Chapter 8 Revenue

8/12/2019 Chapter 8 Revenue

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Chapter 8 Revenue and Accounts Receivable


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Table of Contents

8.1 Introduction ..................................................................................................................................... 4

8.2 Key Definitions .......................................................... ................................................................. ..... 5

8.2.1 Anchor........................................................................................................................................... 5

8.2.2 Bilateral Tenancies...................................................................................................................... 5

8.2.3 Billing Trigger Date........................................................... ............................................................ 5

8.2.4 Finance Lease............................................................................................................................... 5

8.2.5 Inception of Lease........................................................................................................................ 5

8.2.6 Lease............................................................ ................................................................. ................. 5

8.2.7 Manual Ready For Active Installation Date................................................................ ................. 5

8.2.8 Operating lease............................................................................................................................. 5

8.2.9 Pass through................................................................................................................................. 5

8.2.10 Ready For Active Installation Date......................................................... ..................................... 5

8.2.11 Ready For Installation Date......................................................... ................................................. 5

8.2.12 Ready For Service Date............................................................... ................................................. 6

8.2.13 Revenue......................................................................................................................................... 6

8.2.14 Revenue Equalization Reserve............................................................... ..................................... 6

8.2.15 Total Rate...................................................................................................................................... 6

8.3 Accounting Policies .......................................................... ............................................................ 7

8.4 Detailed Accounting Guidelines ............................................................. ..................................... 8

8.4.1 Billing............................................................................................................................................. 8

8.4.2 Process of Billing.......................................................................................................................... 9

8.4.3 Accounting for Rental Income................................................................ ....................................12

8.4.4 Accounting for Exit Penalty........................................................................................................15

8.4.5 Accounting for Interest Income.............................................................. ....................................16

8.4.6 Accounting for Energy- Power and Fuel........................................................... .........................18

8.4.7 Absorbed Energy.........................................................................................................................21

8.4.8 Accounting for Security Deposits..............................................................................................23

8.4.9 Accounting for Safety Signage............................................................... ....................................25

8.4.10 Accounting for Commission Charge................................................................ ..........................26

8.4.11 Accounting for Collection...........................................................................................................27

8.4.12 Credit Note ...................................................................................................................................29

8.4.13 Debit Note.....................................................................................................................................31

8.4.14 Provision for Revenue Reversal............................................................. ....................................31

8.4.15 Doubtful Debtors............................................................... ...........................................................32

8.4.16 Operating Lease................................................................ ...........................................................34

8.5 Disclosure Requirements ............................................................ ................................................38

8.6 Key GAAP Differences ................................................................ ................................................39

8.7 Associated Reference Material ............................................................... ....................................41

8.8 Appendices ............................................................. ................................................................. ....41

8.9 General Ledger Code ................................................................... ................................................42


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Revenue and Accounts Receivable

CHAPTER 8


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8.1 Introduction

This Chapter is applicable to Indus Towers Limited (herein referred to as the Company or Entity) and is

meant to help the Accounts Team in accounting for transactions relating to Revenue.

This Chapter defines key accounting terms that are commonly used whilst accounting for Revenue. The

purpose of defining these key accounting terms is to ensure consistency and uniformity in understanding as

well as their usage across Circles and Corporate Office. The Chapter also defines the group accounting

policy pertaining to Revenue as well as the practical accounting guidelines for application of the policy to

specific accounting events. The Chapter also provides detailed guidance to specific accounting events

through the use of examples along with accounting entries. The detailed accounting guidelines also contain

reference to appendices that have formats for use. All relevant accounting disclosures are highlighted to

facilitate financial reporting. All key GAAP differences have been documented for reference along with details

of other reference materials for further guidance and support. Further, all applicable general ledger codes

along with description are documented for ease of accounting.


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8.2 Key Definitions

8.2.1 Anchor

Anchor is an operator for whom site is built initially.

8.2.2 Bilateral Tenancies

Bilateral tenancies are those tenancies where billing with respect to operator is done to anchor

as the anchor has direct agreement with the operator

8.2.3 Billing Trigger Date

Billing trigger date denotes the date from which the operator is billed for the first time. Billing trigger date is

Manual Ready for Active Installation Date (Manual RFAI Date) for rental billing and Ready for Service Date

(RFS Date) for energy billing.

8.2.4 Finance Lease

A finance lease is a lease that transfers substantially all the risks and rewards incidental to ownership of an

asset.

8.2.5 Inception of Lease

The inception of lease is earlier of the date of lease agreement and the date of commitment by the parties to

the principal provisions of the lease.

8.2.6 Lease

An arrangement whereby the lessor conveys to the lessee, in return for a payment or series of payments, theright to use an asset for an agreed period of time is called as lease.

8.2.7 Manual Ready For Active Installation Date

Manual Ready for Active Installation Date (Manual RFAI Date) denotes the date on which the operator

accepts the site as being ready for installation of active infrastructure by way of a formal sign off.

8.2.8 Operating lease

An operating lease is any lease other than a finance lease.

8.2.9 Pass through

Pass through is a methodology of billing wherein the expenditure incurred is recovered from the operators on

an as and when basis. Examples: Energy cost, safety signage cost etc.

8.2.10 Ready For Active Installation Date

Ready for Active Installation Date (RFAI Date) denotes the date of handover of site to the operator for

installation of active infrastructure.

8.2.11 Ready For Installation Date

Ready for Installation Date (RFS Date)denotes the date of handover of site to the respective department for

installation of passive infrastructure


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8.2.12 Ready For Service Date

Ready for Service Date (RFS Date) denotes the date on which both passive and active infrastructure has

been installed and the site is ready for servicing.

8.2.13 Revenue

Revenue is the gross inflow of cash, receivables or other consideration arising in the course of the ordinary

activities of an enterprise from the sale of goods, from the rendering of services, and from the use by others

of enterprise resources yielding interest, royalties and dividends. Revenue is measured by the charges made

to customers or clients for goods supplied and services rendered to them and by the charges and rewards

arising from the use of resources by them. In an agency relationship, the revenue is the amount of

commission and not the gross inflow of cash, receivables or other considerations.

8.2.14 Revenue Equalization Reserve

Lease income under an operating lease is to be recognised in the statement of profit and loss on a straight

line basis over the lease term unless another systematic basis is more representative of the time pattern in

which benefit is derived from the use of the leased asset is diminished. Difference between the actual income

and income on a straight line basis is recognised in revenue equalization reserve.

8.2.15 Total Rate

Applicable standard rate as increased by applicable additional charges as are set out in the master service

agreement shall be the total rate in respect of a site. The total rate shall be increased on an annual basis

from the first anniversary of the date of the service contract. The amount by which the total rate shall be

increased is called as the escalation rate. Escalation rate is applied on the total rate paid in the last month of

the previous year of the service contract.


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8.3 Accounting Policies

Service Income from provision of telecommunication network passive infrastructure and for use of sites is

recognized on an accrual basis as per the contractual terms with the telecom operators, net of service

tax. Revenue is recognized as and when services are rendered, Service Income is shown net of recoveryof power and fuel charges from customers. Fixed escalation clauses present in the customer contracts

are recognized on a straight line basis over term of the applicable contracts.

Interest income is recognized on a time proportion basis taking into account the amount outstanding and

the rate applicable.

Dividend or other income from mutual funds investment is recognized on declaration of dividend on

redemption, as the case may be.

Assets given operating lease by the company are shown in the balance sheet under fixed assets anddepreciated on a basis consistent with the depreciation policy of the company. The lease income is

recognized in the Profit and Loss account on a straight-line basis over the lease term. Lease payments

under operating lease are recognized as an expense in the Profit and Loss account on a straight line

basis over the lease term.


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8.4 Detailed Accounting Guidelines

8.4.1 Billing

*Credit Note is issued for revenue reversals

** For detailed accounting guidelines on rates and taxes, please refer to Expenses and Accounts Payable

Chapter

*** For detailed accounting guidelines on solar billing, please refer to Expenses and Accounts Payable

Chapter

Types of Billing

Fixed cost billing

Fuel

TowerConsolidation

Standard Rent &Premium Charges

Security depositBilling

Rates & Taxes**

Interest

Safety Signage

Exit Penalty

Electricity

Pass through billing

CommissionCharges

Debit Note

Advance Billing(Billed Revenue)

Arrear Billing(Unbilled Revenue)

Cycle of Billing

Loading Charges

Billing

Energy Billing(Service Revenue)

Other BillingRental Billing

Solar Billing***

Energy Rental


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8.4.2 Process of Billing

Billing Trigger Date Before January 1st,2010 Post January 1

st,2010

Rental Billing Target Date or Ready for Active

Installation date whichever is earlier

Manual Ready for Active

Installation Date

Energy Billing Target Date or Ready for ActiveInstallation date whichever is earlier

Ready for Service Date

Advance Billing / Billing in Arrears

Operators are billed either in advance or in arrears in accordance with the master service agreement drawn

for each site. If operators are billed in advance, revenue generated is recognised as billed revenue in the

books of accounts. However in case of arrear billing, revenue is recognised as unbilled revenue in the books

of accounts and reversed on the billing date to account for billed revenue. Unbilled revenue is recognised on

a systematic basis by the Billing Team by the way of prorating the billed amount in previous period with the

number of days for which arrears are to be recognised. For the new tenancies added during a month arrear

billing is done which is be calculated based on Number of Days*Billing rate.

In case where the energy cost are to be recovered from the operator through a pass through model (and

where actual bill from electricity board is not received on a month on month basis), a provision for expense is

created along with an accrual for recovery of such energy cost from the operator (Known as Pass-Through

Unbilled Revenue)

At the time of actual billing to the operator, unbilled revenue is reversed and billed revenue is accounted for.

Example:

Alpha Co., a telecom tower company has provided telecom tower sites on rent to Beta Ltd at a standard rate

of Rs.40,000 per month and to Gamma Ltd at a standard rate of Rs. 30,000 per month. Beta Ltd is billed on

an advance basis at the beginning of the month however Gamma Ltd. has entered into an agreement

wherein the company will be billed at the end of service month (i.e. arrear billing).

Account ing Entry :

a. On invoice being sent to Beta Ltd. in the beginning of the month- Advance billing

Account Code Account Head Debit Credit

250010 Sundry Debtors - Indus Billing 45,200

500002 Operational Revenue (Indus)Standard 40,000

330015 Service Tax Payable 4,000

330016 Service Tax-Education Cess Payable Billing 800

330017 Service Tax-Higher Education Cess Payable-Billing 400

b. On accrual of rental income from Gamma Ltd. at the end of the month- Arrear Billing


290501 Unbilled Debtors (Indus)-Rental 33,900






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c. On reversal of arrears at the beginning of next month






290501 Unbilled Debtors (Indus)-Rental 33,900

d. On invoice being sent to Gamma Ltd. at the end of the month








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Process Flow for Billing*

*For any further details on the process flow, please refer to the document, Process flow on Billing availablewith the Billing Team.

Sales andCollectionTeam

Department

MajorActivity Process Flow for Billing

BillingInformationTechnologyTeam

Billing FinanceTeam

RevenueTeam

RevenueTeam

Run Billing based on master service agreementlogics defined in Billing System and static datainputs supported by iSmart Cube. Staging tablecreated as an excel sheet to reflect billingdetails.

Billing IT Team uploads the Invoices on Oraclepost validation by Revenue Team

Validate invoices for logical components of

Master Service Agreement and billing checklist.An invoice register is created to reflect Circlewise invoicing further segregated in operators ateach site.

Receive Staging Table from Billing IT Team andInvoice Register from Billing Finance Team forcross checking and validation

Run Create Accounting Program on Oracle toautomatically generate accounting entries

BillingInformationTechnologyTeam

Run a program on Oracle to check if all invoiceshave been uploaded and perform reconciliationfunctions in case of gap

Send invoices to operators post validation byBilling Team.

Finance ERPTeam


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8.4.3 Accounting for Rental Income

Rental income is accounted for in accordance with the master service agreements wherein following

components are aggregated to arrive at a total rate chargeable to the operator.

Applicable Charges

1. Standard Rent

Standard rent is the fixed amount of rent charged in accordance with the rate card specified under charges in

master service agreement drawn with the operator. Standard rates differ according to the type of towers (i.e.

roof top towers and ground based tower). Standard rates vary with the increase in share count at each site.

Share count at a site may vary between one operator to four operators.

2. Premium Sites

Premium sites are the sites located in premium Circles viz. Mumbai Circle, Delhi Circle, Chennai Circle,

Kolkata Circle and Bangalore Circle. A premium amounting to a percentage of the applicable standard rate is

charged to the operator. Premium amount varies between ten percent and twenty five percent depending

upon the location of the site. Example: Sites located in Delhi, the standard rate shall be increased by twenty

percent of standard rate and will be charged as location premium.

3. Rental Premium

Rental premium is the amount charged to the operator where the rent paid to landlord is higher than the

threshold limit. The standard rate payable by the operator for the site is further increased by 1.1(A-F)/T

wherein A is the actual rent paid by the company to the landlord of the site, F is the threshold rent payable

by the company to the landlord at the site and T is the number of operator at the site. This rate becomes the

base rate for calculating other components of rent based on such base rate. Where rental premium is not

applicable, standard rate is considered as base rate.

4. Tenure Premium

Tenure Premium is the amount charged to the operators entering into an agreement for less than ten years.

A fixed percentage of the base rate is charged as tenure premium. Example: For an agreement of seven

years or more but less than ten years, a premium at the rate of ten percent on base rate is charged to the

operator called as tenure premium.

5. Total Rate

Total rate is applicable standard rate as increased by applicable additional charges as set out in the master

service agreements in respect of a site. The total rate shall be increased on an annual basis from the first

anniversary of the date of the service contract. The amount by which the total rate shall be increased is called

as the escalation rate. Escalation rate is applied on the total rate paid/payable in the last month of theprevious year of the service contract.

Additional Charges

1. Loading Charges

Loading charges is the charges payable in relation to a site where the operators configuration exceeds the

standard configuration set out by the company in the master service agreement. Such charges may be

related to the following factors:

Number of radio antennae (excluding the MW antennae) on the tower

Number of MW antennae on the tower

Height of the operator site highest antennae on the tower (applicable only in case of ground based

tower)


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Weight of the tower

Wind factor of the site location

Power rating of the operators equipment

Floor space occupied by the operator equipment

Additional transmission rack space

Provision of passive cooling material

Non EB sites (Sites without electricity board/electricity authority connection) Transmission hub sites

Electrification premium

2. Volume Discount

Volume discount is the discount provided to operator utilising more than five thousand towers. This discount

is provided on the total amount invoiced to the operator basis the slabs indicated below.

Total Number of Towers Discount on total invoiced amount

5,000 to 10,000 2.0 percent

10,001 to 15,000 2.5 percent

15,001 to 20,000 3.0 percent20,001 to 25,000 4.0 percent

More Than 25,000 5.0 percent

3. Platinum/Gold/ Silver Premium Charges

Platinum/ Gold/ Silver premium charge is the amount charged in respect of sites located at premium locations

in various cities as classified by the company. Premium is charged at the rate of twenty five percent, fifty

percent and seventy five percent on the total site rental (before volume discount). This premium is recorded in

the books of accounts as PBC Premium Charges. Presently basis understanding with customers these

charges are not billable

4. Tower Consolidation Charges

Tower consolidation charge is the amount charged from the operators wherein operators at various sites at

nearby locations are consolidated at one tower in shared tenancies. The amount charged as consolidation

charge is the average rate of old rate and new rate as reduced by new rate. Tower consolidation charge is

recovered from the operators till the time another operator is added to the tower. Tower consolidation results

in benefit for the company, in terms of reduced energy and maintenance cost and to the operators by way of

reduced shared rental cost.

5. High Rental Clause

In respect of sites where lease rent/license fee is increased due to further sharing of sites by the landlord, the

company ensures that no such increase in lease rent/license fee payable to landlords results in additional

financial burden on the existing operators and the company takes a call on case to case basis i.e. either the

new operator bears the entire increase or the company shares the additional cost with the new operator.

Note: For detailed explanation on each component, please refer to master service agreement.

Example:

Alpha Co., a telecom infrastructure company has given a telecom tower site on rent to Beta Ltd. for a

standard rental of Rs. 30,000 per month. Additional charges as per master service agreement are location

premium at the rate of twenty percent of standard rent, rental premium of Rs. 2,200, Loading charges total to

Rs. 12,000, Electricity Premium of Rs. 4,000 and PBC premium of Rs. 2,000. A tower consolidation charge of

Rs. 20,000 has also been levied. Since Beta Ltd. has more than 5000 sites and hence eligible for a volume

discount of five percent on the standard rent.Calculation of Rental Premium


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1.1*(rent paid to landlord-threshold rent) = 1.1*(10000-8000) = Rs. 2,200

Account ing Entry :

a. On invoice being sent to the operator

*Automated Entry



500012 Volume DiscountIndus 1,500


500004 Operational Revenue (Indus) - Location Premium 6,000

500007 Operational RevenueRental Premium 2,200

500010 Operational Revenue (Indus) - Loading Charges 12,000

500034 Operational Revenue (Indus)Electricity Premium 4,000

500033 Operational Revenue (Indus)PBC Premium 2,000

500037 Revenue - Tower consolidation 20,000


330016 Service Tax-Education Cess Payable Billing 1,494


b. On collection from operator


200*** Bank 75,970

290*** TDS Deducted at Source-Others 8,441


General Guidance

When the program Create Accounting is run by the Finance ERP Team, accounting entries are created

automatically.

For recording of liability against service tax payable and its payment through bank or adjustment against

CENVAT credit, please refer to Liabilities and Provisions Chapter.

In case the collection cannot be identified against a particular invoice, same is classified as Receipt On

Account and applied against invoices in subsequent months.


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8.4.4 Accounting for Exit Penalty

In case of service contracts drawn for more than seven years: If the operator terminates the service

contract prior to completion of its term, an exit penalty of higher of the following is levied on the operator

provided all applicable payments for a period of five years have already been made:

Thirty five percent of the unpaid amount as per the term of the service contract

The total rate applicable at the time of termination for a period of twelve months

In case where contract is drawn for more than 7 years and operator has completed less than 5years then

exit penalty is computed as the total of complete billing for 5years and for remaining 2 years 35% of the

unpaid amount. j

In case of service contracts drawn for less than seven years: If the operator terminates the service

contract prior to expiration of its term, provided an exit penalty payment equivalent to entire unpaid

amount for the remainder of the term.

The consolidation of two or more operators at a site into a single operator through any merger,acquisition, scheme of arrangement etc., is considered as termination of the service contract in respect

of any operator that ceases to exist and an exit penalty is to be paid by the operator to the company.

At the time of termination, a provision is also created against the revenue recognized and at the time of

receiving actual payment against such exit penalty, provision is reversed. In cases where such penalty is

to be waived off, a credit note is issued for such waiver after taking due note for approval as per the

schedule of authority.

In case the customer withdraws from the site before RFAI date, a sales order withdrawal penalty is

charged as per the terms and conditions of master service agreement.

Example:

Alpha Ltd., a telecom infrastructure company entered into an agreement with Beta Ltd. to provide telecom

tower site on rent for a period of tenyears at a standard rent of Rs. 40,000. It was agreed upon the at the

time of vacation by operator, an exit penalty equivalent to outstanding rental charges for the remaining period

on the service contract will be charged. Beta Ltd. decided to vacate the tower site at the end of second year

and hence will be penalized in accordance with the calculation show below. However the operator agreed to

pay only an amount of Rs. 2,50,000 and was issued a credit note to waive off the balance penalty amount.

Outstanding Rent for the balance three years (f ive years of agreement)

Penal ty wi l l be charged at higher of the fol lowing :

1. 35 percent (Rs. 40,000 * 36 Months )= Rs. 5,04,000

2. Rs. 40,000 * 12 Months = Rs. 4,80,000

Total Penalty= Rs. 5,04,000

However the operator agreed to pay only an amount of Rs. 2,50,000 and the balance amount of Rs. 2,54,000

was agreed to be waived off.

Account ing Entry :

a. On penalty being levied on the operator- Entry passed in General Ledger


250010 Sundry Debtors - Indus Billing 5,04,000

500014 Operational Revenue (Indus)-Others 5,04,000


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b. On creation of provision for revenue- Entry passed in Accounts Receivable Module




c. On reversal of provision at the time of receiving part payment and waiver of balance penalty




d. On receiving payment for a part amount of Rs. 2,50,000


200*** Bank 2,50,000


e. On issue of Credit note for the balance amount of Rs. 2,54,000




8.4.5 Accounting for Interest Income

In accordance with master service agreement, if the operator fails to make payments till due date a monthly

interest at the prevailing prime lending rate of State Bank of India is charged to the operator.

Example:

Alpha Ltd., a telecom infrastructure company entered in an agreement with Beta Ltd. to provide telecom

tower site on rent for a standard rent of Rs. 40,000. Due date for payment is 20thof every month. An interest

equal to prevailing State Bank of India Prime Lending Rate will be charged from the operator post due date.

Beta Ltd. failed to make the payment on due date and instead paid on 20th

of the next month. During

negotiations with the company, Beta Ltd. agreed to pay only fifty percent of the penalty levied and balancefifty percent was decided to be waived off.

Current State Bank of India Prime Lending Rate is Five Percent.

Account ing Entry :

a. On accrual of interest post due date- Entry passed in General Ledger


250023 Sundry Debtor-Interest - Indus and IRU 2,000

530003 Interest IncomeOthers 2,000


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b. On creation of provision- Entry passed in Accounts Receivable Module




c. On reversal of provision at the time of receiving part payment and waiver of balance amount




d. On receipt of payment for fifty percent of penalty that is Rs. 1,000


200*** Bank 900

290*** TDS Deducted at Source-Others 2 100


e. On issue of credit note for waiver of balance fifty percent penalty





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8.4.6 Accounting for Energy- Power and Fuel

Expenditure on energy is recovered from the operators either through a fixed cost model or a pass-through

model. As per company practice, billing for current month is completed before 21stof the next month.

Pass Through Model - Pass-through recovery for energy is recognized as unbilled revenue till the time

actual recovery is made on the basis of actual payment to the electricity board.Fixed Cost Model- Fixed cost is recovered from the operators irrespective of the actual payment to the

electricity board. This model is further divided in the following manner:

Example:

Alpha Co., a telecom tower company has provided a telecom tower site on rent to Beta Ltd., Gamma Ltd. and

Zeta Ltd in Rajasthan Circle. As per the master service agreement the company has entered into a fixed cost

model (DC Meter Model) for power expenses. A fixed cost of Rs. 90,000 has been arrived on the basis of

Calculation (Part 1). Actual DC meter units used are 20 units for Beta Ltd, 30 Units for Gamma Ltd and 40

units for Zeta Ltd. The actual energy billing was for Rs. 100,000 and a fixed cost model loss of Rs. 10,000

was absorbed by the company.

1. Calculation for cost to be assigned to the site in Rajasthan Circle

Operator Share Count (A) 1 2 3 4 5

Amount to be charged (B) 40,000 35,000 30,000 25,000 20,000

Total Site Cost (A*B) 40,000 70,000 90,000 100,000 100,000

* Since current site has been provided to three operators, site cost will be fixed at Rs. 90,000

2. Calculation:

Total recoverable = Rs. 90,000Rs. 90,000 to be further allocated in the proportion of individual usage.

Fixed Cost Model

Fixed Cost Model- Tenancy Wise

Company has entered into an agreement with

the operators to recover energy cost as a fixed

amount from each operator. A fixed rate ischarged from the operators depending upon

the operators share count at each site.

Fixed rate charged is subject to change as per

the rates charged for electricity or fuel by the

authorities.

Circle Team obtains a sign off from every

operator at the end of each month on the

applicable rates of electricity and fuel for

adjusting fixed rate in accordance with the

applicable rates.

Fixed cost model may result in profit or loss

for the company depending upon the actual

payment made by the company to electricity

board.

Fixed Cost - DC Meter Model

In DC meter fixed cost model, the company

has entered into an agreement with the

operators to recover energy cost as a fixedcost assigned to each site.

This site wise fixed cost is further

apportioned amongst the operators basis

their actual usage determined with the help

of DC meter installed on site and

maintained by the Operation and

Maintenance Team at Circle Level. In case

of DC meter break down, an agreed upon

average ratio is taken for apportionment.

Circle Team obtains a sign off from everyoperator at the end of each month on the

charges to be apportioned amongst

operators.


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Operators Calculation Amount (Rs.)

Beta Ltd. 90,000* 20/90 20,000

Gamma Ltd. 90,000* 30/90 30,000

Zeta Ltd. 90,000* 40/90 40,000

Account ing Entry :

a. On invoice being forwarded to the operator

*Automated Entry


250012 Sundry DebtorsIndus Pass Through Billing 101,700

500040 Operational Revenue (Indus)Pass through 90,000




b. On collection from operator


200*** Bank 91,530

290*** TDS Deducted at Source-Others 10,170

250012 Sundry DebtorsIndus Pass Through Billing 101,700

c. On recognizing loss of Rs. 10,000 since payment to electricity board is for Rs. 1,00,000


600127 Profit/Loss on FCM billing 10,000

290503 Unbilled Debtors (Indus)-Passthrough 10,000

General Guidance

At the time of invoicing to operator, a program called create accounting is run through which accounting

entries are created.

In case of fixed cost model- tenancy wise, accounting remains same however the calculation will not be

needed to further allocate the cost between each operator.

Pass Through Model

In the pass through model, company recovers the energy cost from operators basis the actual expenses.

Fuel cost is billed basis the prevailing rate for the quantity consumed and electricity cost is billed basis

the actual payment on an as and when basis. For energy billing, DC meter ratio is used to apportion the

electricity cost amongst operators.

Operators are billed for energy cost post the company has incurred such cost. Unbilled revenue is

recognized against such expenses till the time actual bill is received for billing to the operators. Energy

team prepares the input data and sends to corporate Revenue Assurance Team for consolidation and

validation.


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Consolidated data is sent to Billing team for processing of data in a billing format. Billing Team sends it to

Billing IT Team for reconciliation with iSmart Cube. Reconciled data is used for billing to operators.

Example:

Alpha Co., a telecom infrastructure company has entered in an agreement with Beta Ltd., to provide telecom

towers on rent. It has been agreed upon that the energy cost will be passed on to Beta Ltd. Actual expenseson energy incurred during the month were Rs. 20,000 however the bill for such expenses from electricity

board was received after four months. A provision for an expense was created by Accounts Payable Team for

Rs. 40,000 for the current month and Rs. 30,000 for the next month. Basis provision created by accounts

payable team, unbilled revenue for energy cost recovery from Beta Ltd. was recognized.

Account ing Entry :

a. On creating a provision for electricity expenses at month end-Account Payable Team


600111 Electricity (Indus) - Cell Site 40,000

310030 AccrualElectricity 40,000

b. On recognizing unbilled passthrough energy revenue-at month end



500008 Operational Revenue (Indus)Passthrough 40,000

330015 Service tax payable- Billing 4,000



Note:Amount will be recognized on the basis of provision created for such expenses as reduced by the

amount already billed to the operator

c. On reversal of the provision in next month- Accounts Payable Team



600111/112 Electricity (Indus) - Cell Site 40,000

Note:Provision is reversed every month and reinstated with the amount remaining unbilled

d. On payment to the electricity board at the time of receipt of bill



310001 Trade Creditor Control accountOpex 20,000

e. On reversal of unbilled pass through revenue at the time of actual payment to electricity board





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f. On invoice being sent to the operator for recovery of energy (at the time of receipt of bill from

electricity board)


250012 Sundry Debtors - Indus Pass through Billing 22,600





Note:Operator is billed basis actual payment made by the company in accordance with the bill raised by

electricity board

g. On creating a provision for electricity expenses at month end-next month




h. On recognizing unbilled passthrough energy revenue-at month end







Note:Amount will be recognized on the basis of provision created for such expenses as reduced by the

amount already billed to the operator

8.4.7 Absorbed Energy

In the event wherein the operator disputes the pass through energy billing at the time of recovery of

energy expenses, the company absorbs the balance amount as expense and is referred to as absorbed

energy.

Provision is created as per provision methodology by the Corporate Revenue Team basis the actual

billing data of dispute Provision is created for unbilled revenue along with the pass through expenses on

a proportionate basis.


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Example:

Alpha Co., a telecom infrastructure company, has received an electricity bill for Rs. 90,000 and will be

recovered from the operators through the pass through model. However the operator Beta Ltd. has contested

the bill of Rs. 90,000 and is willing to pay only an amount of Rs. 76,000.

Account ing Entry :

a. On invoices sent to operators for recovery of electricity expenses




330015Service Tax Payable 9,000


330017 Service Tax-Higher Education Cess Payable-

900

b. On creation of provision for disputes raised of Rs. 14,000


600074 Absorbed energy 14,000

330015Service Tax Payable 1,400



140


c. On issue of credit note to the operator for adjustment






140


d. On reversal of provision







140

General Guidance:

Energy pass through provision is reviewed every month and reinstated with the increased or decreased

amount in accordance with the dispute summary sheet.


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8.4.8 Accounting for Security Deposits

At the time of entering into an agreement, a security deposit is obtained for both rental charges and

electricity charges.

Operators are billed for security deposit along with the first time billing for rental charges. Rental and

Energy deposits are taken as per terms of MSA applicable to respective customers.

For refund of security deposits, a credit note is issued to the operator. Credit notes are system generated

and approved as per the schedule of authority.

Example:

Alpha Co., a telecom infrastructure company has entered into an agreement with Beta Ltd. to provide their

telecom tower site on rent (Monthly rent is Rs. 40,000). A security deposit against rent has been obtained

from Beta Ltd. equivalent to two months rent. For energy, security deposit has been agreed upon as Rs.

50,000. Security deposit for rent is to be refunded after lapse of 18 months and energy security deposit is to

be refunded at the end of 36 months.

Account ing Entry :

a. On billing of security deposit for rent


250011 Sundry Debtors - Indus Security Deposit 80,000

320003 Security Deposit (Indus)Operators 80,000

b. On billing of security deposit for energy


250011 Sundry Debtors - Indus Security Deposit 50,000

320005 Energy Security Deposit (Indus)Operators 50,000

c. On refund of security deposit through AP Module




-200*** Bank 1,30,000

Note:In case the customer requires payment, it is routed through accounts payable module.

d. On refund of security deposit through credit note




250011 Sundry Debtors-Indus Security Deposit 1,30,000


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e. Adjusting sundry debtors- security deposit with billed debtors


250011 Sundry Debtors-Indus Security Deposit 130,000

250010 Sundry Debtors-Indus Billing 130,000


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8.4.9 Accounting for Safety Signage

At each telecom tower site, a statutory warning sign is to be installed in accordance with statutory

requirements for maintaining such sites. Cost of signage is recoverable from the operators who have taken

telecom tower site on rent. Accounting for safety signage recovery is done at Circle level.

Example:

Alpha Co., a telecom tower company has entered in an agreement with Beta Ltd., to provide telecom tower

site on rent for a standard rent of Rs. 40,000. A safety signage costing Rs. 1,500 will also be installed at the

site and cost of procuring such signage will be recoverable from the operator.

Account ing Entry :

a. On procurement of safety signage form the vendor


260039 Other Recoverable-Safety Signage (Unbilled) 1,350

280001 Service tax Receivable 150

310001 Trade Creditor Control Account-Opex 1,500

b. On payment to vendor for procurement of safety signage


310001 Trade Creditor Control Account-Opex 1,500

200*** Bank 1,500

c. On invoicing to operator for recovery


260040 Other Recoverable-Safety Signage (billed) 1,526

260039 Other Recoverable-Safety Signage (Unbilled) 1,350

330038 Service Tax -- Reimbursement Billing 135

330039 Education Cess on Service Tax -- Reimbursement 27

330040 Higher Education Cess on Service Tax -- 14

d. On collection of recoverable amount


200*** Bank 1,526

260040 Other Recoverable-Safety Signage (billed) 1,526


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8.4.10 Accounting for Commission Charge

In case where the company refers any business to Bharti Infratel, a commission at the rate of 7.5 percent is

charged to Bharti Infratel on the rent agreed upon between the tenant and Bharti Infratel. Sales and

Collection Team of the company forwards the business to Bharti Infratel and on successful implementation

and billing of referred business, Billing Team receives the rental details from Bharti Infratel. This agreement

is applicable only for business in four Circles i.e. Uttar Pradesh East Circle, Uttar Pradesh West Circle,Rajasthan Circle and Haryana Circle.

Example:

Alpha Co., a telecom infrastructure company has been approached by Beta Ltd. to obtain a telecom tower on

rent. Sales and Collection Team of Alpha Co. forwarded this requirement to Gamma Ltd., another telecom

infrastructure company. Gamma Ltd. successfully implemented business with Beta Ltd. and billed Beta Ltd.

for a standard rent of Rs. 40,000 per month. Alpha Co. has an agreement with Gamma Ltd. to charge a

commission at the rate of 7.5 percent from Gamma Ltd. for any business received by Gamma Ltd. through

Alpha Company. Commission = 40000 * 7.5 percent = Rs. 3,000

a. On accrual of commission charges


250010 Sundry Debtor- - Indus Billing 3,000

500039 Revenue Service Charges 3,000

b. On receipt of commission charges


200*** Bank 2,700

290*** TDS Deducted at Source-Others 2 300

250010 Sundry Debtor Indus Billing 3,000


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8.4.11 Accounting for Collection

On receipt of collection in bank account the amount is credited in the customer code. As and when the

receipts are identified against invoices an Apply action is run to apply receipts against the invoices. In case

where the invoices cannot be identified against the amount received than the same is transferred to Receipt-

Unapplied Customer Account. In case an advance is received from the customer, the same is credited to

Receipt-on- Account code.

Process flow for Collection

Department

MajorActivity Process Flow for Collection

TreasuryTeam

Sales andCollection

Team

RevenueTeam

Collection is received both in Circle and

corporate bank accounts

Any collection which cannot be identified againstan invoice, shall be accounted in Receipts-Unapplied Account

Treasury Team collates the collection data andprepares a file to reflect all the collection

Sales and Collection Team match the collection

against respective Circles and invoice for whichsuch collection has been made

For the collections which are relating to a Circle

are transferred to such Circle for accounting

In case collection is transferred to a wrong Circleother than the Circle for which payment wasmade, such collection is transferred to Inter UnitTransfer Account.


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Example:

Alpha Ltd., a telecom infrastructure company has entered in an agreement with Beta Ltd. to provide telecom

tower site on rent for a standard rent of Rs. 40,000 in two telecom Circles namely Rajasthan Circle and

Haryana Circle. A collection of Rs. 80,000 was received during the month pertaining to both the Circles and a

unidentified collection of Rs. 20,000. However collection of Rs. 80,000 was transferred to Rajasthan Circle

instead of Haryana Circle.

Account ing Entry :

a. On receipt of collection from Beta Ltd.


200*** Bank 90,000

290*** TDS Deducted at Source-Others 2 10,000

250010 Sundry Debtor- Indus Billing 100,000

b. On Transfer of Rs. 40,000 wrongly transferred to Rajasthan Circle to Inter Unit Transfer Account

(Entry passed at Rajasthan Circle Level)



260025 Inter- company Manual Payble/Receivble 36,000

Note: Proportionate Tax deducted at source of Rs. 4,000 will be accounted for at corporate level

c. On transfer from Inter Unit Transfer Account to Haryana Circle (Entry Passed at Haryana Circle

Level)


260025 Inter- company Manual Payble/Receivble 36,000


In the given example, Rs. 20,000 will be recognized in Receipt- unapplied customer account

Account Code Account Head

310011 Receipt - On Account

310012 Receipt - Unapplied Customer Account


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8.4.12 Credit Note

When a operator is billed in excess of the amount actually recoverable from them, a credit note is raised to

make the necessary adjustments. Adjustments are needed in case of:

Operators raising disputes on the billed amount for rental, power and other such charges

Revenue reversals

Rental charges being reduced in case an additional tenancy is added(In case of advance billing)

Waiver of late payment interest

Waiver of exit penalty

*The above mentioned list is an indicative list.

Example:


telecom sites on a standard rent of Rs 40,000 per month. In addition to standard Beta Ltd. raised a dispute on

the billing amount of Rs. 5,000 and was issued a credit note for adjustment of such amount in the future.

Account ing Entry :

a. On issue of credit note




General Guidance:

At the time of issuing a credit note, revenue against which credit note is being issued is reversed and if earliera provision was created for issuance of such credit note, provision is also reversed.


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Process Flow for Raising Credit Note

Department

MajorActivity Process Flow for Raising Credit Note

Sales andCollectionTeam

Disputes raised by customers are received bySales and Collection Team and are forwarded toCircle Revenue Team along with necessarydocumentation

Coordination with concerned departments likeOperation Team and Billing Team to resolve the

dispute and arrive at the acceptable amount ofdispute and upload request in Work FlowMana ement S stem

Process necessary corrections arrived at by theway of dispute processing and validatecalculation of credit note amount arrived at bycalculatin the acce table amount of dis ute

Validate the credit note request as per the

checklist for each dispute, for proper supportingdocuments, accuracy and requisite approvals.

CircleRevenueTeam

Approval is obtained basis the amount of creditnote from the schedule of authority and generatecredit note on the system

Schedule ofAuthority

RevenueAssurance

Team

Billing IT TeamGenerate PDF version of credit note for sendingthe same to the customer

CorporateRevenueAssuranceTeam

Consolidate all the Work Flow ManagementSystem requests from each Circle and compilebasis the invoice number. Send for accounting toRevenue Team through updation in InvoiceRegister


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8.4.13 Debit Note

When an operator is to be billed for additional charges other than the standard and premium charges for

which master service agreement logic on billing system does not exist, Sales and Collection Team raise a

debit note in the work flow management system. Debit note is validated and approved as per delegation of

authority (DOA) . This debit note is forwarded to the operator in lieu of an invoice.

Debit note may also be raised in the following circumstances resulting in under billing:

In case of erroneous billing for applicable charges

In case of revised sign off taken from the customer for revised billing trigger date

*Above mentioned list is not an exhaustive list.

Example:


telecom sites on rent. Beta Ltd. was issued a debit note of Rs. 40,000 against additional charges to be billed

for the month. Such charges did not form part of the principal invoice sent to operators.

Account ing Entry :

a. On issue of debit note



500002 Operational Revenue( Indus)-Standard 40,000


330016 Service Tax-Education Cess Payable Billing 800330017 Service Tax-Higher Education Cess Payable-Billing 400

8.4.14 Provision for Revenue Reversal

Provisions for joint venture customers is created basis the dispute bucket created at the circle level. Both

circle and operators share their working file for validation by the other to decide upon the amount of dispute.

Provision amount is decided upon basis the followings:

In case wherein the circle and operators have agreed upon the dispute amount basis validation of

working files circulated by the operators and circles, however credit note is pending, provision is created

for the amount agreed upon by both circle and operators.

In case wherein circle has agreed upon the dispute amount basis validation of working file shared by the

operators, however working file shared by the circle has not been confirmed by the operator, provision is

created for the amount basis the working file circulated by the circle.

In case wherein the working file is not available to arrive at the amount of provision, circles create

provision basis the past trends that is by the way of calculating average percentage of credit notes

issued during the past 12 months. In case circle is of thee view that the average percentage does not

reflect the correct amount, circle takes a higher or lower percentage basis justification.

In cases wherein, the debit note raised by the operator has been rejected by the company, however the

same has been accepted by the operators, no provision is required basis a written confirmation from theoperator.


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In cases wherein, the debit note has been rejected by both the company and the operator, provision is

created for the amount arrived at by deducting provision for disputes and debit note rejected by the

company and accepted by the operator from the disputed amount post issuance of credit note. (Dispute

amount post credit note less provision for disputes less debit note amount rejected by the company and

accepted by the operator.

Provision for non joint venture customers is created basis the ageing report extracted. Provision is created foritems with ageing over and above 105 days.

Example:


telecom tower site on rent at Rs. 40,000 per month. A dispute for Rs. 3,000 has been raised by the operator.

Basis justification for dispute, it was agreed upon that a provision for full amount of dispute is to be created.

However during dispute resolution, a credit note was issued for Rs. 2,000 only and the balance provision

needed to be reinstated. Next month a provision for dispute of Rs. 4,000 was needed as per justification

provide along with account reconciliation from Circle.

Account ing Entry :

a. On creation of provision


500029 Revenue Reversal-OPCO DN/CN 3,000


b. On issuing credit note for Rs. 2,000 as per dispute resolution




c. On reinstatement of revenue to the extent of credit note issued




d. On reinstatement of provision for next months disputes (Rs. 4,000-Rs. 1,000 provision from

earlier month)


500029 Revenue Reversal-OPCO DN/CN 3,000


8.4.15 Doubtful Debtors

Any classes of debtors outstanding for more than 105 days are classified as doubtful debts.

Debtor ageing is obtained by running a program called Customer Prorata Ageing. Corporate Revenue

runs this debtor ageing report at each month end. Provision for doubtful debt is calculated based

on the above report by Corporate Revenue team and then sent to respective circles.


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Debtors against which collection has been made and provision is no longer required are also identified

and provision for such debtors is reversed.

Provision for doubtful debtors will not be created for joint venture companies.

Example:


telecom tower site on rent at Rs. 40,000 per month. The Company failed to make the payment for 90 days

and did not make the payment at the end of 15 days of grace period as well.

Account ing Entry :

a. On invoice being sent to the customer



500002 Operational Revenue (Indus)Standard 40,000330015 Service Tax Payable 4,000



b. On classification of debtor as doubtful debts after a period of 105 days from the date of billing


680014 Provision for doubtful debts 45,200

340551 General Provision - Bad & Doubtful Debts 45,200

c. On receipt of part amount of Rs. 20,000 after lapse of 120 days


200*** Bank 20,340

290*** TDS Deducted at Source-Others 2 2,260

250010 Sundry Debtors- Indus Billing 22,600

d. On reversal of provision for part amount of Rs. 20,000


340551 General Provision - Bad & Doubtful Debts 22,600

680014 Provision for doubtful debts 22,600


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8.4.16 Operating Lease

Determining whether an arrangement contains a lease

The Company may enter into an arrangement, comprising a transaction or a series of related transactionsthat does not take the legal form of lease but conveys right to use an asset (e.g., and item of Property, Plant

and equipment) in return for a payment or series of payments. Example of arrangements in which one entity

(the supplier) may convey such a right to use an asset to another entity (the purchaser),

These arrangements may be termed as embedded lease. Determining whether an arrangement is, or

contains, a lease shall be based on the substance of the arrangement and requires an assessment of

whether:

Fulfilment of the arrangement is dependent on the use of a specific asset or assets (the asset); and

The arrangement conveys a right to use the asset

Fulfilment of the arrangement is dependent on the use of a specific asset

The asset on which fulfilment of the arrangement is dependent need not be explicitly identified by the

arrangement's contractual provisions. Rather it may be implicitly specified, because it may not be

economically feasible or practical for the supplier to fulfil the arrangement using alternative assets. Factors

that might impact the assessment of whether it is economically feasible or practical to use alternative assets

are, inter alia, the assets' location, the availability of alternative assets, the assets' cost of installation, any

interruption to customer service as a result of replacing the assets, whether the replaced assets could be

used on other customers and any asset replacement patterns specified in the contract. Consider the

following example:

For an arrangement to be determined as Lease there needs to be reasonable certainty at inception of thecontract that the same asset would be use throughout the term of the contract.

Arrangement conveys a right to use the asset

An arrangement conveys the right to use the asset if the arrangement conveys to the purchaser (lessee) the

right to control the use of the underlying asset. The right to control the use of the underlying asset is conveyed

if any one of the following conditions is met:

The purchaser has the ability or right to operate the asset or direct others to operate the asset in a

manner it determines while obtaining or controlling more than an insignificant amount of the output or

other utility of the asset.

The purchaser has the ability or right to control physical access to the underlying asset while obtaining or

controlling more than an insignificant amount of the output or other utility of the asset.

Facts and circumstances indicate that it is remote that one or more parties other than the lessee will take

more than an insignificant amount of the output or other utility that will be produced or generated by the

asset during the term of the arrangement, and the price that the lessee will pay for the output is neither

contractually fixed per unit of output nor equal to the current market price per unit of output as of the time

of delivery of the output.

Where the price that the purchaser will pay is neither fixed per unit of output nor equal to the current market

price at the time of delivery, this indicates that the lessee is effectively paying for the asset's availability,

rather than its output. An example of this is where payments made for the asset are based upon when the

asset is available for use, rather than on the output generated or consumed.

The diagram below will illustrate the application of the conditions for determining whether an arrangement is

a lease.


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No

Yes

No

Yes

No

Yes

The company has entered into agreements with telecom companies to provide telecom tower sites on

rent. The agreements range for five year to a maximum of ten years. Similarly the company has entered

into agreement with various landlords for obtaining their land to install telecom towers.

Such agreements classify as lease as they fulfill the above mentioned requirements .Since significant

risks and rewards are not being transferred which may have resulted in deemed ownership, it is

classified as an operating lease.

As per the term of the contract and Accounting Standard -19, the amount of the rental charges is

equalized over the period of lease term. The rental charges billed to the customer and the straight liningImpact of the rental charges is debited / credited to the profit and loss account.

Billing IT team forwards the base data i.e. the static data like site identity number, site type, tower type

etc for every month to the Billing Team along with the amount billed till date. Billing Team validates the

data and uploads the same on a predefined working sheet manually for calculation of accrual till date,

revenue equalization reserve and lease equalization expense. Based on the calculation, Billing Team

forwards the entries to be passed by the Revenue Team.

Following components are used for calculation of Lease equalization reserve

Column Name Sample Value DescriptionCircle Gujarat Static data, as per current month bill run.

Customer name Idea Static data, as per current month bill run.

Indus id IN-1114030 Static data, as per current month bill run.

Reqref R/NN-31437 Static data, as per current month bill run.

Rfidate/Billing Trigger date 28-Feb-20XX Static data, as per current month bill run.

1st Day of the Month after RFI date 01-Mar-20XX Static data, as per current month bill run.

Pro rata billing days 1 No of days billed on prorata basis, based on

Billing_month 28 No of complete months tenancy billed

Year lapsed 2.34 Year lapsed (in fraction of months)

Year round up 3 No of escalations applied + 1

Current billing rate 30,542 Current month Appl. Rate + Volume Discount

Contractual Relationship

Specific Asset

Right to use the Asset

Not a Lease

Lease


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Amount billed to date incl cr note928,191

Actually billed (Billed to date on this particular

tenancy since beginning ( Appl. Rate + Volume

Discount))

Amount accrued to date based on last

billing rate 829,659

Acrrued (Amount should be billed till the date

using current month bill run rate (applicable

rate + Vol. disc))

Diff_due_to_rate_revision 98,532 Difference between above two

New - amount_payable_slm_pm33,389

Taking impact of difference (billed Vs

Accrued), calculated SLM per month,

assuming all the tenancies are contracted for

10 years. There are cases where tenure is 5 or

&7 Years. In thoses cases it should be

adjusted (take tenure premium as base).

New

amount_accrued_to_date_slm_basis 936,094

Based on above SLM per month compute

'Accrued' to date for the period year lapsed.

New revenue equalisation(7,903)

Difference between 'AMOUNT BILLED TO

DATE INCL CR NOTE' and 'NEW

AMOUNT_ACCRUED_TO_DATE_SLM_BASI

S'

Following 6 types of operating lease exists in the company.

Indus Standard Rent- Lease for the rental charges receivable from non operating companies

IRU Standard Rent- Lease for the rental charges receivable from the operating companies

Indus Loading 2G- Lease for loading charges in relation with 2G spectrum receivable from non

operating companies

IRU Loading 2G- Lease for loading charges in relation with 2G spectrum receivable from non

operating companies

Indus Loading 3G- Lease for loading charges in relation with 3G spectrum receivable from nonoperating companies

I RU Loading 3G- Lease for loading charges in relation with 3G spectrum receivable from non

operating companies

Example:

Alpha Co., a telecom infrastructure company has the entered into an agreement with Beta Ltd. to provide

telecom tower site on rent for a standard rent of Rs. 50,000 for a period of 1 year. As per the agreement the

standard rent will be escalated by ten percent on a monthly basis. Since this qualifies as an operating lease,

a revenue equalization reserve is created to account for the escalated revenue in future months.


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YearActual Rent

( Ten percent escalation )

Equalized Rent

(Cumulative Rent/Twelve

Revenue Equalization

Reserve

January 50,000 89,101 39,101

February 55,000 89,101 34,101

March 60,500 89,101 28,601

April 66,550 89,101 22,551

May 73,205 89,101 15,896

June 80,525 89,101 8,576

July 88,578 89,101 523

August 97,436 89,101 (8,335)

September 1,07,178 89,101 (18,077)

October 1,17,897 89,101 (28,796)

November 1,29,687 89,101 (40,586)

December 1,42,656 89,101 (53,555)

Account ing Entry :

a. On creation of reserve to equalize revenue-January


260018 Revenue Equalisation Reserve-Indus 39,101

500018 Revenue EqualizationIndus 39,101

Note: Similar accounting entry for every month till July will be passed for creation of reserve with the amount

as calculated above

b. On utilization of reserve- August


500018 Revenue EqualizationIndus 8,335

260018 Revenue Equalisation Reserve-Indus 8,335

Note: Similar accounting entry for every month till December will be passed for utilization of reserve with the

amount as calculated above

General Guidance

Assets given operating lease by the company are shown in the balance sheet under fixed assets and

depreciated on a basis consistent with the depreciation policy of the company. The lease income is

recognized in the Profit and Loss account on a straight-line basis over the lease term. Lease payments

under operating lease are recognized as an expense in the Profit and Loss account on a straight line

basis over the lease term.

In case of creation of equalization reserve for rental expenditure on cell sites, warehouse and office,

following account codes are used.

Account Code Account Head

600003 Lease Equalization Expense- Indus

600105 Lease Equalization Expense- Warehouse

670504 Lease Rental Equalisation (Office)

310042 Lease Rent Equalisation Reserve


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8.5 Disclosure Requirement

Disclosure requirements as per the revised schedule VI of Companies Act 1956

Aggregate amount of trade receivables outstanding for a period exceeding six months from the date they

are due for payment should be separately stated. Trade receivable shall be sub classified as

Secured, considered good

Unsecured, considered good

Doubtful

Allowance for bad and doubtful debts shall be disclosed under the relevant heads separately

Disclosure requirements as per the Accounting Standard 9: Revenue Recognition

In addition to the disclosures required by Accounting Standard -1 on Disclosure of Accounting Policies,

an enterprise should also disclose the circumstances in which revenue recognition has been postponed

pending the resolution of significant uncertainties.

Disclosure requirements as per the Accounting Standard 19: Leases

Lessor should make the following disclosures:

For each class of assets, the gross carrying amount , the accumulated depreciation and accumulated

impairment losses at the balance sheet date; and

1) The depreciation recognized in the statement of profit and loss for the period,

2) Impairment losses recognized in the statement of profit and loss for the period,

3) Impairment losses reversed in the statement of profit and loss for the period,

The future minimum lease payments under non cancellable operating lease in the aggregate and for

each of the following periods:

1) Not later than one year;

2) Later than one year and not later than five years

3) Later than five years

Total contingent rents recognized as income in the statement of profit and loss for the period;

A general description of the lessors significant leasing arrangements; and

Accounting policy adopted in respect of initial direct costs

Lessee should make the following disclosures:

The total of future minimum lease payments under non cancellable operating lease in the aggregate and

for each of the following periods:

1) Not later than one year;

2) Later than one year and not later than five years

3) Later than five years

The total of future minimum sublease payments expected to be received under non cancellable

subleases at the balance sheet date; Sub lease payments received or receivable recognized in the statement of profit and loss for the period;

A general description of the lessees significant leasing arrangements including but not limited to the

following:

1) The basis on which contingent rent payments are determined;

2) The existence and terms of renewal or purchase options and escalation clauses; and

3) Restrictions imposed by lease arrangements, such as those concerning dividends, additional debt,and further leasing.


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8.6 Key GAAP Differences

IGAAP IFRS

Revenue - Measurement Revenue is measured by charges

made to the customers for goods

supplied and services rendered to

them.

Discounting of deferred revenue is

not required.

IFRS requires measurement of

revenue at the fair value of the

consideration received or receivable.

This is usually the amount of cash or

cash equivalents received or

receivable.

Discounting of revenues to present

value is required in instances where

the inflow of cash or cash

equivalents is deferred. In such

instances, an imputed interest rate

should be used for determining the

amount of revenue to be recognized

as well as a separate interest income

component to be recorded over time.

(IAS 18)

Gross Vs Net No such guidance in Indian GAAP. IFRS provides guidance to determine

whether an entity is acting as a

principal or as an agent.

An entity is acting as an agent when

it does not have exposure to the

significant risks and rewards

associated with the sale of goods or

the rendering of services.

When the transaction's substance is

that an entity is acting as a principal,

the entity should recognise revenue

based on the gross amount received

or receivable in respect of its

performance under the sales

contract. When the substance is that

the entity is acting as agent, it should

recognise as revenue only the

commission or other amounts

received or receivable in return for its

performance under the contract.

Determination whether an

arrangement contains a lease -

No specific guidance. The Company is required to

determine whether an arrangement


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Accounting Manual

January 2012

IGAAP IFRS

IFRIC 4. is, or contains, a lease which shall be

based on the substance of the

arrangement rather than form and

requires an assessment of whether:

(a) fulfillment of the arrangement is

dependent on the use of a specific

asset or assets (the asset); and

(b) the arrangement conveys a right

to use the asset.

If it is determined that arrangement

is, or contain, lease then it should beaccounted for in accordance with IAS

17Leases.


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January 2012

8.7 Appendices

No Applicable appendices

8.8 Associated Reference Material

Oracle User Guide

Accounting Standard 9- Revenue Recognition

Accounting Standard 19- Accounting for Lease

Master Service Agreement


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Indus Towers

Accounting Manual

January 2012

8.9 General Ledger Code

Account Code Account Name Description

250010 Sundry Debtors - Indus Billing

Balance in this account represents the amount of

billed rental debtors outstanding as on date for

towers owned by operating companies

250011

Sundry Debtors - Indus Security

Deposit


security deposits for rental charges for towers

owned by Indus

250012

Sundry Debtors - Indus Pass through

Billing


energy charges recoverable from operators for

towers owned by Indus

250013 Sundry Debtors -IRU Billing


billed rental debtors outstanding as on date for


250014

Sundry Debtors -IRU Security

Deposit


security deposits for rental charges for towers

owned by operating companies

250015

Sundry Debtors -IRU Pass through

Charges


energy charges recoverable from operators for


250021 SLA DEBTOR INDUS


penalty levied by operators on the company for

towers owned by Indus

250022 SLA DEBTOR IRU


penalty levied by operators on the company for


250023

Sundry Debtor-Interest - Indus and

IRU


interest levied for delayed receipts

260040

Other Recoverable-Safety Signage

(billed)

Balance in this account represents the amount ofthe amount invoiced to operators for recovery of

signage cost

310011 Receipt - On Account


collection which cannot be identified against an

invoice

310012

Receipt - Unapplied Customer

Account


collection unapplied out of the On Accountamount

340551

General Provision - Bad & Doubtful

Debts


provision created for recognition of bad and

doubtful debts

500001Operational Revenue (Indus)-TenurePremium


collection due from non operating companiesinvoiced for tenure premium

500002

Operational Revenue( Indus)-

Standard


collection due from non operating companies

invoiced for standard rent

500003 Operational Revenue (IRU)-Standard


collection due from operating companies invoiced

for standard rent

500004

Operational Revenue (Indus)-

Location Premium


collection due from non operating companies

invoiced for location premium

500005Operational Revenue (IRU)- LocationPremium


collection due from operating companies invoicedfor location premium


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January 2012

Account Code Account Name Description

50000

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