaling most of the sales proceeds at the end of the lease); and c. the lessee has the ability to continue the lease for a secondary period at a rent that is substantially lower than market rent. Leases INDEX Page 136

The above indicators are not always conclusive. If it is clear from other features that the lease does not transfer substantially all the risks and rewards incidental to ownership of an underlying asset, the lease is classified as an operating lease. 3.6 ACCOUNTING IN THE BOOKS OF LESSEE Lessees apply a single recognition and measurement approach for all leases, with options not to recognize right-of-use assets and lease liabilities for leases for short-term leases and leases of low-value assets. Following process can be followed: a. Ascertain the date of commencement of the lease as the accounting / recognition can be done only from that date b. Identify the leased properties c. Ascertaining the lease term d. Calculate fair value of the leased property e. Calculate lease payments f. Ascertain the discount rates to be used, which is the interest rate implicit in the lease. If it is impracticable to determine the implicit rate, IOCL incremental borrowing rate for the quarter earlier to the quarter in which the lease is entered is to be used. IOCL incremental borrowing rate (AAA rated bonds) is provided in the treasury guidelines every quarter. g. Calculate the present value of the Lease Payments h. Compare the fair value of the leased property with the PV of the Lease Payments Pass the following entry Head Dr./Cr. Remarks (Which amount to consider) ROU assets Dr. With lower of fair value of leased property and PV of lease payments plus the initial direct cost Lease Obligations Cr. Cash/Bank Cr. In subsequent periods over the period of the lease, lease payments shall be apportioned between the finance charge and the reduction of the outstanding liability. The finance charge shall be allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability. Pass the following entry Head Dr./Cr. Remarks (Which amount to consider) Lease Obligations Dr. With the periodic instalments/payments made less the finance charge Finance Charge Dr. With the finance charge allocated to each periodic payment Cash/Bank Cr. With the cash outflow Leases INDEX Page 137

Lease accounting gives rise to depreciation expense as well as finance expense for each accounting period. 3.7 ACCOUNTING IN THE BOOKS OF LESSOR 3.7.1 Finance leases: Key terms: Net investment in the lease is the gross investment in the lease discounted at the interest rate implicit in the lease. Gross investment in the lease is the aggregate of: a. the lease payments receivable by the lessor under a finance lease, and b. any unguaranteed residual value accruing to the lessor. The interest rate implicit in the lease is the discount rate that, at the inception of the lease, causes the aggregate present value of (a) the minimum lease payments and (b) the unguaranteed residual value to be equal to the sum of (i) the fair value of the leased asset and (ii) any initial direct costs of the lessor. Steps a. Determine the date of commencement of lease b. Identify the guaranteed and unguaranteed residual value c. Ascertain the initial direct costs d. Calculate the minimum lease payments (MLP) e. Calculate the gross investment f. Identify the discount rate (Rate implicit in the lease and if impracticable to determine the incremental rate of borrowing) g. Calculate the PV of the gross investment using the above discount rate this would be termed as net investment h. Calculate the unearned finance income which is the difference between the gross investment and the net investment Pass the following entry on recognition: Subsequent to recognition pass the following entry INDEX Leases Page 138

Manufacturer or dealer lessors shall recognise selling profit or loss in the period, in accordance with the policy followed by IOCL for outright sales. If artificially low rates of interest are quoted, selling profit shall be restricted to that which would apply if a market rate of interest were charged. Costs incurred by manufacturer or dealer lessors in connection with negotiating and arranging a lease shall be recognised as an expense when the selling profit is recognised. 3.7.2 Operating leases: Lessors shall present assets subject to operating leases in their balance sheet according to the nature of the asset. Lease income from operating leases (excluding amounts for services such as insurance and maintenance) shall be recognised in income on a straight-line basis over the lease term, unless another systematic basis is more representative of the time pattern in which use benefit derived from the leased asset is diminished, even if the payments to the lessors are not on that basis. The depreciation policy for depreciable leased assets shall be consistent with the lessor's normal depreciation policy for similar assets, and depreciation shall be calculated in accordance with Ind AS 16 and Ind AS 38. To determine whether a leased asset has become impaired, an entity applies Ind AS 36. 3.8 LEASE MODIFICATION - LESSEE A lease modification is a change in the scope of a lease, or the consideration for a lease, that was not part of the original terms and conditions of the lease - e.g. adding or terminating the right to use one or more underlying assets. Lease modification can result in: • A separate lease or • Change in the accounting for the existing lease A lease modification that grants the lessee the right to use the existing leased asset for an additional period of time does not result in a separate contract. Following diagram represents the guidance to account for lease modification in case of lessee: Leases INDEX Page 139

3.9 GUIDANCE PROVIDED ON ISSUES RAISED BY DIVISIONS S. Issue Guidance No. 1 Bifurcation of lease We should explore for bifurcation estimates from vendors or thru rentals for time charter internal estimate (like market study, fair value of asset, outside etc. certification, etc). Wherever, it is impracticable (to be supported by a detailed study paper showing either impracticable or minimal non lease component), entire consideration to be taken as lease component. These impracticable cases need to be bought to the notice of CF with relevant supporting and if it is to be applied than it shall be done for entire class of the similar assets in all divisions. 2 Stock valuation impact All direct costs to be included in stock valuation excluding items for time charter – finance which is specifically excluded by Ind-AS 2 like finance cost. cost portion after Ind-AS 116. 3 GST disallowance – GST is not to be considered as a part of Lease payments in line with consideration in lease Educational material on IND AS 116 issued by ICAI. GST would be rentals, if not what head charged to the profit or loss when the underlying transaction of accounting. occurs if input credit is not available. However, if GST is refundable/input credit is available, then GST is recognised as an asset. 4 How the low value leases For checking the materiality limit of annual lease rentals of Rs 1 are to be identified in lacs for low value leases, it is hereby clarified that the PV of lease case of upfront premium payments (if any) along with upfront premium is to be compared with the present value of Rs 1 lac limit discounted at IOCL incremental borrowing rate for the lease period. For example, for a lease of 25 years where the incremental borrowing rate is 10%, if the upfront premium paid along with the PV of lease payments (if any) is more than Rs 9,07,704/- (Rs 1 lakh discounted at 10% for 25 years) then that lease is not to be treated as low value. 5 Car/ Bus rentals Since no identified asset, therefore no lease arrangement. Where vehicle number is stipulated in the contract and replacement is allowed with IOCL permission, the same will be considered as identified asset. 6 Cases where rent is fixed Variable rent is not to be considered for the purpose of plus variable element determining ROU asset and should be booked in rent expenses as also there e.g. RO rentals and when arise. Leases INDEX Page 140

where some portion of rent is linked with RO sales 7 Straight lining of lease More than 10% annual incremental cases only to be straight lined rentals (only in case of in view of materiality. short-term leases/ low value items) – materiality 8 Short term leases (upto As per definition of short-term leases in Ind-AS 116 (Appendix-A), 12 months) with lease having purchase option cannot be considered as short-term purchase option lease and thus discounting needs to be done. 9 Lease Term in case of Expired leases should consider as Short-term leases in absence of Expired agreement defined lease term. Leases 10 Amount of Lease rent for The last rent booked in books (Payment + Provision) should be discounting in case of considered for discounting in case remaining lease period is more dispute than 1 year. 11 Capitalisation of Both Interest and depreciation on leasehold assets used in Depreciation and Finance construction of other assets should be capitalised as CWIP. Cost on leasehold assets during construction period 12 Transport arrangement i. As per current understanding and guidance material available, i. Whether variable lease these are to be considered as variable payments. payments based on Rs/Km will be considered as in substance fixed Ii. Variable rent is not to be considered for the purpose of payments considering determining ROU asset and should be booked in rent expenses as lessee uses such trucks and when arise. based on past practice. ii. In case it is treated as in substance fixed payments, then mechanism of determine those lease payments 13 Time Charter Vessels Normal extension at the option of IOCL: Will be considered in i. Whether renewal determining the lease term. period is to be considered Extension which are operational in nature (+/-15 days):- Will not in lease period when be considered in determining the lease term. there is no certainty of renewal and renewal depends on market condition prevalent at that time ii. Whether 15 days period given for extension for contracts is Leases Page 141

to be taken. the question is more prevalent where agreement is 4+4+4 basis and addition of 15 days make it more than 1 year and thereby making it out of purview of short-term lease 14 Short term leases are to As per para 8 of Ind-AS 116, the short-term lease exemption is to be applied by class of be applied class wise. It means that the short-term exemption is to underlying assets as per be taken for a class as a whole and thus all leases in that class IND AS 116 (Para 8) needs to be tested for short term classification. In other words, if there are two leases upto 12 months in a particular asset class then an entity cannot take a stand that one will be treated as short term and the other will not be treated as short term lease (i.e. either both leases will be treated as short term leases or no lease will be treated as short term lease). 3.10 PRESENTATION AND DISCLOSURES Presentation by Lessee Lessee shall either present in the balance sheet, or disclose in the notes: a. right-of-use assets separately from other assets. b. lease liabilities separately from other liabilities. In the statement of profit and loss, a lessee shall present interest expense on the lease liability separately from the depreciation charge for the right-of-use asset. Interest expense on the lease liability is a component of finance costs requires to be presented separately in the statement of profit and loss. Disclosures by Lessee Lessee shall disclose the following amounts for the reporting period. This information should be provided in tabular form unless another format is more appropriate a. depreciation charge for right-of-use assets by class of underlying asset; b. interest expense on lease liabilities c. expense relating to short-term leases for which recognition exemption is applied d. expense relating to lease of low value for which recognition exemption is applied e. expense relating to variable lease payments not included in the measurement of lease liabilities f. income from subleasing right-of-use assets g. total cash outflow for leases (i.e. Payment of Lease & Non-lease component and payment in respect of short-term & low value leases) h. additions to right-of-use assets; i. gains or losses arising from sale and leaseback transactions; and j. the carrying amount of right-of-use assets at the end of the reporting period by class of underlying asset Leases INDEX Page 142

lessee shall disclose additional qualitative and quantitative information about its leasing activities necessary to meet the disclosure objective. This additional information may include, but is not limited to, information that helps users of financial statements to assess • the nature of the lessee’s leasing activities; • future cash outflows to which the lessee is potentially exposed that are not reflected in the measurement of lease liabilities. This includes exposure arising from: - variable lease payments - extension options and termination options - residual value guarantees and - leases not yet commenced to which the lessee is committed • restrictions or covenants imposed by leases; and • sale and leaseback transactions Presentation by Lessor • Lessor shall present underlying assets subject to operating leases in its balance sheet according to the nature of the underlying asset. Disclosures by Lessor • The objective of the disclosures is for lessors to disclose information in the notes that, together with the information provided in the balance sheet , statement of profit or loss and statement of cash flows, gives a basis for users of financial statements to assess the effect that leases have on the financial position, financial performance and cash flows of the lessor Type of disclosure Finance lease Operating lease Quantitative disclosure Selling profit and loss Lease income relating to variable lease payments that do not depend on an index or rate Finance income on the net Other lease income investment in the lease Lease income relating to variable Detailed maturity analysis of the lease payments not included in the lease payments receivable net investment in the lease Significant changes in the carrying amount of the net investment in the lease Qualitative disclosures Significant changes in the carrying amount of the net investment in the lease A lessor shall disclose a maturity analysis of the lease payments receivable, showing the undiscounted lease payments to be received on an annual basis Leases Page 143

for a minimum of each of the first five years and a total of the amounts for the remaining years. A lessor shall reconcile the undiscounted lease payments to the net investment in the lease. The reconciliation shall identify the unearned finance income relating to the lease payments receivable and any discounted unguaranteed residual value. 3.11 TRANSITION AND CLOSING INSTRUCTIONS The Company has adopted Ind-AS 116 retrospectively with the cumulative effect of initially applying the standard recognized at the date of initial application i.e. 01.04.2019. The Company will not restate comparative amounts for the year prior to first adoption. The Company has elected for the following practical expedients: a. Not applying the standard to contracts that were not previously identified as containing a lease applying Ind AS 17 and b. Not applying the standard to lease contracts for which the lease terms ends within 12 months as of the date of initial application. Leases INDEX Page 144

CHAPTER 4 : FINANCIAL CONCURRENCE 4.1 INTRODUCTION The objective of Financial Concurrence is protection of financial interests of the Company in the decision making while ensuring financial propriety as a part of internal control system. The internal control is exercised through the vetting and concurrence by Finance department so that decision making is as per policy guidelines, rules, regulations, provision of budgets, etc. and it is not detrimental to the financial interest of the Company. The financial concurrence facilitates achievement of transparency in the decision making which is subject to the scrutiny of various Government agencies like Audit, Vigilance etc. 4.2 GUIDELINES ON FINANCIAL CONCURRENCE 4.2.1 Policy guidelines Policy guidelines on financial concurrence covering the followings has been approved by the Board and are available at PAG Section of Corporate Office portal: a. Procedural Aspects b. Matters Requiring Financial Concurrence c. Matters Not Requiring Financial Concurrence d. Scope Limitations Any changes in above guidelines can be approved by Director (F) considering exigencies of work, nature of transaction need and extent of financial concurrence requirement, adequacy of internal system etc. To provide flexibility and to meet the administrative requirements, the Divisional Finance HODs may sub-delegate his powers of financial concurrence; such sub-delegation will be subject to the approval of Director (Finance). For such sub-delegations, kindly refer to Finance folder on Divisional intranet. 4.2.2 Capital Investments Proposals for capital investments of any value require financial concurrence. The detailed guidelines on formulation of capital investment proposal are contained in the PAG Manual Division specific guidelines can be accessed on Finance folder on Divisional intranet. 4.2.3 Guidelines relating to Purchases and Works: Taking into account the peculiarities, each Division has its own guidelines on purchases and works and are contained in Division’s Works Procedure/ Engineering Manual, Materials Management Manual, Manual on e-tendering, etc. These manuals can be accessed on the Divisional intranet. Provisions contained in these Manuals, as applicable, shall be followed while according Financial Concurrence. Financial Concurrence is generally required at following stages: INDEX Finance Concurrence Page 124

a. Estimates Whenever a proposal for work is made, a detailed estimate is required to be prepared consisting of the plans, specifications and a detailed statement of quantities and rates giving reference of approved S.O.R/ Budgetary quotation/ Rate Analysis with an abstract showing the total estimated cost under the subheads. The detailed estimate is scrutinized by the Finance Department in accordance with the instructions applicable. After the estimates are found to be in order, financial concurrence shall be accorded and forwarded for administrative approval of the competent authority. b. Invitation of Tender/ Mode of Tendering/ Tender opening Guidelines relating to pre-qualification criteria, special conditions of contract, tendering system, publication of tender notice, tender fee/ EMD, amendment/ extension, tender opening, numbering of tenders, authentication of cuttings/ over writings, witnessing of tender opening, etc. are given in the Materials Management Manual/ Works Procedure Manual/ Engineering Manual of each Division. While concurring the proposals, it shall be ensured that the guidelines provided for invitation of tenders, mode of Tendering and Tender opening have been followed. c. Comparative Statements Comparative statement is prepared as per the procedure laid down in the Materials Management Manual/ Works Procedure Manual/ Engineering Manual of each Division. Comparative Statement is prepared and checked and signed by the officers of the tendering department. While checking the Comparative Statements in the Finance Department, finance officer shall scrutinize the same with a view to see that: • The procedural instructions have been complied with in general. • The tenders have been technically examined by the Technical Department and only the technically suitable offers have been incorporated in the Comparative Statement. • If any tender has not been considered on technical grounds, it should be seen that the reasons as to why the offer is not technically suitable, are recorded in writing with justifiable statement and approval. d. Review of estimates In case of review and thereafter revision of estimate, financial concurrence may be required as per procedure given in the Materials Management Manual/ Works Procedure Manual/ Engineering Manual of each Division. e. Price Negotiations Negotiations with the tenderers shall not be conducted as a matter of routine. However, the circumstances under which price negotiations are to be conducted are detailed in the Materials Management Manual/ Works Procedure Manual/ Engineering Manual of each Division. f. Tender committee Finance Concurrence Page 125

Consideration, evaluation and recommendation to the competent authorities for approval of the offers/ tenders for purchase, works, disposal of surplus/ obsolete/ scrap items of assets and service contracts, above a certain value as decided by Division and specified in its Materials Management Manual/ Works Procedure Manual/ Engineering Manual is required to be done by a tender committee whose constitution is generally as follows: • One representative from Finance Department. • One representative from Materials/ Contract Cell/ Tendering Department. • One representative from the user department. Financial limits set forth for constitution of Tender Committee are given in the Materials Management Manual/ Works Procedure Manual/ Engineering Manual of each Division. g. Purchase/ work award proposals Finance concurrence of various proposals shall be required as per provisions of Delegation of Authority/ Materials Management Manual/ Works Procedure Manual/ Engineering Manual of each Division. h. Letter of Intent/ Purchase order/ Work order All purchase orders and work orders for order value beyond a limit as specified in the Delegation of Authority shall require vetting by Finance Department before issue and the same shall be done by finance officer in terms of the approval. i. Other proposals Besides the proposals for award of order for procurement/ work, several other proposals require Finance Concurrence as per provisions of Delegation of Authority. These include the followings: • Quantity Variation • Change in Rates • Change in scope of work including extra items and change in terms and conditions • Advance payments to suppliers and contractors • Waiver of Penalty/Liquidated Damages/ Price Reduction • Extension of Time limit • Write off of losses • Write off of recoverable • Wharfage and Demurrage • Material on loan • Hiring Equipment, material, etc • Declaring stores/ materials/ machinery and other assets as surplus or unserviceable • Scrap Disposal • Fixation of Hire Charges • Cancellation of Tender • Other proposals requiring financial concurrence shall be as prescribed in the Delegation of Authority and while concurring such proposals, it shall be ensured that the proposals have been made as per rules/ policy of the corporation and are not detrimental to its interest. Finance Concurrence Page 126

4.3 CVC GUIDELINES IOC being a PSU, guidelines issued from time to time by CVC are also required to be adhered to. The CVC guidelines received in IOC, are further circulated through Circulars. While according financial concurrence, these guidelines must be followed. These guidelines would be available on Divisional intranet. 4.4 CIRCULARS ISSUED BY DIVISIONAL FINANCE From time to time, Finance Deptt and also other departments of Division issues circulars containing guidelines to be followed on any issue. These circulars are available on Divisional intranet. While according financial concurrence, these circulars must also be followed. INDEX Finance Concurrence Page 127

CHAPTER 5 : WORKS ACCOUNTING 5.1 GENERAL OUTLINE OF PROJECT & WORK FUNCTION 5.1.1 All transactions relating to work contract from planning stage to payment stage have been 5.1.2 divided in various parts, whereby each part of the work is handled by an independent 5.1.3 department till the transaction is completely closed. 5.1.4 Detailed procedure as prescribed in the work procedure manual (WPM)/ Concurrence chapter 5.1.5 of accounts manual/DOP, General Condition of contract (GCC), Special Condition of Contract 5.1.6 (SCC) is to be followed for all work contracts. All these may vary from division to division based 5.1.7 on their approved policies and practices. PR is created with t-code ME51N. The authority to place indent or purchase requisition (PR) for works contract is subject to provisions in the approved budgets. In SAP, PR has to be raised specifying the requirement and purpose of the job and the same has to be released/ approved by competent authority after Finance concurrence thru’ t-code ME54N. In case of Revenue Jobs, PR should be created with Account assignment i.e. GL Account and Cost Centre to be used. In such cases Budget availability will be checked at the time of PR Creation. In case GL Account and Cost Centre in which expenditure has to be booked is not certain at the time of PR, the same may be created in “U” route i.e. Unknown. In such case, GL Account and Cost Centre etc. has to be entered at the time of SES preparation and budget is checked at time of acceptance of SES (Service Entry Sheet). Also, in case of revenue PO where the scheduled completion date is beyond the current financial year, PR may be created under account assignment category ‘U’ if budget for future period is not approved. In case of Capital Job, PR has to be created in “N” route with Account Assignment using GL Code 5220400100 and Network Number. Placement of PO for Capital jobs under unknown is not allowed as this will defeat the budget check as well as there is risk of booking of expenditure under revenue head. At times, service contracts under capital works are undertaken with account assignment “F” under the IO (internal order) route. In case of small and petty jobs below Rs. 2.5 lac, tendering is done by the concerned department as per company policy (Refer Finance Circular F/12/64 dated 18th Nov 2013 and clause 2.9 of WPM). In case of Pipeline division, this limit is Rs.1 lakh -WPM 2.10.1). In case vendor code does not exist in the co code but the same is available in other co code, vendor may be extended using t-code YMV. In case vendor do not exist at all, the same may be created using t-code YMV as well. Vendor Creation/ extension/ change in important fields of vendor master has to be confirmed by Finance using t-code FK08. After completing the tendering procedure, PO (In SAP Service Orders are also termed as Purchase Order) is placed through SAP. PO can be viewed through T-Code ME23N. After issue of PO, contractor signs the necessary agreement (In case PO value is more than 10 lakh) and deposit Initial Security Deposit. Tax concurrence is to be obtained before issue of FOA/ PO /WO for Contract Value of more than Rs. 50 Lakhs (Ref: Cir F/ 12/151 dated 11th Dec 2019). Works Accounting INDEX Page 124

5.1.8 After execution of work, Contractor submits the Bill i.e. Tax Invoice in accordance to Invoice Rules under GST Law to Concerned Department/ EIC (Engineer-In-Charge). After checking the Bill and supporting documents, EIC prepares measurement sheet (MES) & service entry sheet (SES) in SAP through sap T-code ML81N. In Case Purchase Order was placed in unknown, Account assignment detail is also entered at the time of creation of SES. The system will not permit to save the SES until GL code, Cost Center and Fund (if applicable) is entered. In case PO is created with account assignment other than ‘U’, then the system will automatically pick up the relevant GL code assigned for the same. 5.1.9 Before sending the SES to Finance, the same has to be accepted in SAP. At the time of acceptance of SES, accounting entries are passed in SAP by debiting the Expenditure/ Network and crediting GRIR Clearing Account. Posting date at the time of acceptance should be changed to the current date i.e. date of acceptance of SES, otherwise SES will be posted in back date i.e. posting date entered at the time of creation of SES. It is important to note that no accounting entry is passed at the time of creation of SES, but entry is passed only at the time of acceptance of SES. Bill/ SES should be forwarded to finance after entry in SAP Bill Tracking system through t-code YFBTS. Note: At the Qtr./Annual closing always ensure that the SES’s are released on or before the quarter ending date in respect of job completed on or before the closing date as this will result in proper booking of liability. 5.1.10 Finance has to process the bill/SES through T-Code MIRO (Invoice Verification). Necessary Taxes have to be deducted at source as per Income Tax/ GST/ Other statutory requirements. Input Tax Credit (ITC) Amount should be booked as ITC Receivable/ Asset Account. In case of IOCL Liability for GST under reverse Charges the same should also be accounted for at the time of MIRO. 5.1.11 All the payment should be made through E-payment using t-code YF51 and YF51P. For e- payment through Bank site mode of payment should be EP and in case of e-payment through bank branch, mode of payment should be PR. It must be ensured that the Bank account of the vendor is uploaded in SAP as well as in the Bank’s website to avoid possibility of failure of transaction. For accounting related to capitalisation please refer chapter-2 (accounting of assets) of Accounts Manual. List of SAP T-Code is given in Annexure – 3.1. 5.2 FUNCTIONS The section dealing with the accounting of work & project is responsible for: a. Receipt and Release of EMD (Earnest Money Deposit) and ISD (Initial Security Deposit). b. Payment of mobilisation and other advances to contractors. c. Passing of contractor’s bills received through EIC (Engineer-in-charge) and adjustment of advances. d. Receipt and release security deposit & bank guarantee. Works Accounting INDEX Page 125