A Accounting Policies Forming Part of the Standalone Financial
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AIR INDIA NOTE: A Accounting Policies forming part of the Standalone Financial Statements of Air India Limited for the year ended 31 March 2019 (Rupees in millions except otherwise stated) 1. Company Information / Overview Background Air India Limited, (a Government of India Company) is a company incorporated in India, registered under the Provisions of Companies Act, 1956. The Govt of India holds 100% of Equity Share Capital of the company. Debentures issued by the company are listed on Mumbai Stock Exchange The company provides domestic and international air transport services, which includes mainly passenger and cargo services and other related services. The aircraft fleet of the company consists of a wide range of aircrafts. The registered office of the company is situated at Airlines House, 113, Gurudwara Rakabganj Road, New Delhi -110001. 2. Basis of preparation of Financial Statements (i) Statement of Compliance The financial statements have been prepared in accordance with the Indian Accounting Standards (referred to as “Ind AS”) prescribed under Section 133 of the Companies Act, 2013 read with Companies (Indian Accounting Standards) Rules, as amended from time to time and other relevant provisions of the Act. The Standalone Financial Statements for the year ended March 31, 2019 have been approved by the Board of directors of the Company in their meeting held on 22nd October 2019. (ii) Basis of Measurement The Standalone Financial Statements have been prepared under the historical cost convention on accrual basis except for certain financial assets and liabilities which are measured at fair value or amortized cost at the end of each financial year. (iii) Critical Accounting Estimates /Judgments In preparing these standalone financial statements, management has made judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses and actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates where necessary are recognized prospectively. Significant areas of estimation and judgments (as stated in the respective Accounting Policies) that have the most significant effect on the Financial Statements are as follows: a) Impairment of Assets and Investments in subsidiaries and Joint Venture b) Estimate of revenue recognition from “Forward Sales Account” 132 AIR INDIA c) Fair value of liability on account of Frequent Flyer Programme (FFP) d) Measurement of useful life and residual values of property, plant and equipment and components thereof e) Basis of classification of a Property as Investment Property f) Basis of classification of Non-Current Assets held for sale g) Estimation of Costs of Re-delivery h) Recognition of Deferred Tax Assets i) Recognition and measurement of defined benefit obligations j) Judgement required to ascertain lease classification k) Measurement of Fair Values and Expected Credit Loss (ECL) l) Judgment is required to ascertain whether it is probable or not that an outflow of resources embodying economic benefits will be required to settle the taxation disputes and legal claim. (iv) Functional Currency : Currency of the primary economic environment in which the Company operates (“the Functional Currency”) is Indian Rupee (Rs.) in which the Company primarily generates and expends cash. Accordingly, the Management has assessed its functional currency to be Indian Rupee (Rs.) The Stand-alone Financial Statements are presented in Indian Rupees (INR) which is Company’s Presentation and Functional currency and all amounts disclosed in the Financial Statements and Notes have been rounded off to the nearest Million (up to one decimal), unless otherwise stated. (v) Operating cycle & Classification of Current &Non Current : Presentation of assets and liabilities in the financial statement has been made based on current / non-current classification provided under the Companies Act, 2013. The Company being in service sector, there is no specific operating cycle; however, 12 months period has been adopted as “the Operating Cycle” in-terms of the provisions of Schedule III to the Companies Act 2013. Accordingly, current liabilities and current assets include the current portion of non-current financial liabilities and assets. 3. Significant Accounting Policies : I. Property, Plant and Equipment (PPE) a) Items of property, plant and equipment are measured at cost, less accumulated depreciation and impairment losses, if any. b) Property, plant and equipment are stated at cost including incidental costs incurred pertaining to the acquisition and bringing them to the location for use and interest on loans borrowed where ever applicable, up to the date of putting the concerned asset to its working condition for its intended use. 133 AIR INDIA c) Significant parts which meet the definition of property, plant and equipment (i.e. Aircraft Rotables, Repairables (with Serialized Control) including the major cost incurred on modernization / modification / conversion of aircraft and engines) have been capitalized as a separate component. d) Assets under leases, in respect of which substantially all the risks and rewards of ownership are transferred to the Company, are considered as ‘Finance Leases’ and are capitalized. e) Physical Verification of Assets is done on a rotational basis so that every asset is verified in block of two years and the discrepancies observed in the course of the verification adjusted in the year in which report is finalized. II. Depreciation / Amortization a) Depreciation is provided on straight-line method over the useful life of the Property, plant and equipment as prescribed in the Schedule II of the Companies Act, 2013 (except as otherwise stated), keeping a residual value of 5% of the original cost. Depreciation method, useful lives and residual value are reviewed by the management at each year end. b) On the basis of technical assessment, the useful life of B-777, B-787 and A-320 family aircraft (procured from 2006-07 onwards) are considered as 25 years (instead of the life of 20 years as prescribed under Schedule II of the Companies Act 2013) keeping a residual value of 5% of the original cost. c) In the case where life of the Property, plant and equipment, has not been prescribed under Schedule II of the Companies Act 2013 the same have been determined by technically qualified persons and approved by the Board of Directors keeping a residual value of 5% of the original cost as under : 1. Rotables: (i) Aircraft Rotables relating to Airbus family are depreciated over the residual average useful life of the aircraft fleet relating to the respective family and of the respective engineering base, from the relevant year of purchase. (ii) Aircraft Rotables relating to Boeing are depreciated over the residual average useful life of the related aircraft fleet from the relevant year of purchase. 2. Aircraft Repairables: Repairables which are serially controlled are treated as Property, Plant & Equipment and accordingly are amortized over a period of 10 years (in case of post migration) and 5 years (in case of pre-migration) from the date of its purchase unless scrapped earlier. d) In respect of operating leases of aircraft/engines in which the company acquires, a residual right in the aircraft by paying a termination/release sum, such amount is treated as PPE and amortized over the remaining useful life of the aircraft/engines determined by flying hours. e) Major overhaul costs relating to engine and airframe are identified as separate components for owned aircrafts and aircrafts under finance lease and are depreciated over the expected lives 134 AIR INDIA between major overhauls. f) Cost incurred on major modifications/refurbishment, modernization/conversion carried to owned and leased assets are depreciated over the useful life/period of lease of the asset. g) Leasehold Property, plant and equipment (including land other than perpetual lease) is amortized over the period of lease. III. Assets Held for Sale Assets included and identified for divestment purposes are classified as held for sale if it is highly probable that they will be recovered primarily through sale in its present condition rather than through continuing use and are measured at the lower of carrying amount and fair value less costs to sell. No depreciation is provided, once the asset is transferred to Assets Held for Sale. IV. Investment Properties Investment Properties are properties held to earn rentals and / or for capital appreciation. Investment properties are measured initially at cost including transaction cost, Subsequently, Investment property are stated at cost less accumulated depreciation and impairment losses, if any. Depreciation is provided as per Note No 3 (II). Any gain or loss on disposal is recognized in Statement of Profit & Loss. V. Intangible Assets Intangible assets are recorded at cost of acquisition including incidental costs related to acquisition and installation and are carried at cost less accumulated amortization and impairment losses, if any. Intangible assets which have finite useful lives are amortized on straight line method over the estimated useful life, which is reviewed by the management every year i.e. a) Software of Passenger Services System, over 10 years, and b) Other software/website, over 5 years. VI. Capital work-in-progress Cost of property, plant and equipment including intangible assets not ready for use as at the reporting date are disclosed as capital work-in-progress. VII. Leases (i) Finance lease a) A lease is classified as finance lease or operating lease at the inception date. Leases of property, plant and equipment that transfer to the Company substantially all of the risks and rewards of ownership are classified as finance lease. b) Assets held under finance lease are initially capitalized at the fair value at the inception of lease or at the present value of the minimum lease payments whichever is lower. c) Minimum lease payments made under finance lease are apportioned between the finance costs and the reduction of the outstanding liability treated as loan.