NEW DELHI: Moving towards a different accounting standard from the former Full-Cost Method (Indian GAAP) has seen Mukesh Ambani-led Reliance industries Ltd write down nearly Rs 40,000 crore in its oil and gas assets.
According to the company’s statement, the move to the Successful-Efforts method under the Indian Accounting Standards (Ind-AS) meant that it had to restate its reserves from April 1, 2016. This has led to devaluation of its oil and gas assets by Rs 39,570 crore as on March 31, 2016, with its flagging KG basin D6 block and US shale gas projects showing the worst re-valuations. The write-down in investments also reflects the uncertain oil and gas price scenario.
Under IND-AS, companies are required to revalue their assets once a year. Any subsequent change in fair value of assets for financial year 2016-17 will be known only at the time of annual audited earnings.
RIL added that the major differences impacting such a change of accounting policy are in the areas of expenditure on surrendered blocks, unproved wells, abandoned wells, seismic and expired leases and licenses. RIL has taken a Rs 20,114 crore write-down on its KG-D6 block in the Bay of Bengal alone. In the October-December quarter, the company reported a pre-tax loss of Rs 295 crore from its oil and gas business mainly because of “continuing decline in domestic production and weak price realisations”.
According to analysts, transiting from one accounting method to another requires going back to the time when the particular asset was acquired and calculating its present book value.
“The impact... is recognised in the Opening Reserves on the date of transition and consequential impact of depletion and write offs is recognised in the Profit and Loss Account,” RIL admitted in its third quarter earnings statement.
The company has also stated that after reconciliation for the change, its reserves for the financial year 2015-16 have risen from Rs 2,36,944 crore to Rs 2,50,155 crore. This was because the company had added Rs 41,292 crore to reserves against appreciation of fair value of property, plant and equipment. The statement shows that the company, which owns around 30,000 acres of land, included an impact of Rs 4,110 crore as increase in fair value of financial assets and wrote off deferred tax worth Rs 11,947 crore from the reserve.