Chambal Fertilisers & Chemicals Ltd. Date: 2009.03.31.

Accounting policies

ACCOUNTING POLICIES FOR THE YEAR ENDED 31ST MARCH 2009.

1. Nature of Operations

Chambal Fertilisers and Chemicals Limited was incorporated in May 1985 as a public limited company in the name of Aravali Fertilisers Limited. The name of the Company was changed to Chambal Fertilisers and Chemicals Limited in January 1989.

The Company was manufacturer of Company is also Division of the cargo.

promoted by Zuari Industries Limited and is the largest Nitrogenous Fertilizers in private sector in India. The into manufacturing of Synthetic and Cotton Yarn. Shipping Company is engaged in the business of running of ships for

2. Statement of Significant Accounting Policies

a) Basis of Preparation

The financial statements have been prepared to comply in all material respects with the Notified Accounting Standard by Companies (Accounting Standards) Rules, 2006 and the relevant provisions of the Companies Act, 1956. The financial statements have been prepared under the historical cost convention on an accrual basis except in case of assets for which provision for impairment is made and revaluation is carried out. The accounting policies have been consistently applied by the Company and except for the changes in accounting policy discussed more fully below, are consistent with those used in the previous year.

b) Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and

disclosure of contingent liabilities at the date of the financial statements and the results of operations during the reporting period end. Although these estimates are based upon management's best knowledge of current events and actions, actual results could differ from these estimates. Difference between the actual results and estimates are recognized in the period in which the results are known/ materialized.

c) Change in Accounting Policies Exchange Differences on Long Term Foreign Currency Monetary Items

Upto March 31, 2008, the Company was charging off exchange differences arising on foreign currency monetary assets and liabilities to profit and loss account. Pursuant to Companies (Accounting Standards) Amendments Rules, 2009, the Company has exercised the option of deferring the charge to the Profit and Loss Account arising on exchange differences, in respect of accounting periods commencing on or after December 7, 2006, on long-term foreign currency monetary items (i.e. monetary assets or liabilities expressed in foreign currency and having a term of 12 months or more at the date of origination). As a result, such exchange differences so far as they relate to the acquisition of a depreciable capital asset have been adjusted with the cost of such asset and would be depreciated over the balance life of the asset.

In current year, such exchange differences, pertaining to accounting periods commencing on April 1, 2007 and ending on March 31, 2008 are transferred from General Reserve, to the extent they related to acquisition of depreciable capital assets are adjusted with the cost of such assets Rs. 4682.63 lacs (net of depreciation Rs. 151.90 lacs and net of tax Rs. Nil).

Had the Company continued to use the earlier basis of accounting for exchange differences arising on long-term foreign currency monetary items, the profit after tax for the current year would have been lower by Rs. 28425.51 lacs, general reserve would have been higher by Rs. 4682.63 lacs, the net block of fixed assets would have been lower by Rs. 22226.81 lacs, and capital work-in-progress would have been lower by Rs. 2043.66 lacs.

d) Fixed Assets

Fixed assets are stated at cost less accumulated depreciation and impairment losses, if any. Cost comprises the purchase price and any attributable cost of bringing the asset to its working condition for its intended use.

In respect of accounting periods commencing on or after December 7, 2006, exchange differences arising on reporting of the long-term foreign currency monetary items at rates different from those at which they were initially recorded during the period, or reported in the previous financial statements are added to or deducted from the cost of the asset and are depreciated over the balance life of the asset, if these monetary items pertain to the acquisition of a depreciable fixed asset.

e) Depreciation

Depreciation is provided on fixed assets using Straight Line Method over the useful lives of the assets estimated by the management, which are equivalent to the rates prescribed in Schedule XIV to the Companies Act, 1956, except as mentioned in para (i) to (vi) below:

(i) Second hand fixed assets at Textile division assessed remaining useful lives of such assets

On technically

of 3 years, 5 years or 7 years. (ii) Leasehold Land/ Improvements and Vehicles the period of respective leases or useful lives under finance lease whichever is lower (iii) Insurance/ Machinery Spares remaining useful lives of mother assets. (iv) Assets not owned by the Company over five years from the date of capitalization. (v) Ships of Shipping Division evaluation of remaining useful life in case of Amortized over

of assets,

Over the

Written off

On technical

old ships and as per Companies Act, 1956 in case of new ships. (vi) Fixed assets of Shipping Division other than ships down value method at the rates prescribed in Schedule On written

XIV to the Companies Act, 1956.

Assets costing below Rs. 5,000 are depreciated in the year of purchase.

f) Impairment

(i) The carrying amounts of assets are reviewed at each balance sheet date if there is any indication of impairment based on internal/ external factors. An impairment loss is recognized wherever the carrying amount of an asset exceeds its recoverable amount. The recoverable amount is the greater of the asset's net selling price and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value at the weighted average cost of capital.

(ii) After impairment, depreciation is provided on the revised carrying amount of the asset over its remaining useful life.

g) Intangible Assets

Research costs are expensed as incurred. Development expenditure incurred on software implementation is carried forward when its future recoverability can reasonably be regarded as assured. The expenditure carried forward is amortized over a period of five years.

The carrying value of development costs is reviewed for impairment annually when the asset is not in use, and otherwise when events or changes in circumstances indicate that the carrying value may not be recoverable.

h) Leases

Finance leases, which effectively transfer to the Company substantially all the risk and benefits incidental to the ownership of the leased item, are capitalized at the lower of the fair value and present value of the minimum lease payments at the inception of the lease term and disclosed as leased assets. Lease payments are apportioned between the finance charges and reduction of the lease liability, based on the implicit rate of return. Finance charges are charged directly against income. Lease management fees, legal charges and other initial direct costs are capitalised.

If there is no reasonable certainty that the Company will obtain the ownership by the end of the lease item, capitalized leased assets are depreciated over the shorter of the estimated useful life of the asset or the lease term.

Lease where the lessor effectively retains substantially all the risk and benefits of ownership of the leased terms, are classified as operating lease. Operating lease payments are recognized as an expense in the Profit and Loss account on a straight line basis over the lease term.

Assets subject to operating lease are included in fixed assets. Lease income is recognized in the Profit and Loss Account on straight line basis over the lease term. Cost including depreciation is recognized as an expense in the Profit and Loss Account. Lease income by sub lease of office premises is recognized in the Profit and Loss Account on a straight line basis over the lease term. Initial direct costs such as legal costs, brokerage costs are recognized immediately in the profit and loss account.

i) Government Grants and subsidies

Grants and subsidies from the government are recognized when there is reasonable assurance that the grant/ subsidy will be received and all attaching conditions will be complied with.

When the grant or subsidy relates to an expense item, it is netted off from the respective expense necessary to match them on a systematic basis to the costs, which it is intended to compensate. Where the grant or subsidy relates to an asset, its value is deducted in arriving at the carrying amount of the related asset.

j) Investments

Investments that are readily realisable and intended to be held for not more than a year are classified as current investments. All other investments are classified as long-term investments. Current investments are carried at lower of cost and fair value determined on an individual investment basis.

Long-term investments are carried at cost. However, provision for diminution in the value is made to recognise a decline other than temporary in the value of the investments.

k) Inventories

Inventories are valued as follows:

i) Fertiliser Division

Naphtha, Packing Materials, Stores and spares realizable value. However, materials and

Lower of cost and net

other items held for use in the production of finished goods are not written down below cost if the finished products in which they will be incorporated are expected to be sold at or above cost. Cost is determined on a weighted average basis. Catalyst in Use basis of amortization over their estimated At depreciated cost on the

useful lives ranging from five to fifteen year as technically assessed. Loose Tools at on the basis of amortization over a At depreciated cost arrived

period of three years. Work in Process and Finished Goods Lower of cost and net realizable value. Cost includes direct materials, labour, and a proportion of manufacturing overheads based on normal operating capacity. Traded products realizable value. Cost is determined on Lower of cost and net

weighted average basis.

ii) Textile Division

Raw materials, Packing Materials, Stores value. However, materials and and spares production of finished goods are

Lower of cost and net realizable

other items held for use in the

not written down below cost if the finished products in which they will be incorporated are expected to be sold at or above cost. Cost is determined on a weighted average basis. Work in Process and Finished Goods value. Cost includes direct materials Lower of cost and net realizable

and labour and a proportion of manufacturing overheads based on normal operating capacity. Waste At net realisable value.

iii) Shipping Division

Bunkers remaining on board realizable value. Cost is determined on

Lower of cost and net

weighted average basis. Deck, Engine Stores & Spares and Victualling realizable value. Cost is determined on first Lower of cost and net

in first out basis. Stock of insurance spares the basis of proportionate amortization At net value arrived at on

over the remaining useful lives of such ships.

Net Realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale.

l) Borrowing Costs

Borrowing costs are recognised as expenses in the period in which they are incurred except for borrowings for acquisition of qualifying assets which are capitalised upto the date, the asset is ready for its intended use.

m) Revenue Recognition

Revenue is recognised to the extent it is probable that the economic benefits will flow to the Company and the revenue can be reliably measured.

(a) Sale of Goods

i) Fertiliser Division

Revenue, including subsidy, in respect of sale of products is recognised when the significant risks and rewards of ownership of the goods is passed to the buyer. Excise Duty deducted from turnover (gross) are the amount that is included in the amount of turnover (gross) and not the entire amount of liability arised during the year. Sale is net of trade discounts and sales tax.

Subsidy on Urea is recognized based on Concession rate, including equated freight, as notified under the New Pricing Scheme, further adjusted for input price escalation/ de-escalation as estimated by the management based on the prescribed norms.

Subsidy on Traded products is recognized based on monthly Concession rates as notified by the Government of India. Where such rates have not been notified, the same are accounted as estimated by the management based on the known policy parameters.

ii) Textile Division

Revenue in respect of sale of products is recognised when the significant risks and rewards of ownership of the goods have passed to the buyer. Excise Duty deducted from turnover (gross) are the amount that is included in the amount of turnover (gross) and not the entire amount of liability arised during the year. Sale is net of trade discount and sales tax.

iii) Shipping Division

In respect of voyage charter, revenue is recognized on proportionate number of days of respective voyage. In case of time charter (including cost plus charter), revenue is recognized on time basis.

(b) Interest

Revenue is recognised on a time proportion basis taking into account the amount outstanding and the rate applicable.

(c) Dividend

Revenue is recognised when the shareholders' right to receive payment is established by the balance sheet date. Dividend from subsidiaries is recognised even if the same is declared after the balance sheet date but pertains to period on or before the date of balance sheet as per the requirement of Schedule VI of the Companies Act, 1956.

(d) Insurance Claims

Claims receivable on account of insurance are accounted for to the extent the Company is reasonably certain of their ultimate collection.

(e) Export Benefits

Export benefits under Duty Exemption Advance License Scheme, Duty Exemption Pass Book Scheme and Duty Drawback Scheme are accounted for in the year of export of goods.

n) Deferred Revenue Expenditure

(i) Restructuring charges paid to extinguish high cost debts are written off over the tenure of fresh loans taken for refinancing such high cost debts.

(ii) Amalgamation Adjustment account is created on account of statutory reserves acquired at the time of amalgamation accounted for under Purchase Method, to be reversed on utilization/ transfer of such reserves.

o) Foreign Currency Translation

(i) Initial recognition

Foreign currency transactions are recorded in the reporting currency, by applying to the foreign currency amount the exchange rate between the reporting currency and the foreign currency at the date of the transaction.

(ii) Conversion

Foreign currency monetary items are reported using the closing rate. Nonmonetary items which are carried in terms of historical cost denominated in a foreign currency are reported using the exchange rate at the date of the transaction; and non-monetary items which are carried at fair value or other similar valuation denominated in a foreign currency are reported using the exchange rates that existed when the values were determined.

(iii) Exchange differences

Exchange differences, in respect of accounting periods commencing on or after December 7, 2006, arising on reporting of long-term foreign currency monetary items at rates different from those at which they were initially recorded during the period, or reported in previous financial statements, in so far as they relate to the acquisition of a depreciable capital asset, are added to or deducted from the cost of the asset and are depreciated over the balance life of the asset, and in other cases, are accumulated in a "Foreign Currency Monetary Item Translation Difference Account" in the enterprises financial statements and amortized over the balance period of such long-term asset/liability but not beyond accounting period ending on or before March 31, 2011.

Exchange differences arising on the settlement of monetary items not covered above, or on reporting such monetary items of company at rates different from those at which they were initially recorded during the year, or reported in previous financial statements, are recognized as income or as expenses in the year in which they arise.

(iv) Forward exchange contracts not intended for trading or speculation purposes

The premium or discounts arising at the inception of forward exchange contracts is amortised as expense or income over the life of the contract. Exchange difference on such contracts is recognized in the statement of profit and loss in the year in which the exchange rate changes. Any profit or loss arising on cancellation or renewal of forward exchange contracts is recognized as income or expenses for the year.

p) Retirement and other employee benefits

(i) Retirement benefit in the form of Provident Fund is a defined benefit obligation in case of Fertiliser division and the contributions are charged to the Profit & Loss Account of the year when the contributions to the respective funds are due. Shortfall in the funds, if any, is adequately provided for by the Company. In respect of Textile and Shipping division of the Company, Provident Fund is a defined contribution scheme and the contributions are charged to the Profit and Loss Account of the year when the contributions to the respective funds are due. There are no other obligations other than the contribution payable to the respective funds.

(ii) Superannuation Fund is a defined contribution scheme. Liability in respect of Superannuation Fund to the employees of Fertiliser Division is accounted for as per the Company's Scheme and contributed to Life Insurance Corporation of India (LIC) / ICICI Prudential Life Insurance Company Limited (ICICI) every year. The contributions to the funds are charged to the Profit and Loss Account of the year. The Company does not have any other obligation to the fund other than the contribution payable to the LIC / ICICI.

(iii) Gratuity liability is a defined benefit obligation and is provided for on the basis of an actuarial valuation on projected unit credit method made at the end of each financial year. However, in respect of Fertiliser & Shipping Division, the Company has taken a policy with LIC to cover the gratuity liability of the employees and contribution paid to the LIC is charged to Profit & Loss Account. The difference between the actuarial valuation of the gratuity of employees at the year-end and the balance of funds with LIC is provided for as liability in the books.

(iv) Provision for long-term compensated absences is accrued and provided for on the basis of an actuarial valuation on projected unit credit method

made at the end of each financial year. Liability is provided for shortterm compensated absences on cost to company basis, which are expected to occur within next 12 months.

(v) Actuarial gains/losses are immediately taken to Profit & Loss Account and are not deferred.

(vi) Payments made under the Voluntary Retirement Scheme are amortised over two years but not beyond accounting period ending on or before March 31, 2010.

q) Income Taxes

Tax expense comprises of current, deferred, tonnage and fringe benefit tax. Current income tax, tonnage tax and fringe benefit tax is measured at the amount expected to be paid to the tax authorities in accordance with the Indian Income Tax Act. Deferred income taxes reflects the impact of current year timing differences between taxable income and accounting income for the year and reversal of timing differences of earlier years.

The Shipping Division of the Company is covered under 'Tonnage Tax Scheme" under section 115V of the Income Tax Act, 1961, therefore the items of income/expenses of shipping division has not been considered for the purpose of deferred tax calculation.

Deferred tax is measured based on the tax rates and the tax laws enacted or substantively enacted at the balance sheet date. Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred tax assets and deferred tax liabilities relate to the taxes on income levied by same governing taxation laws. Deferred tax assets are recognised only to the extent that there is reasonable certainty that sufficient future taxable income will be available against which such deferred tax assets can be realised. In situation where the Company has unabsorbed depreciation or carry forward tax losses, deferred tax assets are recognised only if there is virtual certainty supported by convincing evidence that such deferred tax assets can be realised against future taxable profits.

At each balance sheet date the Company re-assesses unrecognised deferred tax assets. It recognises unrecognised deferred tax assets to the extent that it has become reasonably certain or virtually certain, as the case may

be that sufficient future taxable income will be available against which such deferred tax assets can be realised.

The carrying amount of deferred tax assets are reviewed at each balance sheet date. The Company writes-down the carrying amount of a deferred tax asset to the extent that it is no longer reasonably certain or virtually certain, as the case may be, that sufficient future taxable income will be available against which deferred tax asset can be realised. Any such writedown is reversed to the extent that it becomes reasonably certain or virtually certain, as the case may be, that sufficient future taxable income will be available.

r) Segment Reporting Policies Identification of segments

The Companys operating businesses are organized and managed separately according to the nature of products manufactured and services provided, with each segment representing a strategic business unit that offers different products and serves different markets. The analysis of geographical segments is based on the locations of customers.

Allocation of common costs

Common allocable costs are allocated to each segment in proportion to the relative sales of each segment.

Unallocated items

All the common income, expenses, assets and liabilities, which are not possible to be allocated to different segments, are treated as unallocated items.

s) Earning per share

Basic earning per share is calculated by dividing the net profit or loss for the period attributable to equity shareholders by the weighted average number of the equity shares outstanding during the period.

For the purpose of calculating diluted earning per share, net profit or loss for the period attributable to equity shareholders and the weighted average number of shares outstanding during the period are adjusted for the effect of all dilutive potential equity shares.

t) Provisions

A Provision is recognized when an enterprise has a present obligation as a result of past event and it is probable that an outflow of resources will be required to settle the obligation, in respect of which a reliable estimate can be made. Provisions are not discounted to its present value and are determined based on best management estimate required to settle the obligation at the balance sheet date.

These are reviewed at each balance sheet date and adjusted to reflect the current best estimates. Provision for expenditure relating to voluntary retirement is made when the employee accepts the offer of early retirement.

u) Cash and Cash equivalents

Cash and cash equivalents in the cash flow statement comprise cash at bank and in hand and short-term investments with an original maturity of three months or less.

v) Derivative Instruments

As per the ICAI Announcement, accounting for derivative contracts, other than those covered under Accounting Standard 11, are marked to market on a portfolio basis, and the net loss after considering the offsetting effect on the underlying hedge item is charged to the profit & loss account. Net gains are ignored.

Signed on: 15th May, 2009.