Subject Name: Management Accounting (MA)

Title:

ONGC

Page | 1
 Index

Sr. No. Particulars Page No.

Carry out Ratio Analysis of the organization for last two

1 3–7
financial years. (Till March 2020)

Carry out Horizontal Analysis of the organization for last two

2 8 – 13
financial years. (Till March 2020)

Carry out Vertical Analysis (Common Sized Statement) of the

3 14 – 15
organization for last one financial year. (March 2020)

Evaluate and compare the financial position of the

4 organization based on the above tools and comment upon 16 – 20
the operational, investment and financial position of the firm.

Assess if the financial statements of the organization are

5 prepared as per Ind AS and as per globally acceptable 21 - 33
principles like IFRS from the annual reports of the company.

Page | 2
1. Carry out Ratio Analysis of the organization for last two financial years.
(Till March 2020):

March 2019:
a. Liquidity Ratio:
 Liquidity ratios show the cash availability of a company and its ability to
meet short-term dues. In other words, liquidity ratios are an indicator of a
company’s capacity to clear its current liabilities (liabilities that need to be
cleared in a year). They indicate not only the levels of cash but also assets
that can be quickly converted into cash for meeting its obligations.
 Quick ratio (acid-test ratio) and working capital ratio (current ratio).

o Quick Ratio:
 The quick ratio, or the acid-test ratio, measures the capacity of
a company to clear its current liabilities using only its “quick
assets” (assets that can be converted into cash within 90
days, including cash itself, besides short-term investments,
marketable securities, etc).
 The quick ratio is calculated by adding all the current assets
and dividing this figure by current liabilities.
 Current Asset of ONGC = 28,390.35
 Current Liabilities of ONGC = 46,716.88
Current Asset
 Quick Ratio=
Current Liability
28,390.35
 Quick Ratio=
46,716.88
 Quick Ratio=0.61

o Working Capital Ratio:

 The working capital ratio, or the current ratio, shows whether a
company can meet its current liabilities using its current assets
(assets that can be converted into cash within a year: for
example, cash and cash equivalents).
 The working capital ratio is calculated by dividing current
assets by current liabilities.
 Current Asset of ONGC = 28,390.35

Page | 3
  Current Liabilities of ONGC = 46,716.88
Current Asset
 Working Capital Ratio=
Current Liability
28,390.35
 Working Capital Ratio=
46,716.88
 WorkingCapital Ratio=0.61

b. Solvency Ratio:
 Solvency ratios indicate a company’s viability in the long term—whether
it can meet its long-term obligations to creditors and sustain itself. These
ratios compare the debt of a company with its equity, earnings, and
assets.
 Debt-to-equity ratio.

o Debt-to-equity Ratio:
 The debt-to equity ratio relates the amount of debt taken
on by a company to its equity. It shows how much of its
funds have come from banks and other creditors compared
with how much from its shareholders.
 The debt-to-equity is calculated by dividing the total
liabilities by the total equity.
 Total Liabilities of ONGC = 99,242.26
 Total Equity of ONGC = 2,02,992.56
Total Liabilities
 Debt−¿−Equity Ratio=
Total Equity
99,242.26
 Debt−¿−Equity Ratio=
2,02,992.56
 Debt−¿−Equity Ratio=0.49

c. Profitability Ratio:
 Profitability ratios demonstrate how effectively a company is using its
assets to gain profits.
 Return-on-assets ratio.

Page | 4
 o Return-on-Assets Ratio:
 The return-on-assets ratio relates the total net income of a
company to the investment in its total assets during a
period. It is an important index, since the ratio includes
capital assets, often the largest investment for most
businesses.
 The return-on-assets ratio is calculated by dividing the net
income by the average total assets (the total assets at the
start and at the end of the year divided by two).

Total Aset at Start of year +Total Asset at End of year
Average Total Asset=
2
2,91,228.18+3,02,234.81
 Average Total Asset=
2
 Average Total Asset=2,96,731.495
Net Income
 Return−on−Asset Ratio=
Average Total Asset
 Net Income = 2,96,731.495
8439.93
 Return−on−Asset Ratio=
2,96,731.495
 Return−on−Asset Ratio=0.028

March 2020:
a. Liquidity Ratio:
 Liquidity ratios show the cash availability of a company and its ability to
meet short-term dues. In other words, liquidity ratios are an indicator of a
company’s capacity to clear its current liabilities (liabilities that need to be
cleared in a year). They indicate not only the levels of cash but also assets
that can be quickly converted into cash for meeting its obligations.
 Quick ratio (acid-test ratio) and working capital ratio (current ratio).

o Quick Ratio:
 The quick ratio, or the acid-test ratio, measures the capacity of
a company to clear its current liabilities using only its “quick
assets” (assets that can be converted into cash within 90
days, including cash itself, besides short-term investments,
marketable securities, etc).

Page | 5
  The quick ratio is calculated by adding all the current assets
and dividing this figure by current liabilities.
 Current Asset of ONGC = 26,986
 Current Liabilities of ONGC = 40,567.02
Current Asset
 Quick Ratio=
Current Liability
26,986
 Quick Ratio=
40,567.02
 Quick Ratio=0.67

o Working Capital Ratio:

 The working capital ratio, or the current ratio, shows whether a
company can meet its current liabilities using its current assets
(assets that can be converted into cash within a year: for
example, cash and cash equivalents).
 The working capital ratio is calculated by dividing current
assets by current liabilities.
 Current Asset of ONGC = 26,986
 Current Liabilities of ONGC = 40,567.02
Current Asset
 Working Capital Ratio=
C urrent Liability
26,986
 Working Capital Ratio=
40,567.02
 Working Capital Ratio=0.67

b. Solvency Ratio:
 Solvency ratios indicate a company’s viability in the long term—whether
it can meet its long-term obligations to creditors and sustain itself. These
ratios compare the debt of a company with its equity, earnings, and
assets.
 Debt-to-equity ratio.

o Debt-to-equity Ratio:
 The debt-to equity ratio relates the amount of debt taken
on by a company to its equity. It shows how much of its

Page | 6
 funds have come from banks and other creditors compared
with how much from its shareholders.
 The debt-to-equity is calculated by dividing the total
liabilities by the total equity.
 Total Liabilities of ONGC = 1,02,342.66
 Total Equity of ONGC = 1,94,338.09
Total Liabilities
 Debt−¿−Equity Ratio=
Total Equity
1,02,342.66
 Debt−¿−Equity Ratio=
1,94,338.09
 Debt−¿−Equity Ratio=0.53

c. Profitability Ratio:
 Profitability ratios demonstrate how effectively a company is using its
assets to gain profits.
 Return-on-assets ratio.
o Return-on-Assets Ratio:
 The return-on-assets ratio relates the total net income of a
company to the investment in its total assets during a
period. It is an important index, since the ratio includes
capital assets, often the largest investment for most
businesses.
 The return-on-assets ratio is calculated by dividing the net
income by the average total assets (the total assets at the
start and at the end of the year divided by two).

Total Aset at Start of year +Total Asset at End of year
Average Total Asset=
2
3,02,234.81+ 2,96,680.75
 Average Total Asset=
2
 Average Total Asset=2,99,457.78
Net Income
 Return−on−Asset Ratio=
Average Total Asset
 Net Income = 4,777.39
4,777.39
 Return−on−Asset Ratio=
2,99,457.78

Page | 7
  Return−on−Asset Ratio=0.016
2. Carry out Horizontal Analysis of the organization for last two financial
years. (Till March 2020):

Horizontal analysis also known as trend analysis is a financial statement analysis

technique that shows changes in the amounts of corresponding financial statement
items over a period of time. It is useful tool to evaluate the trend situations. The
statements for two or more periods are used in horizontal analysis. The earliest
period is usually used as the base year and the items on the statements for all later
periods are compared with items on the statements of the base year. The changes
are generally shown in both dollars and percentage.

A) Horizontal analysis of ONGC company (Balance sheet):

Ma M A P
r ar b er
20 1 s c
9 ol e
ut nt
e a
c g
h e
a c
n h
g a
e n
g
e
(
%
)

Assets

1. Non
-
current
assets

a)
Proper
ty,

Page | 8
plant
and
equip
ment

1. Oil 10 1 3 3
and 84 1 6
gas 76. 2 4
assets 68 1 1.
1 0
7. 8
7
6

2. 92 6 (2 2
Other 21. 9 2 5
propert 62 4 7
y , 3. 8.
plant 5 1)
and 2
equip
ment

3. 98 --- 0 0
Right 19. --- 0 0
of use 79 --
assets

B)
Capital
work in
progre
ss

Oil and
gas
assets

1. 49 3 (9 2
Develo 92. 9 9
pment 04 9 5.
well in 6. 9
progre 1 3)
ss 1

2. Oil 13 9 (3 2
and 40 4 9 9

Page | 9
gas 4.6 7 2
facilitie 7 9. 4.
s in 8 8
progre 0 7)
ss

3. 16 1 8 5
Other 89. 7 7.
87 7 7
7. 6
6
3

C) 18 1 (6 4
Intangi 0.9 7 .5
ble 6 4. )
assets 4
6

D) 16 1 3 2
Intangi 20 9 3 1
ble 8.9 5 1
assets 7 2 7.
under 6. 7
develo 6 2
pment 9

E)
Financi
al
assets

1. 72 8 1 1
Invest 42 4 2 7
ments 9.9 8 4
9 8 5
1. 1.
5 5
3 4

2.Cash 96. 1 (7 8
02 7. 8. 1
9 0
8 4)

3. site 22 1 (4 1
restora 15 8 0 8.

Page | 10
tion 2.2 0 5 3
fund 2 9 7.
2. 6)
6
1

4. 15 2 1 7
Others 0.4 6 1 6
6 4. 4.
8 4
6

F) Non 90 9 6 7
current 43. 7 8
tax 07 2 1.
assets 4. 3
4 5
2

G) 81 6 (1 1
Other 1.9 6 4 8
non - 4 4. 7.
current 6 3
assets 0 4)

Total 26 2 1 0.
non - 96 7 6 6
current 94. 1 6
assets 76 3 8.
6 1
2. 7
9
3

2.
Curren
t
assets

a. 85 7 (8 1
Invent 66. 7 6 0.
ories 62 0 2. 1
3. 6
9 9)
3

Page | 11
b.
Financi
al
assets

1. Bills 47 8 3 7
receiva 77. 4 6 7
ble 39 3 6
9. 2.
9 5
6 7

2.Cash 96. 1 (7 8
02 7. 8. 2
9 0
8 6)

3. 87 4 (3 4
Bank 2.2 8 8 4
6. 6.
0 1
8 2)

4. 51 6 1 2
Loans 1.7 3 2 4
3 3. 2.
9 2
3

5. 27 4 1 6
Other 73. 6 8 6
93 1 4
7. 3
4 0
8 5
5

c. 93 6 (3 3
Other 68. 3 0 2
current 10 3 3
assets 0. 7.
3 7
1 9)

Sub 26 2 (1 5
total 98 8 2
current 5.9 2 4

Page | 12
assets 9 2 3.
9. 6
6 8)
7

Total 26 2 (1 5
current 98 8 3
assets 5.9 3 5
9 4 9.
5. 4
4 5)
4

Total 29 2 (1 0.
assets 86 9 0 3
80. 9 2
76 7 7.
0 0
8. 2)
0
4

2.
Equity
and
liabiliti
es:

Equity

a. 62 6 0 0
Equity 90. 2 0 0
share 15 9
capital 0.
1
5

b. 18 1 7 4
Other 80 9 4
equity 47. 5 5
94 4 1.
9 4
9. 8
4
2

Page | 13
Total 19 2 1 5
equity 43 9 0 4
38. 9 5
09 7 3
0 6
8. 9.
0 9
4

Liabiliti
es

1. Non
-
current
liabiliti
es

a.
Financi
al
liabiliti
es:

1. 22 --- 0 0
Borrow 45. -- 0 0
ings 10

2. 50 3 (5 9
Lease 52. 8. 0 9
liability 19 2 1
9 3.
9)

3. 15 7 7 4
Other 6.2 9. 6. 9
7 8 4
4 3

b. 27 2 (4 1
Provisi 93 3 3 5
ons 9.2 6 1
1 2 4.
4. 4
.7 7)

Page | 14
 4

c. 26 2 1 4
Deferre 34 7 0
d tax 4.0 4 8
9 2 2.
6. 0
1 2
1

d. 38. 3 (6 1
other 79 2. .1 6
non - 6 8)
current 1
liabiliti
es

Total 61 5 (1 1
non - 77 1 0 7
current 5.8 2 5
liabiliti 5 0 7
es 1. 4.
5 2
9 6)

2.
Curren
t
liabiliti
es

a.
Financi
al
liabiliti
es

1. 11 2 9 8
Borrow 70 1 8 5
ings 4.0 5 8
1 9 9.
3. 5
5 6
7

Page | 15
2. 71 8 1 2
Trades 13. 8 7 4
payabl 63 2 1
e 5 1.
3
7

3. 47 3. (4 9
Lease 74. 5 7 9
liability 39 0 6
6.
8
9)

4. 13 1 (1 1
Other 96 2 7 2
1.2 2 1
1 4 7.
3. 4
7 9)
2

b. 18 2 5 2
other 66. 4 4 9
current 30 1 8.
liabiliti 5. 1
es 4 9
9

c. 10 1 4 4
Provisi 97. 5 8 5
ons 53 8 8.
5. 3
8 3
6

d. 49. 4 0 0
Curren 94 9. 0 0
t tax 9
liabiliti 4
es

Total 40 4 6 1
current 56 6 1 5
liabiliti 7.0 7 4
es 1 1 9.
6. 8

Page | 16
 8 7
8

Total 10 9 (4 4
liabiliti 23 7 4
es 42. 9 2
66 1 4.
8. 1
4 8)
7

Total 29 2 3 1
equity 66 9 0
and 80. 9 2
liabiliti 75 7 7.
es 0 2
8. 9
0
4

B) Horizontal analysis of ONGC company (P&L):

A A A P
s s b er
at s c
a 3 ol e
t 1st ut nt
3 M e a
1 ar c g
s
c h e
t
h a c
M 2 n h
a 0 g a
r 1 e n
c 9 g
h e
(
2 %
0 )
2
0

Page | 17
1. 9 1 (1 1
Re 6 0 3 2
ven 2 9 4
ue 1 6 4
fro 3 5 0
m 6 4 9.
ope . 5. 5)
rati 0 5
ons 9

2. 6 7 (1 1
Oth 1 2 1 6
er 0 6 6
inc 5 5 0
om 0 2. 2.
e . 6 3
2 2 6)
6

Tot 1 1
al 0 1
inc 2 6
om 3 9
e(1 1 1
+2) 8 9
6 8.
. 1
3 2
5

3.
Ex
pen
ses

a. 2 1 8 4
Ch 4 6 0 8
ang 6 6 4.
e in 9 4. 9
fini . 9 7
she 9 6
d/ 3
se
mi
fini
she

Page | 18
d
go
ods
,
sto
ck
in
tra
de
and
wor
k in
pro
gre
ss

b. 4 4 (3 8
Pro 5 9 7
duc 8 6 8
tio 3 1 3
n, 2 5 8.
tra 0 9. 9
nsp . 2 7)
ort 2 4
atio 7
n,
sell
ing
and
dist
rib
uti
on

c.
Ex
plo
rati
on
cos
ts
writ
ten
off:

1. 1 1 (1 9

Page | 19
sur 6 8 6
vey 8 5 3
cos 7 1 4.
ts 9 3. 3
. 9 8)
2 2
4

2. 6 6 9 1.
Ex 9 9 0 3
plo 9 0 2.
rat 5 5 8
ory 7 4. 1
wel . 8
l 6 2
cos 3
ts

c. 2 2 3 1
Fin 8 4 3 3
anc 2 9 1
e 3 2 5.
cos 6 1. 4
ts . 3
7 6
6

d. 1 1 3 2
De 8 5 1 0
pre 6 4 6
ciat 1 5 0
ion, 6 6 7.
dep 8 1. 5
leti . 0
on, 5 8
am 8
orti
sati
on
and
imp
air
me
nt

e. 8 7 1 1
Oth 4 3 1
Page | 20
er 7 6 1 5
imp 6 2. 4.
air . 1 4
me 5 2 6
nts 8
writ
ten
off

Tot 7 7 1 0.
al 7 6 6 2
exp 0 8 0
ens 5 9 1.
es( 0 0 4
4) 8 7. 1
. 5
9 8
9

5. 2 4 (1 3
Pro 5 0 4 7
fit 2 0 7
bef 6 2 6
ore 7 9 1
exc 7 0. 3.
epti . 5 1
ona 3 4 8)
l 6
ite
ms
and
tax

6. 4 0 0 0
Exc 8 0 0 0
epti 9 0 0 0
ona 9
l 0
ite .
ms- 4
inc 7
om
e

7. 2 4 (1 4
PB 0 0 9 9
T 3 0 6
Page | 21
 6 2 6
8 9 0
6 0. 3.
. 5 5
9 4 5)
9

8.
Tax
exp
ens
e:

a. 7 1 (3 3
Cur 4 1 7 4
ren 1 1 3
t 0 4 2
tax 0 2 0.
0. 7
7 9)
9

b. 1 2 (1 9
Def 2 1 9 4
err 4 2 9
ed 5 2 7
tax . 1. 5.
7 5 7
7 4 7)

Tot 6 1 (6 4
al 9 3 3 8
tax 2 2 4
exp 4 6 0
ens 1 4 3.
e . 4. 0
4 5 9)
5 4

9. 1 2 (1 5
Pro 3 6 3 0
fit 4 7 3
(7- 4 6 2
8) 4 4 0
5 6 0.
. 5
4

Page | 22
 4 6)

10.
Oth
er
co
mp
reh
ens
ive
inc
om
e:

a. 4 4 (1 3
ite 4 5 1
ms 1 2 4.
tha 4 8. 7
t 7 8)
can 8
not
be
recl
ass
ifie
d
to
pro
fit
and
los
s

b.
re
me
asu
re
me
nt
of
the
defi
ned
ben
efit

Page | 23
1.d 1 1 (4 3
efe 5 5 0.
rre 4 8 1
d 2 2. 1)
tax . 5
4 4
3

c. 1 1 1 6
equ 2 6 1 9
ity 9 3 3 6
inst 7 0 4
ru 6 6. 6
me 9 6 2.
nts . 2 8
4 2
4

1. 8 1
def 0 2
err 3 6
ed 1 5.
tax . 2
9 5
3

Tot 1 1 1 5
al 2 7 0 9
(10) 4 9 6 3
6 8 6
0 7. 2
9 6 1.
. 1 4
0 7
8

11. 9 2 (2 9
Tot 8 4 3 6
al 3 9 9
co 6 6 8
mp . 5 2
reh 3 8. 2.
ens 6 3 0
ive 9 3)
inc
om

Page | 24
e
(9+
10)

12. 1 2 (1 4
Ear 0 0. 0. 9
nin . 9 2
gs 6 0 1)
per 9
equ
ity
sha
re:
Ba
sic
and
dilu
ted

Page | 25
3. Carry out Vertical Analysis (Common Sized Statement) of the
organization for last one financial year. (March 2020):

Balance sheet of ONGC (in Rs. Crore)

March 2020 Analysis March 2019 Analysis

Equity &
liabilities

Shareholders
fund

Equity share
6290.15 2.12% 6290.15 2.08%
capital

Reserve &
188047.94 63.38% 196702.40 65.08
surplus

Non – current
liabilities

Long term
2245.10 0.75% 0.00 0%
borrowings

Deferred tax
26344.10 8.87% 28070.38 9.28%
liabilities

Other long term

5247.24 1.76% 830.26 0.27%
liabilities

Long term
27939.21 9.41% 23624.74 7.81%
provisions

Current
liabilities

Short term
11704.01 3.94% 2159.57 0.71%
borrowings

Trade payables 7113.63 2.39% 8825 2.91%

Other current
liabilities 20651.84 6.96% 14712.65 4.86%

Page | 26
Short term
1097.53 0.36% 1585.66 0.52%
provision

Total capital &

296680.75 99.94% 302234.86 93.56%
liabilities

Assets

Non – current
assets

Tangible
127518.10 42.98% 24244.66 41.1%
assets

Intangible
180.96 0.06% 174.46 0.05%
assets

Capital working
20016.58 6.74% 15523.64 5.13%
progress

Fixed assets 163924.60 55.25% 159469.35 52.76%

Non – current
72429.99 24.41% 84881.54 28%
investments

Long term loan 1182.48 0.39% 1046.13 0.34%

Other non -
32157.69 10.83% 28447.45 0.009%
current assets
Current
assets
Current
0.00 0% 0.00 0%
investment

Inventories 8566.62 2.88% 7749.17 2.56

Trade
4777.39 1.61% 8439.96 2.79%
receivables

Cash & cash

511.73 0.17% 633.93 0.20%
equivalent

Other current
12162.03 4.09% 71062.23 3.66
assets

Total assets 296680.75 302234.81

Page | 27
4. Evaluate and compare the financial position of the organization based
on the above tools and comment upon the operational, investment and
financial position of the firm.:

(Rs. Billions)

Q3 Q2 Q3 9M 9M
FY’20
FY’21 FY’21 FY’20 FY’21 FY’20

Sales
169.77 168.46 236.22 467.58 744.61 957.01
turnover

Add: other
operating 0.47 0.70 0.88 1.95 2.96 5.12
income

Less:
statutory 40.97 39.36 56.67 110.14 177.64 225.71
levies

Operating
revenue
129.27 129.80 180.43 359.39 569.93 736.42
net of
levies

Add: other
7.82 18.24 14.03 30.36 47.80 61.05
income

Less:
operating - - - - - -
exp.

(Incl
provisions 46.26 46.78 57.24 135.4 159.52 224.31
& write off)

Less:
exploration
cost written
off (survey 18.39 14.46 17.18 44.11 56.45 86.84
& dry wells)

Less: -4.36 -4.12 2.26 -8.55 5.64 16.77

Page | 28
 exchange
loss (gain)

Less:
variation in -0.46 -1.32 -2.04 -2.90 -2.21 2.47
stock

PBDIT 77.26 92.24 119.82 221.69 398.33 467.08

DD&I 44.27 36.79 53.02 119.29 136.18 186.16

Financing
4.78 3.17 6.26 12.87 19.54 28.24
cost

Profit
before
28.21 52.28 60.54 89.53 242.61 252.68
exceptional
item & tax

Exceptional
- 12.38 - 12.38 - 48.99
item

Profit
28.21 39.90 60.54 77.15 242.61 203.69
before tax

Provision
14.43 11.12 18.28 29.63 77.18 69.24
for tax

Profit after
13.78 28.78 42.26 47.52 165.43 134.45
tax

Exceptional item-impairment loss of Rs. 1,238/- crore in Q2 FY’21

ONGC Investments:
India has cut the domestic natural gas prices for the third consecutive time to $1.79
per million British thermal units (mBtu) which raised the questions about the
earnings of producers like ONGC & IOC causing share plunge in revenues and
incurring huge losses on gas production.
It is also the first time that the price has gone below $2 per mBtu.

Page | 29
ONGC, which is the biggest crude oil and natural gas producer India, contributing
around 75% to Indian domestic production was not able to recover the total cost of
production at the current level of gas prices, making the gas business not profitable
for the company. The average cost of production for ONGC is close to $3.7 per
million British thermal unit. Low domestic gas price in the domestic market is one
of the major risk factors, to the profitability of the gas business.

Page | 30
ONGC and Oil India produce and sell close to 80% of India’s total gas, while the
remaining comes from private players like Reliance Industries Ltd., Vedanta Ltd.,
Hindustan Oil Exploration Ltd., and others
Domestically, the extremely low gas prices are a cause of anxiety for gas
producers. At the current price point, most gas projects are running cash negative.
Without the necessary policy support and fiscal incentives, the prospect of a gas-
based economy looks difficult.
Crude Price: One more shock for ONGC
The cut in gas prices is a two way shock for the producer that has seen crude
prices near the lower-end of its ‘acceptable’ levels.
For ONGC, the total cost of production for every barrel of crude is around $35-40,
while crude prices are currently trading at $40-42 a barrel. For ONGC, every $1 a
barrel change in prices of crude oil, natural gas, and other products has an
impact of close to ₹ 6,000 crore on its revenue . For a company like ONGC
where the bulk of the production comes from legacy fields and production costs
rise for every incremental barrel, lower prices are a significant disincentive for any
major capital programme.
Stock Price Slump:
Low crude and gas prices, weak demand and production caused ONGC stock
price to plunge over 55% in just one year. Fiscal challenges may force more
aggressive stake sales by the government which will be another major overhang
on ONGC.

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Good News for others:
This is a good news for consumers of piped natural gas (PNG) and compressed
natural gas (CNG) as companies like Indraprastha Gas Ltd (IGL) and Mahanagar
Gas Ltd (MGL) would be passing on the benefits of the price cut. A cut in the
natural gas price will result in a lower cost of manufacturing of urea and
petrochemicals where natural gas is used as a feedstock. A decrease in the price
of Natural gas could also positively impact the margins of the power sector and
sponge iron industry where it used for the generation of energy.
New hope for ONGC
India is considering a floor price for natural gas produced from local fields. The
proposal being considered by the oil ministry pegs the price to the popular
benchmark Japan-Korea Marker that is used for LNG tariff in North Asia with a
discount. The implementation of a floor price could lead to an increase in the price,
even after factoring in a discount of $1/mmBtu to the Japan-Korea Marker price.
The current Japan-Korea Marker price is close to $5 per mmBtu. India will phase
out price controls in natural gas and make it market-linked.
If implemented, this will also make almost all key petroleum products in India close
to global benchmarks and reduce government’s intervention to a very minimal
level.
If the above policy is implemented, it would raise consolidated FY22 earnings 20-
22%, and improve annual cash flows by $0.5-0.6 billion - Morgan Stanley
..and so the stock price.
A sharp jump in crude prices, deregulation of gas prices, and cut in government
taxes related to oil are the only factors that could lead to an upside in the share
prices of ONGC.
For a stock like ONGC whose Dividend Yield is 7.22 % and Free cash flow
151,179 Cr. of last 5 years, a sharp bounce back is expected which may benefit
investors for short and long term.

"For wealth creation, Buy Fundamentally strong stock when they are in deep pain"

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5. Assess if the financial statements of the organization are prepared as
per Ind AS and as per globally acceptable principles like IFRS from the
annual reports of the company.:

MEANING OF ACCOUNTING STANDARD:-

Accounting Standards are written policy documents issued by expert accounting
body or by the government or other regulatory body covering the aspects of
recognition, measurement, treatment, presentation, and disclosure of accounting
transactions in financial statements.
Classification of Enterprises
The enterprises are classified and labeled as Level I, Level II and Level III
companies. Based on this classification and the category in which they fall the
Accounting standards are applicable to the enterprises
Level I Enterprises
Enterprises which fall under any one or more category below mentioned are
termed as Level I Companies
1. Enterprises whose equity or debt securities are listed whether in India or outside
India
2. Enterprises which are in the process of listing their equity or debt securities.
Board of directors’ resolution must be available as an evidence
3. Banks including co-operative banks
4. Financial institutions
5. Enterprises carrying on insurance business
6. All commercial, industrial and business reporting enterprises, whose turnover not
including ‘other income’ for the immediately preceding accounting period on the
basis of audited financial statements exceeds Rs. 50 crore
7. All commercial, industrial and business reporting enterprises having borrowings,
including public deposits, in excess of Rs. 10 crores at any time during the
accounting period
8. Holding and subsidiary enterprises of any one of the above at any time during the
accounting period

Level II Enterprises
Enterprises which fall under any one or more category below mentioned are termed
as Level II Companies

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1. All commercial, industrial and business reporting enterprises, whose turnover
(excluding ‘other income’) for the immediately preceding accounting period on
the basis of audited financial statements is greater than Rs. 40 lakhs but less
than Rs. 50 crore
2. All commercial, industrial and business reporting enterprises having borrowings,
including public deposits, is greater Rs. 1 crore but less than  Rs. 10 crores at
any time during the accounting period
3. Holding and subsidiary enterprises of any one of the above at any time during the
accounting period

Level III Enterprises:

Enterprises which do not fall under Level I and Level II, are considered as Level
III enterprises

IFRS(INTERNATIONAL FINANCIAL REPORTING STANDARD)

The International Financial Reporting Standards (IFRS) are accounting standards
that are issued by the International Accounting Standards Board (IASB) with the
objective of providing a common accounting language to increase transparency
in the presentation of financial information.
Components of Financial Statements under IFRS

A complete set of financial statements prepared in compliance with the IFRS

would ideally comprise of the following:
 A statement of financial position as at the end of the period – more commonly
known to us as the ‘balance sheet’.
 A statement or profit and loss for the year and the statement of other
comprehensive income –other comprehensive income would include those items
of income/expense that are not recognized in the profit and loss account to
comply with the other relevant standards.
Both these statements may either be combined or shown separately.
 A statement of changes in equity – This would include a reconciliation between
amounts shown at the beginning and the end of the year.
 A statement of cash flows for the period
 Notes to the financial statements – including a summary of significant accounting
policies followed and other explanatory information
The financial statements would sometimes also include a statement of the
financial position of an earlier period in the following scenarios:

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 When an entity applies an accounting policy retrospectively;
 When an entity retrospectively restated an item in its financial statements; or
 When an entity reclassifies an item in its financial statements.

WHICH ACCOUNTING PRINCIPLE’S FOLLOWS IN ONGC:

1. Corporate information
Oil and Natural Gas Corporation Limited ( ONGC or ‘the Company') is a
public limited company domiciled and incorporated in India. The Company's
shares are listed and traded on Stock Exchanges in India. The Company is
engaged in exploration, development and production of crude oil and natural
gas.

2. Significant Accounting Policies

a. Basis of preparation

The financial statements are prepared under the historical cost convention on
accrual basis in accordance with the Generally Accepted Accounting
Principles (GAAP) applicable in India, applying the Successful Efforts Method
as per the Guidance Note on Accounting for Oil and Gas Producing Activities
(Revised 2013) issued by the Institute of Chartered Accountants of India and
the applicable Accounting Standards as prescribed under the provisions of
the Companies Act, 2013 read with the Companies (Accounts) Rules. 2014.

As the operating cycle cannot be identified in normal course due to the

special nature of industry, the same has been assumed to have duration of 12
months. Accordingly, all assets and liabilities have been classified as current
or non-current as per the Company''''s operating cycle and other criteria set
out in the Schedule III to the Companies Act. 2013. The financial statements
are presented in Indian Rupees and all values are rounded off to the nearest
million unless otherwise stated.

b. Use of Estimates

The preparation of financial statements requires estimates and assumptions

which affect the reported amount of assets, liabilities, revenues and expenses
of the reporting period. Management believes that these estimates and
assumptions are reasonable and prudent. The difference between the actual
results and estimates are recognized in the period in which the results are
known or materialized.

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c. Deferred Government Grant

Government Grant related to acquisition of Fixed Assets is treated as

Deferred Government Grant'''' and an amount equal to proportionate
depreciation of such assets is credited to Statement of Profit and Loss.

d. Fixed Assets

d.1 Tangible Assets

d.1.1 Fixed assets are stated at historical cost less accumulated

depreciation and impairment. Fixed assets received as donations/gifts are
capitalized at assessed values with corresponding credit taken to Capital
Reserve. Parts of an item of fixed asset having different useful lives and
material value are accounted for as separate components of the fixed
asset.

d.1.2 All costs, net of applicable tax credits, relating to acquisition of fixed
assets till the time of bringing the assets to working condition for intended
use are capitalized.

d.2 Intangible Assets

Intangible assets are stated at cost of acquisition, net of applicable tax

credits, less accumulated amortization and impairment.

e. Exploration, Development and Production Costs e.1 Pre-acquisition cost

Expenditure incurred before obtaining the right(s) to explore, develop and

produce oil and gas are expensed as and when incurred.

e.2 Acquisition Cost

Acquisition costs of an oil and gas property are costs related to right to
acquire mineral interest and are accounted as follows:-Exploration and
Development stage:

Acquisition cost relating to projects under exploration or developments are

Page | 36
 initially accounted as exploration or developments wells in progress
respectively. Such costs are capitalized by transferring to Oil & Gas
Assets when a well is ready to commence commercial production. In case
of abandonment/ relinquishment, such costs are written off.

Production stage:

Acquisition costs of a producing oil and gas property are capitalized as

proved property acquisition cost under Oil & Gas Assets and amortized
using the unit of production method over proved reserves of underlying
asset.

e.3 Survey Cost

Cost of Survey and prospecting activities conducted in the search of oil

and gas are expensed as exploration cost in the year in which these are
incurred.

e.4 Exploratory Wells in Progress

e.4.1 All exploration costs incurred in drilling and equipping exploratory

and appraisal wells, cost of drilling exploratory type stratigraphic test wells
are initially capitalized as Exploratory Wells in Progress till the time these
are either transferred to Oil & Gas Assets on completion as per note
no.2.f.2 or expensed as exploration cost (including allocated depreciation)
as and when determined to be dry or of no further use, as the case may
be.

e.4.2 Costs of exploratory wells are not carried over unless it could be
reasonably demonstrated that there are indications of sufficient quantity of
reserves and sufficient progress is being made in assessing the reserves
and the economic and operating viability of the project. All such carried
over costs are subject to review for impairment as per note no.2.n.8.

e.5 Development Wells in Progress

All costs relating to Development Wells are initially capitalized as

‘Development Wells in Progress’ and transferred to ‘Oil & Gas Assets’ on
‘completion" as per note no.2.f.2.

f. Oil & Gas Assets

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 f.1 Oil & Gas Assets are stated at historical cost less accumulated
depletion and impairment. These are created in respect of an area/field
having proved developed oil and gas reserves, when the well in the
area/field is ready to commence commercial production.

f.2 Cost of temporary occupation of land, successful exploratory wells, all

development wells, depreciation on related equipment, facilities and
estimated future abandonment costs are capitalized and reflected as Oil &
Gas Assets.

g. Production Costs

Production costs include pre-well head and post well head expenses
including depreciation and applicable operating costs of support
equipment and facilities.

h. Sidetracking

h.1 In case of an exploratory well. Cost of Side-tracking is treated in the

same manner as the cost incurred on a new exploratory well. The cost of
abandoned portion of side tracked exploratory wells is expensed as
Exploratory Well Cost written off.''''
h.2 In case of development wells, the entire cost of abandoned portion
and side tracking is capitalized.

h.3 In case of Producing wells, if the side-tracking results in additional

proved developed oil and gas reserves or increases the future economic
benefits there from beyond previously assessed standard of performance,
the cost incurred on side tracking is capitalized, whereas the cost of
abandoned portion of the well is depleted in the normal way. Otherwise,
the cost of side tracking is expensed as ''''Work over Expenditure.''''

i. Abandonment Cost

i.1 The full eventual estimated liability towards costs relating to

dismantling, abandoning and restoring well sites and allied facilities are
recognized in respective assets when the well is complete / facilities are
installed. The abandonment cost on dry well is expensed as exploratory
well cost.

1.2 Provision for abandonment cost is updated based on the technical

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 assessment at current costs. The effects of changes resulting from
revisions to estimated liability are adjusted to the carrying amount of the
related Asset and considered for depletion on a prospective basis.

1.3 Provision for abandonment cost in respect of Jointly Controlled Assets

is considered as per par titivating interest of the company on the basis of
estimates approved by the respective Operating Committee. Wherever the
same are not approved by the respective operating committee,
abandonment cost estimates of the company as per i.2 above are
considered.

j. Jointly Controlled Assets

The Company has Joint Ventures in the nature of Production Sharing

Contracts (PSC) with the Government of India and various body corporate
for exploration, development and production activities.

J.1 The company''''s share in the assets and liabilities along with
attributable income and expenditure of the Jointly Controlled Assets is
merged on line by line basis with the similar items in the Financial
Statements of the Company and adjusted for depreciation, depletion,
survey, dry wells, abandonment, impairment and sidetracking in
accordance with the accounting policies of the Company.

j.2 Disposal of Interest

Gain or loss on sale of interest in a cost center, is recognized in the

statement of profit and loss, except that no gain is recognized at the time
of such sale if substantial uncertainty exists about the recovery of the
costs applicable to the retained interest or if the company has substantial
obligation for future performance. The gain in such situation is treated as
recovery of cost related to that cost center.

j.3 The hydrocarbon reserves in such areas are taken in proportion to the
participating interest of the Company.

k. Investments

Long-term investments are valued at cost. Provision is made for any

diminution, other than temporary y. in the value of such investments.

Current Investments are valued at lower of cost and fair value.

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 I. Inventories

1.1 Finished goods (other than Sulphur) and stock in pipelines/tanks and
carbon credits are valued at cost or net realizable value whichever is
lower. Cost of finished goods is determined on absorption costing method.
Sulphur is valued at net realizable value. The value of inventories includes
excise duty, royalty (wherever applicable) but excludes Cess.

1.2 Crude oil in semi-finished condition at Group Gathering Stations is

valued at cost on absorption costing method or net realizable value
whichever is lower. Crude oil in unfinished condition in flow lines up to
Group Gathering Stations/platform and Natural gas is not valued as it is
not stored.

1.3 Inventory of stores and spare parts is valued at weighted average cost
or net realizable value, whichever is lower. Provisions are made for
obsolete and non-moving inventories.

1.4 Unserviceable and scrap items, when determined, are valued at

estimated net realizable value.

m. Revenue Recognition

m.1 Revenue from sale of products is recognized on transfer of custody to

customers.

m.2 Sale of crude oil and gas (net of levies) produced from Wells in
Progress is deducted from expenditure on such wells.

m.3 Sales are inclusive of all statutory levies except Value Added Tax
(VAT). Any retrospective revision in prices is accounted for in the year of
such revision.

m.4 Revenue in respect of the following is recognized when there is a

reasonable certainty regarding ultimate collection:

a. Short lifted quantity of gas

b. Surplus from Gas Pool Account

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 c. Interest on delayed realization from customers

d. Liquidated damages from contractors/ suppliers

m.5 Dividend income is recognized when right to receive is established.

Interest income is recognized on time proportion basis taking into account
the amount outstanding and rate applicable.

n. Depreciation, Depletion, Amortization and Impairment Depreciation

n.1 Depreciation on fixed assets (other than Oil & Gas assets) is provided
for under the written down value method over the useful life of Asset as
specified in Schedule II to the Companies Act. 2013 except in case of
certain items of plant and equipment where useful life ranging from 3 to 25
years has been considered based on technical assessment by the
management which is lower than the useful life prescribed under schedule
II to the Companies Act 2013.

n.2 Depreciation on additions/deletions to fixed assets other than of Oil &

Gas Assets during the year is provided on pro rata basis with reference to
the date of additions/deletions except low value items not exceeding Rs,
5,000/- which are fully depreciated at the time of addition.

n.3 Depreciation on subsequent expenditure on fixed assets other than of

Oil & Gas Assets arising on account of capital improvement or other
factors is provided for prospectively over the remaining useful life.

n.4 Depreciation on refurbished/revamped assets other than of Oil & Gas

Assets which are capitalized separately is provided for over the
reassessed useful life, which is not more than the life specified in
Schedule II to the Companies Act. 2013.

n.5 Depreciation on fixed assets (other than Oil & Gas assets) including
support equipment and facilities used for exploratory/ development drilling
is initially capitalized as part of drilling cost and expensed/depleted as
stated in Note no. 2. f and

2.n.6. Depreciation on equipment/ assets deployed

for survey activities is charged to the Statement of Profit and Loss. n.6
Depletion

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Oil & Gas Assets are depleted using the "Unit of Production Method”. The
rate of depletion is computed with reference to an area covered by
individual lease/license/asset/amortization base by considering the proved
developed reserves and related capital costs incurred including estimated
future abandonment costs net of salvage value. Acquisition cost of Oil &
Gas Assets is depleted by considering the proved reserves. These
reserves are estimated annually by the Reserve Estimates Committee of
the Company, which follows the International Reservoir Engineering
Procedures.

n.7 Amortization

Leasehold land is amortized over the lease period except perpetual

leases.

Intangible assets are amortized on Straight Line Method (SLM) over the
useful life not exceeding five years from the date of capitalization. n.8
Impairment Oil & Gas Assets, Development Wells in Progress (DWIP),
and Fixed Assets (including Capital Works in Progress) of a "Cash
Generating Unit" (CGU) are reviewed for impairment at each Balance
Sheet date. In case, events and circumstances Indicate any impairment,
recoverable amount of these assets is determined. An impairment loss is
recognized, whenever the carrying amount of such assets exceeds the
recoverable amount. The recoverable amount is higher of its ‘value in
use'''' or ''''net selling price'''' (if determinable). In assessing value in use,
the estimated future cash flows from the use of assets and from its
disposal at the end of its useful life are discounted to their present value at
appropriate rate.

An impairment loss is reversed if there is increase in the recoverable

amount and such loss either no longer exists or has decreased.
Impairment loss / reversal thereof is adjusted to the carrying value of the
respective assets, which in case of a CGU, is allocated to its assets on a
pro-rata basis. Subsequent to impairment, depreciation is provided on the
revised carrying value of the assets over the remaining useful life.

Impairment testing during exploratory phase is earned out at area level

when further exploration activities are not planned in near future or when
sufficient data exists to indicate that although a development in the
specific area is likely to proceed, the carrying amount of the exploration
asset is unlikely to be recovered in full from successful development or by
sale. Impairment is reversed subsequently, to the extent that conditions for
impairment are no longer present,

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o. Foreign Exchange Transactions

Transactions in foreign currencies are accounted for at the exchange rate

prevailing on the date of the transaction. Foreign currency monetary
assets and liabilities at the year-end are translated using mean exchange
rate prevailing on the last day of the financial year. The loss or gain
thereon and also the exchange differences on settlement of the foreign
currency transactions during the year are recognized as income or
expense and adjusted to the Statement of Profit and Loss.

p. Employee Benefits

p.1 All short term employee benefits are recognized at their undiscounted
amount in the accounting period in which they are incurred, p.2 Employee
Benefit under defined contribution plans comprising provident fund etc. is
recognized based on the undiscounted amount of obligations of the
company to contribute to the plan. The same is paid to a fund
administered through a separate trust, p.3 Employee benefits under
defined benefit plans comprising of gratuity, leave encashment,
compensated absences, post-retirement medical benefits and other
terminal benefits are recognized based on the present value of defined
benefit obligation, which is computed on the basis of actuarial valuation
using the Projected Unit Credit Method. Actuarial Liability in excess of
respective plan assets is recognized during the year. Actuarial gains and
losses in respect of post-employment and other long-term benefits are
recognized during the year. The Company contributes all ascertained
liabilities with respect to Gratuity and leave/compensated absences to the
ONGC''''s Gratuity Fund Trust (OGFT) and Life Insurance Corporation of
India (LICI) respectively. Other defined benefit schemes are unfunded.

q. Voluntary Retirement Scheme

Expenditure on Voluntary Retirement Scheme (VRS) is charged to the

Statement of Profit and Loss when incurred.

r. General Administrative Expenses

General administrative expenses which are directly attributable are

allocated to activities and the balance is charged to Statement of Profit
and Loss.

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s. Insurance claims

The company accounts for insurance claims are as under

s.1 In case of total loss of asset, by transferring either the carrying cost of
the relevant asset or insurance value (subject to deductibles), whichever is
lower under the head "Claims Recoverable-insurance" on intimation to
Insurer. In case insurance claim is less than carrying cost, the difference is
charged to Statement of Profit and Loss. s.2 In case of partial or other
losses, expenditure incurred/payments made to put such assets back into
use, to meet third party or other liabilities (less policy deductibles) if any,
are accounted for as ‘Claims Recoverable-insurance''''. Insurance Policy
deductibles are expensed in the year the corresponding expenditure is
incurred.

s.3 As and when claims are finally received from insurer, the difference, if
any, between Claims Recoverable-insurance and claims received is
adjusted to Statement of Profit and Loss.

t. Research Expenditure

Expenditure of capital nature are capitalized and expenses of Revenue

nature are charged to the Statement of Profit and Loss, as and when
incurred,

u. Taxes on Income

Provision for current tax is made as per the provisions of the Income Tax
Act. 1961. Deferred Tax Liability / Asset resulting from ‘timing difference’
between book profit and taxable profit is accounted for considering the tax
rate and laws that have been enacted or substantively enacted as on the
Balance Sheet date. Deferred Tax Asset is recognized and carried forward
only to the extent that there is reasonable certainty that such asset will be
realized in future.

v. Borrowing Costs

Borrowing Cost specifically identified to the acquisition or construction of

qualifying assets is capitalized as part of such assets. A qualifying asset is
one that necessarily takes substantial period of time to get ready for
intended use. All other borrowing costs are charged to the Statement of
Profit and Loss.

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w. Rig Days Costs

Rig movement costs are booked to the next location drilled/planned for
drilling. Abnormal Rig days'''' costs are considered as unallowable and
charged to the Statement of Profit and Loss,

x. Unamortized Expenditure

Dry docking charges of Rigs/ Multipurpose Supply Vessels (MSVs), Geo

Technical Vessels (GTVs). Well Stimulation Vessels, Offshore Supply
Vessels (OSVs), Rig/equipment mobilization expenses and other related
expenditures are amortized over the period of use not exceeding five
years and the balance is carried under head ‘Unamortized Expenditure" in
the Balance Sheet.

y. Provisions, Contingent Liabilities and Contingent Assets

Provisions involving substantial degree of estimation in measurement are

recognized when there is a present obligation as a result of past events
and it is probable that there will be an outflow of resources embodying
economic benefits. Contingent Assets are neither recognized nor
disclosed in the financial statements. Contingent liabilities are disclosed by
way of notes to accounts.

z. Earnings per Share

Basic earnings per share are computed by dividing the net profit after tax
by the weighted average number of equity shares outstanding during the
period. Diluted earnings per share is computed by dividing the profit after
tax by the weighted average number of equity shares considered for
deriving basic earnings per share and also the weighted average number
of equity shares that could have been issued upon conversion of all
dilutive potential equity shares, aa. Cash Flow Statement

Cash flows are reported using the indirect method, where by profit before
tax is adjusted for the effects of transactions of a non-cash nature, any
deferrals or accruals of past or future operating cash receipts or payments
and item of income or expenses associated with investing or financing
cash flows. The cash flows from operating, investing and financing
activities of the Company are segregated.

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The above points were done by:

Points Name

1 Khanpurwala Murtaza AliAsgar

2 Kavungal Sonu Thomas

3 Mithaiwala Sagar Hemal

4 Jariwala Shivkumar Kirankumar

5 Jani Yash Tarunbhai

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