Electricity (Supply) Annual Accounts Rules, 1985

Electricity (Supply) Annual Accounts Rules, 1985
1. Short title and commencement.
2. Definitions.
3. Accounting Period.
4. Compilation and submission of annual accounts.
5. Form and contents of Annual Statement of Accounts.
6. Chart of Accounts.
7. Basic accounting principles and policies.
8. Disclosure of accounting policies.
9. Accounting policies for transactions not covered by Annexure III.
10. Criteria for departure from the prescribed accounting policies.
11. Process of changeover to the new form of accounts.
12. Uniformity in procedural matter.
13. Adjusting entries.
14. Adoption of annual accounts by the Board.

The Electricity (Supply) Annual Accounts Rules, 1985

Published vide Notification No. G.S.R. 1134, dated the 31st October, 1985, published in Gazette of India, (Ordinary) Part 2, Section 3 (i), pages 3024-3103

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In exercise of the powers conferred by Section 69 of the Electricity (Supply) Act, 1948 (54 of 1948), the Central Government, in consultation with the Comptroller and Auditor-General of India and the State Governments, hereby makes the following rules namely-

Chapter I

Introductory

1. Short title and commencement.- (1) These rules may be called the Electricity (Supply) Annual Accounts Rules, 1985.

(2) They shall come into force with effect from date of their publication in the official Gazette.

2. Definitions.- (1) In these rules, unless the context otherwise requires,-

(a) "Act" means the Electricity (Supply) Act, 1948 (54 of 1948),

(b) "Annexure" means an Annexure appended to these rules,

(c) "Annual statement of Accounts" means the Annual Statement of Accounts as defined in sub-rule (1) of rule 5 and includes the Annual Account and the Accounts ;

(d) "Financial year" means a period of twelve calendar months ending on the 31st day of March every year or in the case of the first accounts, a shorter period commencing on the date of constitution of the Board and ending on the 31st day of March immediately following ;

(e) "Notes" or "Notes to Accounts" means the Notes to Accounts contained in statement No. 5 of the Annual statement of Accounts

(f) "Schedule" means a Schedule forming part of the Annual Statement of Accounts ;

(g) "statement" means a statement forming part of the Annual Statement of Accounts.

(2) Words and expressions used herein and not defined but in the Act, shall have the meaning respectively assigned to them in the Act.

Chapter II

Compilation of Annual Accounts

3. Accounting Period.- The accounting period for which the annual accounts have to be compiled by a Board shall be a period of twelve calendar months ending on the 31st day of March every year or in the case of the first accounts a shorter period commencing on the date of constitution of the Board and ending on the immediately following the 31st day of March.
4. Compilation and submission of annual accounts.- Every Board shall at the end of each financial year, compile its annual accounts for that year and, within six months from the end of such financial year, submit the said Annual Accounts and Auditors report thereon to the Central Electricity Authority and to the concerned State Government.

(2) The accounts when submitted to the Central Electricity. Authority and to the State Government shall have the auditors report at the top followed by Annual Statement of Accounts arranged in the order mentioned in sub-rule (1) of rule 5.

5. Form and contents of Annual Statement of Accounts.- (1) The Annual Statement of Accounts of a Board shall comprise of the following Statements and Schedules arranged in the order given below-

Statement No.

1. Revenue Account
2. Net Revenue and Appropriation Account
3. Balance Sheet
4. Schedule to the Revenue Account Schedules (Schedules 1 to 18) to the Balance Sheet (Schedules 19 to 35)

4-A. Statement of Accounting Policies

5. Notes to Accounts
6. Function-wise Analysis of Revenue and expenses
7. Sources and uses of funds
8. Statement of Capital Base and surplus under section 59 of the Act, and
9. Statement of technical particulars

(2) The Annual Accounts shall present a true and fair view of the financial position of the Board at the end of the financial year and of the results of operations of the Board for the year.

6. Chart of Accounts.- (1) The Chart of Accounts, as laid down in Annexure II shall come into force with effect from the date of commencement of these rules. The transactions of a Board which take place after the said date shall, subject to rule 11, be accounted for under the account heads provided in the Chart of Accounts as given in the said Annexure.

(2) A Board may, in accordance with the provisions contained in Annexure II, make additions or modifications to the Chart of Accounts if the local conditions or procedures so warrant.

7. Basic accounting principles and policies.- (1) The transactions of a Board shall be accounted for in accordance with the basic accounting principles and policies laid down in Annexure III.

(2) The said basic accounting principles and policies shall be adopted immediately on the commencement of these rules.

(3) The basic accounting principles and policies shall be applied only prospectively, that is to say, only to the transactions which take place on the commencement of these rules.

8. Disclosure of accounting policies.- A Board shall, in its Annual Accounts, include a Statement of accounting policies (Statement 4) confirming adherence to the prescribed accounting policies and also stating therein the departures, if any, made therefrom.
9. Accounting policies for transactions not covered by Annexure III.- (1) A Board shall adopt commercial accounting system of year-end accruals even in respect of transactions for which no specific policy is prescribed in Annexure III. The accounting policy adopted in such cases shall be stated in the statement of accounting policies, if the amounts involved are significant.

(2) Even the accounting policies other that the prescribed policies applied to a Boards peculiar transactions in accordance with sub-rule (1) above shall be applied consistently from year to year.

(3) In the event of several or all the Boards commencing new activities of the nature not hitherto carried out, the Central Government shall, in consultation with the Comptroller and Auditor-General of India and the concerned State Governments, upon intimation or knowledge thereof, lay down wherever considered necessary the accounting policies relating to the transactions arising from the said new set of activities. Appropriate account heads may be specified by Central Government for booking such transactions. Disclosure requirement for reporting of such transactions in Annual Accounts shall also be laid down by the Central Government in consultation with the Comptroller and Auditor-General of India and the concerned State Governments.

10. Criteria for departure from the prescribed accounting policies.- (1) A Board may make a departure from the prescribed accounting, policies only in the following circumstances, namely :-

(a) situations in which, for reasons to be recorded in writing, the prescribed accounting policies are considered impracticable or unnecessary ;

(b) by adoption of the prescribed accounting policies, the Board's accounts would fail to give a true and fair view.

(2) Any departure from the prescribed accounting policies or change in respect of the accounting policies adopted by the Board under sub-rule (1) of rule 9 shall be disclosed in a Board's annual accounts for the year of departure or change as also for the first two years immediately thereafter. Such disclosure shall also include the reasons for the said departure or change and its effect on the surplus for the year or on capital base to be considered For the purposes of computation of the minimum surplus under Section 59 of the Act.

(3) Where the departure from the prescribed accounting policies referred to in sub-rule (2) above involves deviation from the account heads as prescribed in the Chart of Accounts or introduction of new accounts heads, the fact shall be reported to the Central Government and the Comptroller and Auditor-General of India.

11. Process of change-over to the new form of accounts.- Tire procedures to be followed on changing over to the new form of Accounts shall be as laid down in Annexure IV.
12. Uniformity in procedural matter.- In order to ensure uniformity in procedural matters in maintenance of accounts, a Board shall follow the principles specified in Annexure V.
13. Adjusting entries.- The Board may make any adjusting entries in its accounts for the financial year ending on the thirty-first day of March, 1986, to make such accounts conformable to the provisions of these rules.

Chapter III

Adoption of Annual Accounts

14. Adoption of annual accounts by the Board.- (1) Annual accounts of a Board shall be considered and initially adopted by the Board before their submission for audit to the Comptroller and Auditor-General of India or to any other person authorised by him in this behalf.

(2) These accounts shall, upon completion of the audit by the aforesaid authority and after incorporating therein any changes necessitated be considered and finally adopted by the Board.

Annexure I

Annual Statement of Accounts

Part I

Statements

(Statements 1 to 9)

 

 

* Schedules 2 and 3 relate to Element-wise Analysis of Revenue and Average Realisation from Sale of Power respectively.

STATEMENT 2

* Operation of this account may be held in abeyance.

 

* Schedule 20 relates to Function-wise Break-up of Fixed Assets

1. Statement on Compliance with the Provisions of the Electricity (Supply) Act, 1948 and the Rules made thereunder.

The Board has maintained its accounts and compiled its Annual Statement of Accounts in accordance with the related provisions of the Electricity (Supply) Act, 1948 and the rules made thereunder.

The following departures from the Basic Accounting Principles and Accounting Policies (as permitted under the Rules) have been made for the reasons stated there against :

(a) (b) (c)

2. Changes in Accounting policies

The accounting policies adopted by the Board have been consistently followed during the year, except for the changes in the following areas :

(For each change In the accounting policy state :

-policy followed hitherto

-policy adopted during the year

-the amount, if material, by which an item in the Revenue Account, Net Revenue and Appropriation Account or Balance Sheet, has been affected by the change. For this purpose, a plus/minus charge of 3% or more shall be considered to be material).

Notes to accounts are an important requirement in providing a true and fair view. Notes must be as clearly recorded as possible and be able to fully convey the matter without any ambiguity. Amounts involved must be given wherever relevant.

Notes should be split in 2 sections :

(A) Notes to Revenue Account and Net Revenue & Appropriation Account and

(B) Notes to Balance Sheet.

Wherever a note relates to items in both the sections, the note should be given in the Section for Revenue Account.

Cross-reference of note number should be given against the relevant item in the Revenue Account, net Revenue & Appropriation Account. Balance Sheet or any of the other Statements or Schedules. Similarly, relevant Schedule number/Statement number should also be stated against the note.

The matters included in the attached list must be disclosed in 'Note to Accounts' by every board except cases where any of them are not applicable to a Board. This list however, is not intended to be an exhaustive list and, therefore, a Board would have to select other matters for which a note would be essential in the Annual Accounts.

Explanation of Certain Terms used in the Notes to Accounts.

(1) Note 1 refers to 'Contracts placed but not executed and not provided for', This team means :

The total value of the work contracted as on the date of the Balance Sheet.

Less :

Contract value of work which is executed and accounted for (i.e. either paid for or a liability in favour of the supplier/contractor having been provided for) as on that date.

Less :

Amount of advance payments (made against the unexecuted portion of contract) which remains unadjusted as on the date of the Balance Sheet.

The word 'contract' for the purpose of this note covers all types of capital contracts, such as, contracts for capital supplies, contracts for erection of capital assets ; contracts for supply-cum-erection of capital assets, etc. contract value of which exceeds Rs. 1 crore each.

(2) Notes 3 and 4 below refer to 'unconditional obligations for purchase and unconditional right of sale of power'.

An 'unconditional purchase obligation' is any arrangement for purchase of power from other bodies which is non-cancellable or is cancellable only :

-upon the occurrence of some remote contingency or

-with the permission of the other party or

-If a replacement agreement is signed between the same parties or

-upon payment of a penalty of such an amount that the continuation of the agreement appears reasonably assured.

What is, 'unconditional purchase obligation' for the purchasing party is 'an unconditional right of sale' for the selling party.

(3) Notes 3 and 4 distinguish unconditional purchase obligations "with financing arrangement" from others. Unconditional purchase obligations "with financing agreement" means the purchase arrangement of the type described in (2) above which was negotiated as part of financing for the facilities (generating station, transmission lines etc.) that will provide, the contracted power. Example of such an arrangement is financing of NTPC projects by the World Bank subject to NTPC entering into agreements with State Electricity Boards for purchase of power to be generated by NTPC.

 

NOTES : (1) The functions shown in this schedule are only illustrative Actually the analysis would be for those functions which are incorporated in the Location Codes assigned to accounting units.

(2) To be shown in the column of the function the subsidy/grant relates to,

(3) This being the income accounts group for different types of income including miscellaneous receipts, each function is likely to have some amount of some income.

 

 

Annexure to Statement 7

 

 

 

 

 

Note : Wherever appropriate indicate % Increase/Decrease over the previous year in brackets.

Part II

Schedule to the Revenue Account

 

 

 

 

 

 

 

 

 

 

Note : The interest charges shown in the Schedule are after deducting a rebate of Rs. [*] earned for timely payment of interest/timely repayment of borrowings.

 

 

 

 

 

Part III

Schedule to the Balance Sheet

Notes : (1) Previous year's figures should be shown in brackets below each figure.

(2) Disclose by way of a note that 'Gross block does not include value of small and low value assets each costing below Rs. 500, charged to Revenue Account in the year in which they are first put to use.

-Value of such assets charged to Revenue Account

-during the year Rs..........

-Total upto the Balance Sheets date (i.e. including previous year's write offs) Rs.........

 

Note :

1. Under the standard rate based valuation, certain fast-moving items of stores and charged to works at their standard rates and not at actual cost. For the year as a whole, the variance between the standard rate and the actual cost accumulated in Materials Cost Variance shows (an excess of standard cost over actual cost Rs. ......) (an excess of actual

cost over standard cost Rs. .........) on the total purchases of materials

(for use both capital and O&M) recorded during the year Rs. ...........

2. Contracts-in-progress represents the portion of interim payments made to contractors for capital works executed in respect of which title is to pass to the Board only upon completion of the contract.
3. Depreciation on construction facilities charged to capital work during the year is Rs. ...........

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Note : Temporary borrowings raised and repaid during the years Rs. ...........

 

Note - 1. In respect of foreign currency loans/credits, the amount shown as received during the year [includes increase of Rs. (previous year Rs. ......) [is net of decrease of Rs. ...... (previous year....) made consequent upon the realignment the rupee value of loans/credits in terms of exchange rate at the end of the year.

2. Borrowings Power : Maximum borrowing power under Section 65(B) of Electricity (Supply) Act, 1948.

Less : Exercised upto the end of the year.

Add : Redeemed during the year.

Balance of exercisable borrowing power as at the end of the year.

3. Securities offered against the borrowings.

Note : The amount outstanding at the end of the year includes.

Rs. ....... being the fair value of assets donated by State Government.

Rs. ............ being fair value of assets received under lease from the State Government.

Note: The amount of subsides, grants etc. becoming refundable (owning to reasons such as Board's failure to fulfil the conditions for subsides, grants) should be shown as a negative amount in the column for Additions during the year and the reasons therefor, should be disclosed by way of a note in this Schedule.

Break-up of General Reserve Additions/Deductions.

Annexure II

Chart of Accounts

Section - 1

Structure of Chart of Accounts

1. A structured Chart of Accounts has been recommended for booking the various transactions.

Coding Scheme

2. The Account heads bear a five-digits Code. The coding scheme is explained below-

(1) First ad second digits indicate the Account Group.

(2) First and second digits alongwith the third digit indicate the Main Account Code

(3) The fourth and fifth digits are used for coding Sub-Accounts within each Main Account Code.

(4) Main Account Code alongwith the Sub-Account Codes forms the specific Account Code for an Account Head.

Board's Role in Coding of Sub-Accounts

3. In several Main Account Codes, the precise Sub-Accounts shall have to be assigned by individual Board's depending on their own requirements. The examples of such Codes are :

(1) Project codes for booking capital work-in-progress.

(2) Consumer category codes for booking the Revenue from sale of power and Receivables for sale of power.

(3) Inter-unit accounts

Location Code

4. Each Board shall assign location codes to all its Accounting Units. These shall be assigned in such a way that the code also denotes the function performed by the operations under the Accounting Unit. The exact functions to be recognised for this purpose shall be those for which separate divisions are in existence. Coding at division level would enable two different codes, say transmission and construction, to be assigned to two different division under a common circle.

Location Code to be prefix at Account Codes

5. The location code shall be a prefix to the account codes recommended in the uniform Chart of Accounts. The location code will remain same for all the transactions at an Accounting Unit. Therefore, the location code shall not have to be written every time. The code will be pre-printed on all the accounting documents in use at that location. Such a structure of account coding has enabled smaller account code of 5 digits as against 8 digit code in the existing Chart of Accounts.

Coding of Accounts Explained

6. An accounting unit shall record its transactions under the proposed Chart of Accounts in the manner discussed below :

(1) Each accounting unit shall be assigned a location code which will indicate.

(a) Function (generation, transmission etc.) performed at the accounting unit.

(b) Specific code given to the accounting unit.

Location code will be a 3 digit code.

(2) The location code of a unit shall be a prefix to each account code used at the accounting unit.

(3) The use of location code is mainly to segregate one unit from another at the time when trial balance or accounts statements/summaries from various accounting units are received at one place.

For example at the stage of compiling accounts from divisions and trial balance and account summaries of a large number of circles, so long as an accounting unit sends its trial balance/accounts summaries, schedules, statements etc. to another unit with the Location Code written on it, identification of such location is ensured.

(4) Therefore on a day today basis, the location code need not be recorded while writing account code on vouchers etc. instead the code can be pre-printed or rubber stamped in advance.

(5) Inter-unit advices raised by a location must bear the location code so that the receiving unit can easily identify the advices.

(6) In relation to the accounts for inter-unit transactions, however, two location codes are involved.

(a) Location code of the unit which records the transaction.

(b) Location code of the unit to which the transaction is debited or credited.

For example, transfer of fixed assets from unit 334 to unit 465.

The location code of the unit recording the transaction, i.e. 334 will be as mentioned earlier, pre-printed on that unit's vouchers.

The account code will be 32.465 where 32 is the inter-unit account for fixed assets related transaction and 465 means the transfer is to Unit 465.

Correspondingly unit number 465 has got its code pre-printed on its own vouchers. Therefore, it will use the account code 32.334 where 32 is the inter-unit account for fixed assets related transactions and 334 means the transfer is from unit number 334.

(7) The location codes mentioned on divisions/circles, accounts would be used for segregation of transactions of different functions at the time of compilation. The prefix of location code :

- of various divisions shall be omitted when circle prepares the trial balances of the divisions under it. The consolidated trial balance would then bear circle's code as the location code.

- of various circles shall be omitted when the Head Office consolidates circle-wise accounts and compiles the Board's accounts.

Blanks provided in the Chart of Accounts

7. Blanks have been provided in the Chart of Accounts at Account Group Main Account Head as well as the Sub-Account Head levels so as to provide flexibility for introduction of new account heads at appropriate levels as per the procedure laid down in paragraph 8 below.

Introduction of New Accounts

8. The Chart of Accounts provides for all possible transactions envisaged by the Central Government. If however, a Board observes that some of its transactions cannot be booked under any of the account heads or that they need to be booked with greater analysis, new accounts, as may be-necessary, shall be introduced. Purpose and usage of each new account shall be clearly defined by the Board.
9. Any main account code or sub-account code so introduced by a Board must be within the account group concerned.
10. Any main account code or sub-account code so introduced by a Board may, at Board's discretion, be reclassified within the same account group or deleted at any time thereafter.
11. Introduction of a new account group shall require prior approval of the Central Government. Any approval by the Ministry in this regard shall be in consultation with the C & A G and the concerned State Government.

Deletion of Account Codes

12. Boards shall not be permitted to delete any account from the prescribed chart of accounts. This prohibition shall apply even in cases where the Boards do not have the type of transactions covered by an account.

Section - 2

Chart of Accounts

(Account Heads and Account Codes)

Annexure III

Basic Accounting Principle and Policies

1. Basic Accounting Principles

1.1. A Board shall follow the basic accounting principle laid down in the following paragraphs in the preparation of its Annual Accounts.

Entity of a Board for the purpose of Annual Accounts

1.2. Annual Accounts of a Board shall reflect the transactions of the Board and of any other body in which the Board has ownership rights as a sole owner, partner or a member of association of persons and in the management of which the Board can exercise and actually exercises significant influence.

1.3. A mere right to receive a part or whole of the power generated by any other body, whether at cost or at a prefixed rate shall not be the ground for reflecting the transactions of such body in Board's accounts.

1.4 Where the transactions of any other body have to be reflected in more than one Board' accounts in accordance with the Paragraph 1.2 each Board shall reflect the assets, liabilities, income and expenses of that body in proportion of its ownership share in that body.

1.5 Interest acquired by a Board in any body whose transactions do not require incorporation into a Board's accounts in accordance with the paragraph 1.2 shall be disclosed, at cost, in Board's accounts as investments. In such cases the excess or shortfall of Board's share of the net assets of the body over the cost of acquiring the interest in that body shall be disclosed in the Board's accounts by way of a note.

Historical Cost Convention

1.6 In a Board's accounts, Assets, Liabilities, Expenses and Revenue shall be recorded at the amounts at which the transactions took place. This policy implies that no revaluation of assets or liabilities shall be done for adjusting them to replacement cost, current cost, etc. Similarly depreciation on replacement cost basis shall also not be permitted.

Going Concern Concept

1.7 Financial statements of a Board shall be drawn up on the premise that its business will continue indefinitely.

Consistency Concept

1.8 Uniform accounting policies shall be applied on the same basis from year to year. Even the accounting policies following in respect of areas not specifically covered hereafter or in cases where departure from the prescribed accounting policy is permitted shall be following consistently from year to year.

True and Fair Presentation

1.9 Accounting of a Board shall present a true and fair view of the financial position and results of operations of the Board. True and fair view implies the disclosure of all information necessary for a reader's understanding of the financial position and results of operations of the Board.

1.10 The objective of prescribing the form of annual accounts of a Board is to prescribe the minimum and uniform disclosure required by all Boards Additional information in the accounts or by way of notes may be given if it is necessary to ensure true and fair presentation.

Cash Basis of Accounting Only Where Prescribed

1.11 The cash basis of accounting, i.e. the practice of booking costs, revenues, assets and liabilities, when money is received or paid and not when accrued shall not be adopted by Board except in the specific cases, where cash basis is prescribed in this Annexure or in Annexure V. In all other cases, a Board shall follow commercial accounting system which requires recording of transactions by which revenues, costs, assets and liabilities are reflected in the accounts for the period in which they accrue.

No Retrospective Adjustments To Prior Period Revenue/Costs

1.12 All prior period revenue or cost arising on account of a difference between an accounting estimate made for accrual and the actual valves involved or on account of any other reason shall be accounted for prospectively and no retrospective restating of past year's figures shall be permitted.

Comparative Figures for Previous Year

1.13 Comparative figures for the previous year shall be given in the Annual Accounts. No. regrouping of previous year's figures shall be permitted except in cases where a different basis for the figures for the same item has been adopted during the current year.

Reserves Not To Absord Charge Against Revenue

1.14 Reserves of a Board whether created out of appropriation from surplus of past years or in any other manner shall not be used (except in prescribed circumstances) for absorbing the cost which would otherwise be a charge against the revenue of the current year, past years or future years.

Revenues Not To Be Directly Credited To Reserves

1.15 No reserves shall be given any credit for any amount which should otherwise be treated as revenue for the current year, past years or future years.

Offsetting of Assets and Liabilities

1.16 In the balance sheet of a Board, assets and liabilities shall be set off against each other only when a legal right of offset exists, Payables to one party shall therefore not be set off against receivables from the same party unless the Board has a legal right to offset the two.

Events Occurring, After the Balance Sheet Date

1.17 All events or transactions occurring after the date of balance sheet and before the date of the auditors report shall be treated in the following manner.

(1) Two types of subsequent events and transactions require consideration by the Board.

(2) The first type consists of those events that provide additional evidence with respect to the contains that existed at the date of the balance sheet and affect the estimates necessary for accrual etc. in the process of preparing annual accounts. All information that becomes available prior to the finalisation of the annual accounts should be used in evaluating the conditions on which the estimates were based. The annual accounts, shall be adjusted for any changes in estimates resulting from the use of such evidence. Identifying the events that require adjustment in accounts calls for the exercise of judgment and knowledge of the facts. For example, a loss on an uncollectible receivable as a result of a consumer's deteriorating condition leading to bankruptcy subsequent to the balance sheet date would be indicative of his poor financial condition existing at the balance sheet date, thereby calling for adjustment of the accounts. On the other hand, a similar loss resulting from a consumer's major at the balance sheet date and adjustment would not be called for.

(3) The second type consists of events that provide evidence with respect to conditions, that did not exist at the balance sheet date but arose subsequent to that date. These events should not result in adjustment of the accounts. Some of these events, however, may be of such a nature that the omission of their disclosure may result in misleading statement. Examples of this type of event (which should not result in adjustment of accounts but which do require disclosure) are take over of a licensee, loss from fire, flood, etc.

No Deferment of Loss Write Off

1.18 The revenue Account for a Board shall reflect full amount of the loss, if any, to the Board due to any material calamities like cyclone, flood, etc., on recurring events like fire or possibly recurring events like receipt of inferior grade of coal. No part of the loss shall be deferred for write off over future years.

3% Return and The Treatment of Unusual and Extraordinary Gains and Losses and Prior Year Income and Expenses

1.19 In a Board's Revenue Account, all unusual and extraordinary losses or gains and prior periods income and expenses shall be disclosed separately. However, for the purpose of compliance with Section 59 requiring minimum surplus of 3 % on fixed assets base, such unusual and extraordinary losses and gains and prior period credits and charge shall be considered in the same way as other usual and recurring income expenses, losses or gains for the year. Such a treatment will reflect (and not conceal by ignoring such items) that the Board's operating surplus has been affected during the year on account of such items.

2. Accounting Policies

2.1 Transactions of a Board shall be accounted for in accordance with the Accounting Policies laid down hereinbelow. The prescribed Accounting Policies are classified under the following sections.

(1) Capital Expenditure and Fixed Assets.

(2) Fuel and Materials Accounting.

(3) Borrowings and investments.

(4) Other Account areas.

1. Capital Expenditure and Fixed Assets

Disclosure at Historical Cost and no Revaluation of Fixed Assets.

2.2 Fixed Assets of a Board shall be recorded in the books of account and disclosed in annual accounts at Historical Cost. This policy implies that no revaluation of fixed assets shall be done for adjusting them to replacement cost, current cost etc. Similarly depreciation on replacement cost shall also not be permitted.

Expenditure On Project Identification

Survey and Feasibility Studies.

2.3 Expenditure incurred on identification survey and feasibility studies of a project, before the project is considered for sanction or rejection, shall be accumulated in an account provided for this purpose. Later, if the project, the full amount of expenditure shall be charged to Revenue as infructuous capital expenditure in the year in which the project is rejected. If the project is sanctioned, the expenditure shall be charged to capital work-in-progress account for that project. Any expenditure incurred on detailed feasibility studies, etc. after a project is sanctioned shall also be charged to the capital work-in-progress account for that project. The aggregate of the expenditure incurred before and after sanction of a project shall be allocated over the tangible assets acquired/constructed under the project, in the same manner as the revenue expenditure chargeable to capital works are to be allocated.

Cost of Capital Assets

2.4 Cost of a capital assets shall include all actual costs' incurred to prepare the assets for use subject to the exceptions and the bases of determining cost prescribed in the following paragraphs.

Treatment of Material related Costs.

2.5 All materials related costs recorded at an accounting unit under which only capital construction activities are carried out shall be charged to capital works.

2.6 At a location under which capital construction as well as 0& M activities are being carried out, only the following costs shall be charge to works :

(1) Inland freight on imported capital equipment.

(2) Freight on Local capital Equipment.

(3) Testing charges - capital equipment.

(4) Incidental Stores Expenses - Capital Equipment.

(5) Octroi on Capital Equipment.

(6) Advertisement for tenders etc. for purchase of capital equipment.

Imported Equipments

2.7 Capital equipments, spares and other materials imported by the Board shall be valued as follows for receipts and issues accounting :

(1) Cost

Freight             C.I.F. Value             PLUS

Insurance

(2) Customs Duty.

Outside Labour/Contractor Charges

2.8 All labour charges or contractor charges payable to outsiders for work done by them in respect of capital jobs snail be included in the cost of concerned capital assets.

Employee Cost of Board's Staff

2.9 All employee costs in respect of construction units shall be fully charged as cost of capital assets.

2.10 For an O & M-cum-capital unit, the procedure for accounting Employee Costs shall be as follows :

(1) Temporary employees-monthly payments such as salaries/wages, dearness allowance, overtime and other allowances shall be capitalised. Some temporary employees may be entitled to retirement benefits. Monthly contribution to provident Fund and Family Pension Scheme should also be capitalised. If however, any temporary employees are entitled to annual payment like bonus, no part of it should be capitalised because by the time of bonus payment, the relevant capital jobs/project that they worked on might have been completed and closed and the asset cost already determined and transferred to fixed infirmity, no capitalisation of such annual payments shall be done even if the jobs are not closed.

(2) Additional emoluments (e.g. Project allowance) to O & M staff for working additionally on a capital project shall be recorded in a separate account on accrual and shall be fully capitalised.

(3) A separate payroll shall be prepared for a group of permanent staff members if any, deployed exclusively or largely on capital jobs. The costs should be booked, under a distinct department code such as construction or Project section etc. All monthly payments (salaries, overtime, D.A. and other allowances) recorded under such departmental codes shall be fully capitalised. However, no part of retirement benefits and annual payments should be capitalised.

(4) In respect of other permanent employee who work on both capital and O&M jobs without additional emoluments, no part of the employee costs shall be capitalised.

Expenses Chargeable to Capital Works

2.11 All expenses in respect of construction units shall be fully chargeable as cost of capital assets.

2.12 At an O & M cum location (where both capital and O&M work is being carried out) only the following expenses shall be capitalised.

(1) Insurance on assets under construction.

(2) Legal charges and stamp fees in connection with agreements with capital suppliers/contractors.

(3) Fees payable to foreign technician for capital projects.

(4) Expenses incurred for foreign technician for capital projects.

(5) Technical documentation and design charges.

(6) Other consultancy charges - Projects (which includes architectural fees)

(7) Power consumed for construction.

No part of any other Administration and general expenses shall be charged to capital works.

Capitalisation of Depreciation

2.13 Depreciation on construction facilities (earth movers, cement mixer, etc.) shall be capitalised. Similarly, depreciation on fixed assets used for construction of other assets (e.g. depreciation on vehicles transferred to a project, depreciation on building furniture and fixtures, vehicles and office equipments at construction division or construction circles) shall also be charged to capital works.

No Capitalisation of Losses

2.14 Some losses may be involved in execution of capital projects for example irrecoverable advances to contractors, loss of assets or damage to assets at construction stage and shortage observed upon physical verification of stores at construction divisions. No part of any loss should be capitalised and included in the cost of assets.

No Capitalisation of Income

2.15 No income shall be capitalised and reduced from the cost of any asset. Even in cases where the income is identifiability to one or more specific assets, no capitalisation of such income shall be done. The policy is, however, subject to a different treatment prescribed for revenue during trial stage. Subsequent Increase/Decrease in Costs

2.16 All subsequent increase or decrease in capital expenditure shall be identified to relevant assets and the cost accounted for earlier for that asset shall be charged accordingly. Subsequent increase/decrease in staff costs and other expenses.

2.17 Any subsequent increase or decrease in the staff costs and other expenses which were charged to capital works in the past shall be treated as follows :

(1) If the increase or decrease has taken place during the same accounting year (as the year in which the expenses were originally charged to works), the amount of increase or decrease should be added to or deducted from, the staff costs and expenses chargeable to works for the period in which the increase/decrease has taken place.

(2) If the increase/decrease has taken place in the accounting years subsequent to the accounting year in which the relevant staff costs and other expenses were incurred, the amount of increase/decrease shall be ignored for the purpose of capitalisation of expenses in the subsequent years.

Land and Land Rights

2.18 Land cost shall comprise of the following :

(1) Purchase price of land.

(2) Compensation for acquisition of land.

(3) Compensation for trees and crops on the acquired land.

(4) Legal charges, stamp duty, etc. incurred in order to secure effective title.

(5) Land revenue and other taxes paid during the stage of land development.

(6) Site preparation costs, such as, cost of levelling hills or filling low spots cost of clearing trees, etc.

(7) Cost of demolishing as unwanted structure if the land is acquired with structure.

2.19 Cost of land improvements having a limited life, such as, cost of landscaping, gardens, sidewalks, fences and digging for sewage system shall be added to Cost of Land as "Cost of Land Development".

Buildings

2.20 In case of Purchase/acquisition of a building, the building costs shall include the following items :

(1) Purchase price

(2) Compensation for acquisition of Building

(3) Payments to tenants to cancel their tenancy rights.

(4) Expenses, such as, legal charges, stamp duty etc.. incurred for securing an effective title.

(5) Repairs, alterations and improvements to put the building in usable condition.

(6) Architect's fees for remodelling, alterations, improvements before the building is first put to use.

2.21 Cost of a constructed building shall include the following items :

(1) Cost of construction comprising of materials, labour, contractor charges and depreciation on construction machinery.

(2) Surveying.

(3) Cost of obtaining permits, sanctioned plans, occupation certificates from Municipal or other bodies

(4) Architectural fees

(5) Insurance on uncompleted structure

(6) Cost of excavation (excavation is not a cost of land development). Additions, Improvements, Replacement & Repairs

2.22 Expenditure on additions, improvements, replacement and repairs and maintenance shall be treated in accordance with the policies prescribed in the following paragraphs.

Repairs before Commissioning of Assets

2.23 Any expenditure on repairs or rehabilitation of an asset purchased by the Board whether second hand or new) incurred before commissioning the asset for putting the asset in usable condition shall be treated as a cost of that capital asset.

Repairs and Maintenance

2.24 Any expenditure on restoring an asset back upto the level of output/efficiency/performance at which it was, when it was first put to use is repairs expenditure. Any expenditure on maintaining the asset upto the level of output/efficiency/performance expenditure.

2.25 Expenditure on repairs and maintenance shall be charged to revenue in the year in which it is incurred. This shall be done regardless of the amount of any repairs or maintenance expenditure.

Additions

2.25 Additions may bring into existence a new asset or increase the physical size of an asset through extension, etc. All expenditure on additions shall be capitalised.

Improvements

2.27 An expenditure having the effect of extending the useful life of an asset or increasing output or capacity or efficiency of an asset or decreasing operating costs of an asset is 'Improvement'. Expenditure on improvement may involve replacement of old (e.g., replacing a transformer by another transformer of higher capacity) or may not involve replacement of old (e.g. expenditure on acid resistance lining in a tank in water treatment plant). All expenditure on improvements shall be capitalised.

Alterations/Renovations

2.28 In case of alterations or renovations of building or plant, the treatment of expenditure shall be similar to that for improvements. Rearrangement

2.29 All expenditure on rearrangement (of plan layout, office layout, etc.) shall be charged to revenue in the year in which the expenditure is incurred.

Replacements

2.30 Replacements can be defined as 'Substitution of one fixed asset by another, particularly of an old asset by new asset or of an old part by a part. Expenditure on minor replacements shall be charged to revenue as Repair and Maintenance Expenditure. Major replacement expenditure shall be capitalised. However the cost and accumulated depreciation of the old replaced asset shall be withdrawn when the expenditure on the new replacing asset is capitalised. A broad criterion of distinguishing minor and major shall be replacement of any asset or part of the asset for which a separate fixed asset record is required shall be considered major replacement.

Piecemeal Rebuilding

2.31 An asset may be rebuilt by replacement of its components over a period of time instead of at one time. The criteria fixed for 'minor' and 'major' replacements shall in such cases be applied to the aggregate of expenditures on replacement in an asset and accounted for accordingly.

Shifting an asset to another Place

2.32 Any expenditure incurred on shifting assets from one place to another place shall, regardless of the amount of expenditure, be charged to revenue in the year in which the expenditure is incurred.

Contributions, Grants & Subsidies Towards Cost of Capital Assets

2.33 Contributions, Grants and Subsidies towards cost of Capital Assets shall be treated in accordance with the policies laid down in the following paragraphs.

2.34 Amount receivable as consumer's contribution, subsidy or grant towards capital assets shall be credited to appropriate account set out in Chart of Accounts only if the following conditions are satisfied :

(1) the amount is not subject to any conditions to be fulfilled by the Board, or the conditions attached to the amount have been fulfilled by the Board.

(2) no part of the amount is refundable nor is likely to become refundable by the Board.

2.35 Consumers, Contribution, subsidies and grants towards cost of capital assets shall not be treated as a reduction in the cost but as a capital receipt to be credited to capital reserve account.

2.36 Accounting for cost of a capital as it shall be done in the normal course without considering any contribution, subsidy or grants towards the cost of the asset. Depreciation shall also be charged in the normal course on the full cost of the asset.

Full Write-off Small and Low Value Items

2.37 Full cost of all small and low value assets each costing Rs. 500 or less shall be fully charged to revenue in the year in which the assets are put to use. No part of the cost of such items shall therefore be included in the cost of fixed assets nor shall any depreciation be charged thereon.

Exceptions

2.38 The policy for full write-off stated in paragraph 2.37 above shall not apply to :

(1) Items of a type for which a specific classification has been prescribed for the purpose of depreciation under the Electricity (Supply) Act, 1948.

(2) Items included under the classifications 'Furniture & Fixture' and 'Office Equipments'.

2.39 The accounting policy for write-off of small and low value assets prescribed in paragraph 2.37 shall not apply to cost of granting each service connection.

Criteria to apply to whole Asset and not to individual components

2.40 In applying the accounting policy for full write-off of small and low value items, the assets as a whole shall be recognised and the individual spare parts or components of the assests shall not be wat be treated separately The criterion of Rs. 500 should therefore be applied to the aggregate expenditure.

Piecemeal Building of Assets

2.41 Assets may be completely built over a considerable period of time rather than at one time. The cut-off criteria for write-off should in such be applied to the aggregate of expenditures and accounted for accordingly.

Commissioning of Assets

2.42 All capital expenditure shall be accounted for through capital work in-progress accounts. On commissioning of assets, the expenditure shall be transferred to appropriate fixed assets accounts. Transfer from capital work-in-progress accounts of fixed asset accounted for capitalisation of assets and laid down in the following paragraphs.

Capitalisation When Asset is first put to use

2.43 An asset shall be Capitalised when it is first put to use.

Assets which are commissionable but not actually commissioned

2.44 An asset which is installed/constructed and is in unsuitable/commission able condition but not commissioned/put to use shall not be capitalised until it is actually put to use.

2.45 All costs incurred on capital assets (including costs incurred on maintaining the assets which are ready but await the actual commissioning) shall be charged as the cost of the assets.

No waiting for Finishing Touches

2.46 Cost of an asset incurred upto the stage of commissioning of the asset should be capitalised when it starts being used without waiting for any finishing touches which may not be significant in work and value. Costs of, such finishing touches when completed, should be accounted for and added to the cost of the asset capitalised earlier.

Technical Certificate

2.47 Commissioning of an asset is a technical matter which involves consideration of various factors such as trial, testing to ensure whether the asset is in usable condition etc. Capitalisation of assets shall therefore be done on issue of Asset Commissioning certificate from the relevant Technical Authority of the Board

Capitalisation regardless of disputes with Contractors

2.48 Mere disputes with contractors/supplies regarding the fulfilment of the terms and conditions of contract with them shall not be permitted to withhold or defer capitalisation of assets concerned. Cost of the assets determined on the basis of the contract should be capitalised by making necessary provision for liability to contractors/supplies acknowledged by the Board.

Capitalisation regardless of Non-finalisation of Contractor's Bills, etc.

2.49 Mere non-submission of interim or final bills by suppliers or contractors shall not be permitted to withhold capitalisation of assets. In case where bills are not received or are received but not passed, a provision should be made for an amount as per the contract. The cost of assets concerned shall be determined accordingly and capitalised when assets are first put to use.

Escalation Claims

2.50 Cost escalation claims made by suppliers and contractors should be provided for to the extent the claims are acknowledged by the Board and cost of assets inclusive of such provision shall be capitalised when assets are first put to use.

Rural Electrification Schemes

2.51 Cost of assets forming basis infrastructure for an electrification scheme shall be capitalised, when the infrastructure is first put to use and lines are energized. The subsequent expenditure on granting service conceptions, shall be capitalised as and when each service connection is granted. Capitalisation of individual service connections shall not be withheld or deferred until the targeted number of the connections are granted.

Full Capitalisation of Common Facilities

2.52 Certain assets may constitute common facilities, such as, coal handling plant at a power station project which would provide services to say 3 units. Full cost of such common facilities assets shall be capitalised when the assets are first put to use.

Full Capitalisation of Underutilized Assets

2.53 An asset once put to use, even if underutilised, shall be capitalised for its full cost.

Commissioning of Power Station

2.54 The prescribed accounting policy for capitalisation of power station assets is laid down below :

(1) All costs incurred prior to commencement of trial stage shall capitalised.

(2) All costs and revenue during the trial stage shall betrothed in the manner prescribed in paragraph 2.56 titled Costs and Revert at Trial Stage.

(3) At the end of the trial stage, the generating plant shall be treated as 'commissioned'.

Commissioning of Transmission Lines and Sub-stations

2.55 On commissioning of a transmission lines, all the assets which are put to use shall be capitalised and the total cost of such assets shall be transferred from capital work-in-progress accounts to Fixed Asset Accounts. All expenses incurred before commissioning of transmission lines and substation shall be included in the cost of the assets.

Costs and Revenue during Trial Stage

2.56 Costs incurred and revenue earned (from sale of power generated by the unit under trial) during the period of trial stage shall be treated as follows :

(1) Full period of trial stage or the period of three months from the commencement of trial stage (whichever is shorter) shall be called capitalisable period.

(2) Trial stage costs incurred during the capitalisable period shall be treated as capital costs of assets involved.

(3) Revenue earned from the sale of power generated (by the unit under trial) during the capitalisable period shall be treated as reduction in capital costs.

(4) The excess of costs as per (2) above over the revenue as per (3) above shall be added to the costs of the assets involved at the trial stage. If the amount of revenue is greater than the amount of costs, the excess shall be deducted from the cost of the assets involved at trial stage.

(5) All trial stage costs incurred or revenue earned after the end of capitalisable period shall be taken to Revenue Account without capitalisation of any part of it.

Capitalisation of Capital Spares at Generating Stations

2.57 Capital spares at a Generating Station purchased prior to commissioning of the generating station shall be capitalised upon Capitalisation of the Governating Station for which the spares are purchased.

2.58 Capital spares purchased subsequent to the commissioning of generating station shall be capitalised upon purchase.

Capitalisation of Spare Units/Service Units

2.59 Assets which are to be classified as Spare Units/Service Units in accordance with the accounting policy recommended under the section Other Accounting policies' shall be capitalised when they are put into usable condition regardless of whether they are actually used or not.

Depreciation

2.60 The accounting policies relating to depreciation on fixed assets are laid down in the following paragraphs :

(1) The Board shall charge as depreciation on the fixed assets in use in the beginning of the year, such an amount as is required to write-off 90 per cent of the cost of an asset, on a straight line method over the estimated useful life of the asset.

(2) Depreciation charge on an asset shall cease from the year following year in which,-

the year's depreciation along with the depreciation charged in the previous year's becomes equal to or more than 90 per cent of the cost of the asset, or

the asset permanently ceases to be used by the Board; whichever is earlier

(3) Depreciation charge on a newly commissioned asset shall commence in the year immediately following the year of commissioning.

Depreciation on Leasehold Assets

2.61 In respect of leasehold assets, the depreciation to be charged every year shall be such an amount as in required to write-off 100 per cent (unlike 90 per cent for other assets) of the cost of leasehold asset, on a straight line method.

- over the estimated useful life of the asset or

- over the period of the lease,

whichever is shorter.

In considering the period of the lease, the renewal clause, if any, in the lease agreement shall be ignored.

2.62 Expenditure on development/improvement on leasehold assets shall be depreciated in such a way that full amount of such expenditure, can be written-off, on straight line method over :

- the estimated useful life of asset or

- the balance of the lease period,

whichever is shorter.

In considering the lease period, the renewal clause, if any, in the lease agreement shall be ignored.

Second Hand Assets

2.63 second hand assets i. e., assets used by the previous owner (for whatever number of years) and acquired by the Board shall be depreciated over:

- the estimated useful life of those assets ascertained by the State Government and

- where no such period is ascertained by the State Government half of the estimated useful life of new assets of that class, (as if half the life is expired).

Assets of Common Retirement Date

2.64 Asset which are of use only collectively in a group and an individual assets in that group is of no use in isolation after the other assets of the group are retired/scrapped, are defined as 'Assets of Common Retirement Date'. The period of estimated useful life' adopted for the purpose of charging depreciation shall be common for all the assets in the group of 'Assets of Common Retirement Date'.

Retrospective Reworking of Depreciation

2.65 Retrospective reworking of accumulated depreciation owing to charge in the amount of cost of an asset for the reasons mentioned in 2.124 shall be made only where the increase/decrease in the amount of cost is more than.

- Rs. 50,000 for an asset, and

- 20 per cent, of the cost booked earlier.

In all other cases, the depreciation in the balance life of the asset should be increased or decreased proportionately so that 90 per cent of full cost (or 100 per cent in case of lease-hold assets) is depreciated over the estimated useful life of the asset.

Depredation of Assets used for Construction

2.66 Assets used for construction are classified as under :

(1) Construction Facilities

(2) Project Assets

(3) Fixed Assets.

2.67 By 'construction facilities' is meant those assets which are intended for use on one or the other capital project.

2.68 Depreciation shall be charged on assets classified as construction facilities in the normal manner as it is charged on assets used for O & M except that the amount of depreciation shall be debited not to Depreciation Account but to 'capital WIP - Revenue Expenses Reclassified Account'.

2.69 Certain assets acquired/constructed as a part of a project may be used for construction of other asset of the same project. Such assets should not be capitalised when they are first put to use. Capitalisation should not be withheld till commissioning of say power plant itself. Depreciation is not chargeable in the first year of commissioning. From the subsequent year, depreciation should be charged in the normal manner. However, the depreciation so charged shall be reclassified and charged to cost of other assets of the project.

2.70 Fixed Assets used for construction means those assets which have been, on their commissioning, transferred to Fixed Assets accounts, and are now deployed on any project at construction stage.

2.71 Depreciation on such assets shall be charged in the normal manner. The amount of depreciation charged on such assets shall be later reclassified and charged to capital works.

Provisioned Depreciation

2.72 Board shall ensure that there is no asset which is in service but not depreciated for reasons such as :

(1) Precise cost not known.

(2) Estimated useful life not known or

(3) The responsibility for maintenance and/or accounting of newly constructed/acquired assets not known :

Boards shall endeavour to remove any such reasons at the earliest and shall in the mean time charge at least provisional depreciation on the assets concerned. Retirement, Scrapping, Obsolescence and Sale of Assets

2.73 The accounting policies relating to retirement, scrapping, obsolescence and sale of assets are laid down in the following paragraphs.

Cost of Retirement, Scrapping, Sale of Assets

2.74 All costs incurred on retirement scrapping and sale of assets shall be charged to Revenue Account in the year in which the costs are incurred. Examples of such cost are :

(1) Building/Civil Works demolition costs,

(2) Plant decommissioning costs,

(3) Site restoration costs.

(4) Expenses like legal Charges and Stamp duty for transfer of title to the purchaser.

(5) Freight etc. on transfer of assets to any Asset/Scrap Disposal Authority in the Board.

(6) Expenditure on freight etc. on delivery of the sold assets/scrap to the purchaser.

Withdrawal of cost and Depreciation

2.75 On retirement, scrapping, obsolescence of an asset, the cost of the asset and the accumulated depreciation on it shall be withdrawn from the fixed asset base and transferred to a separate account provided for this purpose.

Loss on Scrapping of Assets

2.76 In case of scrapped asset for which no scrap/salvage value is realised, the written down value of such assets shall be charged off as "Written down value of assets scrapped" in the Revenue Account for the year in which the scrapped assets are found unrealisable.

Gain or Loss on Stile of Assets

2.77 Gain or loss arising on sale of capital assets shall be treated as a revenue item. The gain shall, subject to paragraph 2.78 be credited to Revenue Account for the year in which the asset is sold and the loss on sale of a capital asset shall be debited to the Revenue Account for the year in which the asset is sold.

2.78 The gain on sale of assets shall be treated as a Revenue item only to the extent of total depreciation charged on the sold asset. Gain if any in excess of the accumulated depreciation charged by the Board on the sold asset shall be treated as a capital gain and credited to capital Reserve. .

2.79 For the purpose of computing gain or loss on sale of an asset also the contributions, grants and subsidies towards cost of any capital asset sold shall not be reduced from the cost of the asset sold.

Date of Acquisition not known

2.80 In case of assets scrapped/destroyed/sold for which the date of acquisition is not known, it shall be assumed for the purpose of withdrawal of cost and depreciation that the asset concerned was the oldest asset of the type in use at that accounting unit.

Loss of Assets

2.81 In the event of loss/destruction of an asset, the cost and the accumulated depreciation on that asset shall be withdrawn from the fixed assets block and provision for depreciation respectively.

Write-off of Loss

2.82 Excess of the written down value of the lost/destroyed asset over the amount of insurance claim granted shall charged to revenue in the year in which the insurance claim is settled.

Other Accounting Policies

2.83 The accounting policies for all other matters in relation to capital assets are laid down in the following paragraphs.

Capital Spares at Generating Stations

2.84 The Accounting policy in respect of capital spares at generating stations is given below :

(1) The capital spares at Generating stations should be treated as a capital asset.

(2) Accounting shall be done together for the entire 'lot' of the spares and not item by item.

(3) The total cost of all the spares shall be capitalised.

(4) No accounting shall be done at the time of issue of such spares for replacement in the generating plant.

(5) However on the other hand, depreciation shall be charged on the total cost of the entire lot of spares.

(6) For the purpose of charging depreciating, the estimated useful life of the spares shall be assumed to be equal to the estimated useful life of the generating plant.

(7) On this basis, depreciation equal to 100% (not 90% as in case in case of other assets) of the cost of spares shall be charged by the time the generating plant is to be retired.

(8) On expiry of the life, the spares will therefore be valueless.

(9) The spares remaining unutilised may be sold along with the retired generating plant. Entire sale proceeds should be treated as gain on sale of assets since 100% depreciation is charged in the past.

(10) In respect of the stock of spares remaining unsold on retirement of the plant, no accounting shall be necessary.

(11) If some spares are sold and some are not sold, the accounting is necessary only for spares sold, i.e. treat the sale proceeds as gain on sale of assets.

(12) If some spares are transferred by the generating station to another generating station requiring them, no accounting is necessary in such case.

Takeover of Licensee

2.85 In respect of the assets taken over from licensee, the amount of compensation payable for an asset shall be treated as and accounted for as the cost of the asset.

2.86 Even where the takeover itself or the compensation determined by the Board for takeover has been disputed by the licensee, the assets shall be provisionally valued at the compensation determined by the Board.

2.87 Depreciation shall also be charged as in the normal course based on the provisional valuation. Estimated useful life shall be as fixed by the State Government. If State Government has not fixed and life half of normal life shall be adopted.

Spare Units/Service Units

2.88 The accounting policies prescribed for spare units/service units are given below. The term 'spare unit' covers both spare units and service units.

(1) All spare units shall be capitalised when they are purchased and put into 'usable' condition (ignoring the fact that they are not actually being used and lying in stores unutilised).

(2) Depreciation on spare units shall be charged in normal course as charged for the same type of assets which are in use.

(3) When the original units are removed for repairs or maintenance and the spare units are installed, no accounting adjustments are necessary.

(4) Expense on repairs or maintenance on the removed units shall be charged to revenue.

(5) No accounting entry will be passed either :

- when the removed unit is put back into usable condition or

- when it is actually used again in place of some other unit removed for repairs or maintenance or

- the repaired unit is installed back in its place and the spare unit installed earlier (Step No. 3 above) is removed and brought back to stores.

(6) When the removed unit is considered irreparable, it will be considered to be a retired asset (if the estimated life is over) or scrapped asset (if estimated life is not over) and accordingly the subsequent accounting for estimated life is not over) and accordingly the subsequent accounting for retirement, scrapping and sale shall be done.

(7) Simultaneously with retirement/scrapping of the original unit, the cost and accumulated depreciation on the spare unit shall be transferred to Fixed Assets account.

(8) If one new spare unit is purchased (so as to keep total stock at its position) it will be capitalised and there after the above procedure shall again be followed in respect of it.

(9) Thus essentially, the capital asset additions shall be recognised when a new unit is purchased and a deduction is recognised when any unit is retired/scrapped. All transfers within the entire stock of installed units plus spare units could not involve any accounting.

Formation of a New Board

2.89 On formation of a new State Electricity Board,, the geographical territories of an existing Board may get transferred to the new Board. The fixed assets of the existing Board may also get transferred at Book value (cost less accumulated depreciation) to the new board. In all cases of transfers, the new board shall not account for the book value at the net cost but shall incorporate gross cost as well as accumulated depreciation in its books of account. Depreciation on such assets should also continue to be charged on the gross cost in the same manner as the Board holding that asset hitherto would have charged.

Finance related Costs

2.90 The accounting policies for treatment of costs related to funds utilised for the purpose of construction/ acquisition of assets are prescribed in the following paragraphs.

Costs relating to Borrowings

2.91 Guarantee charges, commitment charges, legal charges/stamp duty for loan agreements/bonds/debentures, advertisement costs in a public issue of bonds, commission or issue bonds/debentures and such other costs shall be charged to revenue in the year in which the costs are included.

Discount/Commission/Redemption Premium on Bonds/Debentures etc.

2.92 Discounts on issue of bonds/debentures shall be charged to revenue in the year in which bonds/debentures are issued. Premium payable on redemption of bonds/ debentures shall be charged to revenue in the year in which the premium becomes payable.

Capitalisation of Interest on Funds utilised at Construction Stage

2.93 No capitalisation of an imputed interest cost (notional interest) on the Board's own funds and interest free finance shall be permitted.

2.94 Every year, a portion of the interest payable on the interest bearing borrowings which relate to financing of capital assets at constructions stage i.e., till the point of commissioning of assets shall be computed in the manner prescribed in paragraph 1.42 of Annexure V and if so directed by Central Government, be capitalised.

2.95 The amount of interest so computed and capitalised shall be reduced from the amount of interest for the year and only the balance amount shall be chargeable to the Revenue Account for the year.

2.96 No part of interest shall be capitalised in respect of assets which involve no time period or involve significant time periods for bringing the asset into usable condition. Examples of such cases are :

- purchase of new vehicles,

- purchase of furniture items,

- purchase of office equipments.

2.97 The amount of interest capitalised shall be included in the cost of the assets which involve significant time periods at construction stage and the same shall, along-with the basic cost of assets, be depreciated in normal course, over the expected useful life of assets.

1. Fuel and Materials Accounting

Fuel Accounting

2.98 The accounting policies for Fuel Accounting are laid down in the following paragraphs :

Basis of Valuation of Receipts of Fuel

2.99 Valuation of full receipts shall be based on the actual quantity and quality of fuel received as determined in accordance with Annexure V and shall cover two elements of cost, viz. fuel cost and freight for fuel receipts.

2.100 Freight cost for coal shall be booked at a standard freight rate to be fixed for each quart for each power station on the basis of colliery-wise expected supplies as per Coal Allotment Programme.

Treatment of Other Cost relating to Fuel

2.101 The costs relating to receipts and stocks of fuel other than the freight cost and fuel cost shall not be added to the value of fuel received, consumed or in stock. These costs when incurred (whether paid or not) shall be charged to revenue through the relevant account provided for these costs.

Accounting for Inferior Grade of Coal

2.102 In respect of the wagons allotted to and received by a Board, in the event of receipt of a grade of Coal inferior to the grade billed, the excess, if any, of the amount billed over the amount payable for the inferior grade of Coal actually received, shall be treated as a loss on inferior grade of coal, if the same is not recoverable from the collieries. Such treatment shall be given, as far as possible, in the year of such receipts.

Accounting for Superior Grade of Coal

2.103 In respect of the wagons allotted to and received by a Board, in the event of receipt of a grade of coal superior to the grade billed, the excess, if any, of the amount payable for the superior grade of Coal actually received over the amount billed shall be treated as a gain on superior grade of Coal. Such treatment shall, as far as possible, be given in the year of such receipts.

Accounting for Losses or Gains on Settlement of Claims with Railways for Missing Wagons

2.104 No provision shall be made for the losses or credit taken for the gains which are likely to arise on' settlement of the claims with Railways which remain unsettled at the year-end.

2.105 Losses or gains or settlement of claims should be booked in the accounts on intimation of the decision by the Railways to the Board of the claims which are settled by them.

Basis of Valuation of Fuel Consumed and Fuel Stock

2.106 The rate adopted for valuation of fuel consumed shall be a weighted average rate computed in following manner :

2.107 The fuel stocks at the end of a month shall also be valued at the above mentioned weighted average rate.

Notes. - (1) Net receipts would mean receipts after deducting the transit loss of fuel Transit loss shall be valued at the average receipt rate for the month.

(2) Quantity and value of all fuel receipts during the month shall regardless of their grades be aggregated for this purpose.

Treatment of Excess/Shortage on Physical Verification Fuel Stocks

2.108 The value of shorter on physical verification of fuel stocks all the year end will be treated as a cost of fuel consumed and the value of excess as a reduction in cost of fuel consumed.

Accounting for Materials Transactions

2.109 Accounting for all materials transactions shall be in the same period in which the physical event of receipts issues etc. takes place Similarly liability for all materials received and accepted by the Board shall be created in month in which the materials are accepted.

Accounting for Incidental Expenses

2.110 Incidental expenses incurred shall not be linked to the actual materials receipts, issues and therefore, shall not be treated as Materials Cost. These expenses shall be treated as a period cost and shall be charged to the Revenue Account of the period in which these expenses are incurred.

Recognition of Consumption

2.111 Accounting for consumption shall closely follow the physical transactions. Issues of materials in respect of specific works shall be forthwith treated as consumption. Where there are lump-sum withdrawal of materials, consumption shall be recognised only when the exact end-use is established.

III. Borrowings and Investments Interest on Borrowings

2.112 Provision shall be made every year for the interest accrued on all borrowings including State Government loans whether such interest is due or not and whether it is actually paid or not in the event of interest payment to State Government not being effected in pursuance of Section 67-A of the Act, the same may be considered as deferred liability. The deferred liability in such cases only means deferment of payments and not deferment of the charge to Revenue Account.

2.113 Total interest cost for the year including interest on State Government loans shall, subject to capitalisation of a portion of interest as per paragraph 2.114 be charged to Revenue Account for the year.

2.114 A portion of the interest on borrowings which relates to financing of capital work-in-progress upto the stage of commissioning shall, if so directed by Central Government be capitalised in accordance with paragraphs 2.93 to 2.97.

Cost Relating to Borrowings

2.115 Guarantee charges, commitment charges and legal charges/stamp duty for loan agreements, debenture trust deeds, bonds or debentures shall be charged to revenue in the year in which the costs are incurred. Provision shall be made at the year-end for the above costs for the year, which have accrued but are not paid.

Discount and Redemption Premium on Bonds, etc.

2.116 Discount on issue of bonds, debentures or other securities offered by a Board shall be charged to Revenue in the year in which the bonds/debentures are issued.

2.117 Premium, if any, payable on redemption of bonds, debentures or other securities shall also be charged to Revenue Account in the year in which premium becomes payable.

Treatment of Income and Investments

2.118 Income from investment shall be credited to the Revenue Account for the year in which the income has accrued. However, if the investments are held as earmarked investments against any Fund such as Pension Fund, Gratuity Fund, etc., the income from such investments may be credited directly to the respective Fund.

2.119 Provision shall be made for the income from investments (whether to be credited to Revenue Account or a Fund) which has accrued but not received by the Board.

Investments to be Recorded 'at Cost'

2.120 Investments shall be recorded in the books of accounts at actual cost of acquisition including transfer changes, stamp duty etc. No adjustment shall be made for the excess or shortfall of the cost over the face value of the investments.

Treatment of Loss/Gain relating to Investments

2.121 Gain on sale of investments shall be credited to the net Revenue and Appropriation Account. Similarly if any Redemption premium is received on maturity of securities, the same shall also be credited to Net Revenue and Appropriation Account. Loss on sale of investments shall be debited to Net Revenue and Appropriation Account, in case of investments against a Fund the credit for the gain or debit for the loss shall not be given to the Revenue Account but to the respective Fund Account itself.

1. Other Accounting Areas

Foreign Currency Transactions

2.122 When a foreign currency transaction is being first recorded in a Board's books of accounts, the assets, liabilities, income or expenses arising from the foreign currency transaction shall be translated at the official exchange rate in force on the transaction date.

2.123 All amounts owed to the Board or owed by the Board in foreign currency outstanding at the balance sheet date (including liability in relation to acquisition of fixed assets) shall be translated at the official exchange rate in force as on the balance sheet date. If the amount derived on such translation is different from the amount at which the receivable or liability is appearing in the books of account, the difference shall be recorded in the books as under ;

(1) Increase in the amount of receivable or decrease in the amount of the liability shall be treated as a gain and be credited to Exchange Variance Reserve.

(2) Decrease in the amount of receivable or increase in the amount of liability shall be treated as a loss and shall be debited to Exchange Variance Reserve. If as a result of such debit, the net balance in reserve account is a debit balance, the amount of debit balance shall be charged to revenue for the year as "Loss on Exchange Rate Variation".

Gain or loss arising on account of difference between actual amount received/paid and the amount at which the item is appearing in books shall also be treated in the same manner as above.

2.124 Where any revaluation or devaluation of rupee vis-a-vis the currency in which the liability is to be discharged is more than 10% at one time, the same shall not be treated in accordance with the above mentioned policy. The policy relating to treatment of such situation shall be as follows :

(1) The increase or decrease in the amount of foreign currency liability shall be accounted for as an increase or decrease in the cost of the assets financed by the liability.

(2) The depreciation for the past years shall also be reworked for the assets where the conditions laid down in paragraph 2.65 for retrospective reworking of depreciation are fulfilled.

Loss due to Fire, Flood, Cyclone, etc.

2.125 All losses on account of flood, cyclone, fire, etc. shall be treated as the loss for the year in which the loss was incurred. Such a charge against revenue shall be reduced :

(1) by the insurance claim granted by the insurer where assets are insured with an outside insurer;

(2) by the amount of reserve created where the Board follows self-insurance practice and

(3) by subsidy, if any, received from Government etc., specifically for meeting the loss.

In the case referred to in sub-point (2) above, the excess amount set aside, if any, in respect of the assets may be written back to Revenue Account. Income-tax

2.126 Provision shall be made every year, for the tax payable by the Board on its income or profits in accordance with provisions of the relevant tax law. Such a provision shall be treated as a charge against the revenue before arriving at the Board's profit for the purpose of computing surplus for the year under Section 59.

2.127 Any excess or shortfall of the provision for income period credit or prior period charge in the revenue account for the year in which such excess or shortfall is established.

Timing of Accounting of Revenue

2.128 revenue from sale of power shall be accounted for on an accrual basis. The accounting for revenue shall thus be totally delinked from the timing and the extent of actual collection of revenue from the consumers. Where the sale of energy prior to the end of a year has not been billed, a provision for such unbilled revenue shall be made at the year-end so as to treat the amount as revenue in the year of supply of power.

Treatment of certain items recoverable from consumers

2.129 The accounting policy on treatment of certain items recoverable from consumer's is laid down below with reference to each such item :

(1) Electricity Duty. - Electricity duty recovered from consumers and forwarded to the Government is neither a cost nor an income to the Board. It should thus be kept out of the Revenue Account altogether. The point of time the liability to pay Electricity Duty to the Government arises would differ from State to State-it may arise either on assessment or on collection. In order to reflect the liability truly in either case, the amount of duty assessed but not collected from consumers and the amount of duty collected from consumers but not yet remitted to the Government shall be shown separately in the accounts.

(2) Minimum Charges. - Minimum Charges levied in case of consumption below a specific minimum consumption during a billing period or during a year shall, for the sake of working convenience, be treated fully as revenue from sale of power although strictly only a part thereof relates to sale of power.

(3) Treatment of Minimum Charge levied on Applicants who have delayed taking of connection. - Applicants who delay their Test Report are at times billed a minimum charge even though no power has been supplied to them. Such income shall be treated as Miscellaneous Charges from Consumers". The amount receivable on this account shall also be accounted for in an account separate from 'Sundry Debtors for Sale of Power'.

(4) Treatment of discount allowed for timely payment. - Cash discounts allowed to consumers as an incentive for timely payment by the due date should when allowed, be treated as a cost and shown separately as such in the Revenue Account.

(5) Treatment of Delayed Payment Charges. - Charges recovered from consumers for delayed payments should not be clubbed with the revenue from sale of power but shown separately since these are more in the nature of a financial charge.

(6) Accounting for bills of Thefts of Energy. - Income arising from the bills raised for Theft of Energy, whether on a consumer or an outsider, shall be treated as income and reported under a separate account head provided for such revenue.

Cheque Received and in Hand to be Regarded as Cash

2.130 Cheques and bank drafts received will be treated as cash until they are deposited in bank and will be included as "Cash on Hand" in the accounts. Banking of such cheques and drafts will, therefore, be considered as deposit of cash in the bank Account.

Subsidies

2.131 Subsidies which are receivable to assist a Board to meet, partly or fully, shortfall of revenue as compared to cost of operations of a specific type or of a specific activity carried out or being carried out by the Board on its own or under the directive of the body from whom the subsidy is receivable shall be credited to Revenue Account.

2.132 The subsidies, the receipt whereof is dependent upon the Board satisfying certain conditions shall not be taken credit for to Revenue Account until the Board satisfies all such conditions.

2.133 Where a claim for subsidy of revenue nature is made by no intimation of granting of the claim has so far been received the outstanding amount for the current year and for the past years should be shown as a deduction in the Reserve Schedule.

Annexure IV

Procedures on Change-Over to the New Firm of Accounts

1. Implementation of the New Form of Accounts shall, inter alia, involve the following :

(1) Adoption of the prescribed basic accounting principles and polices.

(2) Adoption of the prescribed Chart of Accounts and

(3) Compilation of the Annual Statement of Accounts in the Prescribed formats.

Adoption of the prescribed basic accounting Principles and Polices

2. The prescribed basic accounting principles and polices shall be applied only prospectively that is to say, only to the transactions which take place after the effective date.
3. The revenue or expense resulting from any transaction relating to prior periods shall be segregated as Prior Period Income or Expense.
4. Policies, like basis of valuation of materials purchased, would apply only to prospective transactions. But the prescribed basis of valuation of issues may be applied for the sake of simplicity and uniformity even to the issues out of the stock on hand as on the effective date, if the stock is valued on a basis not much different from the prescribed basis. The small differences arising in such cases shall be dealt with appropriately with a disclosure in the annual accounts for the year of changeover to the new form of accounts and the year in which the adjustments are made.

Retrospective adjustments for interest and depreciation

5. In respect of interest and depreciation, however, a retrospective adjustment shall be done. Under Sections 67 and 68 of the Act, prior to their amendment by the Electricity (Supply) Amendment Act, 1983. Depreciation Charge was restricted to the amount of surplus available after appropriations under section 67. Similarly interest on State Government loans and lower priority as compared to the creation of sinking Fund for repayment of loans.
6. As a consequence of these provisions, the Boards have created Sinking Funds for repayment of loans although huge arrears of interest and depreciation remain to be charged to revenue.
7. Every Board shall re-open its accounts for the year ending on a date immediately preceding the effective date. The following adjustments shall be made to these accounts :

(1) Full amount of the reserve or the sinking fund for repayment of loans standing in an account, by whatever name called, shall be credited to a 'Restructuring Account'.

(2) All arrears of depreciation and arrears of interest shall be debited to the Restructuring Account.

(3) The net balance in the Restructuring Account, whether debit or credit, shall be transferred to the Net Revenue and Appropriation Account for the year in which the prescribed accounting policies become effective.

(4) Reopening of the said accounts shall be after prior approval of the Board.

(5) A note containing the 'Restructuring Account showing adjustments made to the previous year's accounts shall also be included in the Board's annual accounts for the first year ending after the effective date.

Adoption of the prescribed chart of Accounts

8. The prescribed Chart of Accounts shall be adopted as under :

(1) All revenue, expenses, gains and losses which take place after the effective date shall be accounted for under the prescribed account heads.

(2)(a) Balances in the Balance sheet accounts as on the effective date shall be analysed wherever necessary, and restated, to the extent possible, under the account heads prescribed for assets, liabilities, reserves and reserve funds.

(b) Where such restating of a balance (or part of a balance) is not possible owing to non-availability of information in respect of the outstanding balance (or, as the case may be, that part of the balance) :

(i) each Board shall introduce necessary account heads and transfer thereto each of such balances or the parts of the balances which could not be so restated; and

(ii) transactions after the effective date, which clear, in full or in part, the earlier balances shall be accounted for under the accounts so introduced by the Board.

(c) All transactions, other than those referred to in clause b(ii) above,, occurring after the effective date, shall be accounted for under the relevant account heads under the prescribed Chart of Accounts.

(d) After a period of three years from the effective date, the past balances remaining uncleared in the accounts introduced by the Board as aforesaid shall be dealt with depending on the nature of the account head concerned and the materiality of the amounts involved.

(3) Balances, if any, in inter-unit accounts, as on the effective date, shall be reconciled, as far as possible. The unreconciled portions of such balances shall be dealt with after taking into consideration factors, such as, the type of inter-unit transactions normally taking place between the accounting units involved, the nature of operations (construction or operations and maintenance) performed at the concerned accounting unit and the materiality of the amounts involved.

Compilation of the Annual Statement of Accounts in Revised Formats

9. The Annual Statement of Accounts for the accounting year ending immediately after the effective date, as adopted by the Board, shall also include a note containing particulars of-

(1) part balances restated (i.e. the amount restated and the earlier account head from which and the new account head under which the balance has been restated); and

(2) balances transferred (which could not be so restated) to the accounts introduced by the Board as aforesaid.

Such balances shall, as far as possible, be so grouped as to broadly confirm to the disclosure requirements under the revised annual accounts formats.

10. For each of the first four years ending immediately after the effective date, the Board shall also include, in its annual accounts, a note containing particulars of :

(1) the amount of past balances transferred to each of the accounts introduced by the Board in accordance with sub-paragraph 2(b)(i) of paragraph 8 above.

(2) the amount of the aggregate of the amounts of past balance cleared by transactions,-

- during the year.

- during one or more previous years ended after the effective date in accordance with sub-paragraph 2(b)(ii) of paragraph 9 above.

(3) the past balances remaining uncleared at the end of the third year after the effective date and the manner in which they have been dealt within the fourth year as discussed in sub-paragraph (2)(d) of paragraph 8 above; and

(4) the unreconciled balances in the inter-unit accounts and the manner in which they have been dealt with as discussed in sub-paragraph (3) of paragraph 8 above.

11. The additional notes required to be given as per sub-paragraph (5) of paragraph 7 as also per paragraphs 9 and 10 above during the period of change-over to the prescribed new form of accounts shall be part of the Annual Statement of Accounts.
12. In the annul accounts for the first three years ending after the effective date the uncleared portions of the past balances (which could not be restated) outstanding in the accounts introduced by the Board shall be disclosed separately in the appropriate Schedule to the Balance Sheet.

Annexure V

Procedural Matters Relating to Accounting Transactions

The procedural matters relating to accounting transactions of State Electricity Boards are classified under the following sections :

Section                 Subject

1. Capital Expenditure and Fixed Assets.
2. Fuel and Materials Accounting.
3. Borrowings and Investments.
4. Other Accounting Areas.
5. Capital Expenditure and Fixed Assets

1.1 The procedural matters regarding expenditure on construction acquisition and maintenance of capital assets are laid down in this Section.

Cost of Capital Assets - Departure from 'Actual Cost' basis'

1.2 Reference is invited to paragraph 2.4 of Annexure III wherein it is stated that the cost of a capital asset shall include all actual costs' incurred to prepare the assets for use. However a departure from 'Actual Cost' basis of accounting capital assets shall be made in the following cases.

(1) Assets received as Donation/Grant. - An Asset received as donation shall be accounted for at its fair market value. The fair market value shall be debited as the cost of the asset and credited to 'Donated Capital Assets Account' which shall be included under a Reserve and be treated in the same manner as Contributions Grants and Subsidies towards cost of capital assets. Donated assets which are subject to certain conditions shall nevertheless be treated as fixed assets but be disclosed by way of a footnote indicating value of such assets. Assets received as grant shall also be accounted for in the same manner as donated assets.

(2) Exchange of Assets. - Where an asset is exchanged for another asset the asset surrendered shall be deemed to have been disposed of at its fair market value. Gain or loss based on the fair market value shall be accounted for in the normal course. The cost of the asset acquired in exchange shall be deemed to be the fair market value of the asset surrendered plus any additional consideration given or minus any additional consideration received.

(3) Leasehold Assets. - Lease premium payable on acquiring lease rights for assets shall be treated as the cost of leasehold assets. Depreciation shall be charged on such cost in the manner prescribed for Depreciation on Leasehold Assets. Periodic rentals payable on leasehold assets shall be charged to Revenue in the year in which the rentals accrue. If the Board acquires leasehold rights for an asset with no or negligible lease premium, the fair market value of the asset shall be determined and the amount required to state the asset at its fair market value shall be debited of the asset and credited to an account 'Liability for leasehold Assets'. The fair market value of the leasehold assets shall be depreciated over the lease period. Simultaneously extinguishment of a proportionate amount of liability set up in the books shall also be affected. By the end of the lease period the liability in accounts would have been fully extinguished and a provision for depreciation equal to the amount of fair market value booked as cost would have been created. On returning the assets to lessor, the provision shall be set off against the amount of cost of the asset so as to close the two accounts.

Employee Costs Chargeable to Works

1.3 For the purpose of determining employee costs chargeable to capital works the following classification of employee costs shall be adopted :

(1) Employee costs recorded at construction divisions/construction circle/construction stores division/construction workshops, etc. where no activities relating to O & M are carried out shall include :

(a) cost of temporary staff

(b) cost of permanent staff deployed at the location throughout the year

(c) cost of permanent staff deployed for the part of the year. In such cases it may happen for example that an employee's two months salaries etc. are booked here when he was deployed here but the annual payments like bonus and LTA or earned leave encashment (part of which is relating to these two months) is paid and recorded at some other location where he is deployed at the time of such payments. In case of some other employee full year's annual payment. like bonus may be paid and recorded at construction unit although he has worked there only for say 4 months. No adjustment need be made for such minor inaccuracies.

(2) At accounting units which have both O&M and construction work employee costs shall include :

(a) Cost of temporary labour/supervisors retained specifically for one or more capital jobs.

(b) Additional emoluments (such as project allowance) given to O&M staff at a location for also doing the work related to capital projects.

(c) Cost of permanent staff members deployed exclusively or largely on construction jobs. For example Projects Section, Design Section, etc. at Head Office. Project accounting staff at a division construction engineers at a power station where 2 units are in operation and third unit is being set up capital stores staff if such separate stores is set up and so on.

(d) Staff which works on both capital as well as O&M Jobs without any additional emoluments to them.

Method of Allocation of Staff Cost and Expenses over Various Assets

1.4 Staff costs materials related expenses and other expenses which are chargeable to capital works shall be :

(1) identified to specific capital job wherever possible

(2) failing which identified to a specific group of capital jobs wherever possible (and within the group allocated on an ad-valorem basis);

(3) failing which identified to a project wherever possible (and allocated on ad-valorem basis over various jobs within the project);

(4) failing which allocated on an ad-valorem basis over various projects and various jobs within each project.

Identification to one or more jobs should be done only if possible to identify without any allocation. In all other cases ad-valorem allocation shall be adopted.

1.5 By ad-valorem basis is meant allocation of capitalisable expenses as a percent of the capital expenditure incurred during the period on the job/project (and not as a per cent of total capital expenditure on that job/project including the expenditure incurred in previous periods of allocation).

1.6 For the purpose of allocation the term capital expenditure would include progress payments on supply-cum-contracted work order which are to be recorded in a separate account.

1.7 No part of the staff costs or other expenses chargeable to capital works shall be allocated over the capital expenditure on furniture office equipments and vehicles or on capital expenditure for take over of license.

1.8 The work of capitalization of assets commissioned during the period cannot be expected to be kept pending merely for determination of total capitalisable expenses incurred during the period. Methods of allocation using fair estimate of such capitalisable expenses may be adopted where necessary.

Cost of Development on Leasehold Assets

1.9 The cost of development on leasehold assets shall be accounted for under a separate account and not added to the cost of leasehold assets.

Land as a Future Plant Site

1.10 Land may be purchased or acquired as a future plant site for projects which are yet to be taken up (e.g. land purchased for a project which is sanctioned in principle but detailed survey and investigation is continuing). Cost of such land shall be debited to capital work-in-progress account (Project code-99) - Not identifiable to any specific project code).

Purchase of a Building alongwith land

1.11 When a building is purchased alongwith the land the purchase cost shall be allocated between the land and the building based upon a technical and commercial appraisal. If a part of the purchase consideration towards land is for lease rights to the land that part should be appropriately classified as leasehold land.

Assests Awaiting Conveyance in favour of the Board

1.12 In the case of purchased assets wherein formal conveyance is delayed and the Board has in the meantime put the asset to use the cost of the asset shall be shown as fixed assets. The fact of pending conveyance of the asset may be disclosed by the way of a note to the accounts.

Contributions grants and subsidies towards cost of capital Assets

1.13 Accounting procedures relating to contributions grants and subsidies towards cost of capital assets are laid down in the following paragraphs.

Consumers' Contribution

1.14 Reference is invited to paragraph 2.34 of Annexure III wherein it is stated that amount receivable as consumers' contribution shall be credited to consumers' contribution account if-

(1) the amount is not subject to any conditions to be fulfilled by the Board or the conditions attached to the amount have been fulfilled by the Board; and

(2) no part of the amount is refundable nor is likely to become refundable by the Board.

1.15 Any amount received by a Board as consumers' contribution or deposit shall be accounted through "Deposit for Deposit Works A/c. until the above two conditions for treating the amount as consumers contribution mentioned above have been met at which time the amount will, be transferred to Consumers' Contribution Account. Amount it any becoming refundable shall be debited to the Deposit for Deposit Works A/c.

Certain Amounts may not be Grants/Subsidy

1.16 Certain amounts receivable by the Board may be computed with reference to the cost of capital assets or progress on a capital project but in fact are actually in the nature of interest free loans. Such amounts shall not be treated as grants or subsidy towards cost of capital assets.

Treatment of Small and low value items (each costing Rs. 500 or less) for Non-accounting purposes

1.17 For the purpose of project cost estimation, for reporting of total project cost, or for deciding competent authority for project approval and execution, the cost of all such small and low value items shall be included in the amount of cost of the project and be treated in the same manner as large value assets which are to be capitalised. Similarly the controls regarding records, custody, numbering and verification of such assets shall remain the same as is presently exercised over those assets.

Commissioning of Power Station

1.18 The various aspects connected with commissioning of Power Station and therefore related to the accounting policy for capitalisation of Power Station assets are set out hereinbelow :

(1) Activities like flushing of pipes, acid cleaning of boiler, acid cleaning of pipes, steam blowing of lines, moisture drying of generator, etc. shall be deemed to be before commissioning.

(2) Testing of individual segments of the plant for example testing of protective system, testing of cooling water system, etc. shall be deemed to be before commissioning.

(3) On the collective testing of the entire plant (which is also known as rolling of the machine - when Turbin-Generator is put on trial along with Boiler and all other plants) the 'trial stage' shall be deemed to have commenced.

(4) The trial stage shall be deemed to have ended at the end of the month during which the new generating station achieves for the first time an 'Availability Factor' which is equal to or more than the "Average Availability Factor of all other Generating stations of the Board in the previous month'.

For this purpose, Availability Factor shall be computed as follows :

(i.e, No.of days in the month x 24 Hours)

Average availability Factors of all other generating Stations of the Board shall be worked out as follows :

(5) The end of the trial stage of a new generating station shall be certified by the highest technical authority in the Board.

(6) On the receipt of such a certificate, all the assets at the new generating Station which are put to use shall be capitalised. Cost of the assets shall be transferred to Fixed Assets Account. In this regard full cost of common facilities, assets and under utilised assets shall also be capitalised.

Commissioning of Transmission Lines and Sub-Stations

1.19 Commissioning of transmission lines and sub-stations also involve trial stage.However,unlike generating Stations, no revenue is generated and the costs incurred are not very large during the trial stage. No trial stage shall therefore be recognised for defining commissioning of transmission lines and sub-stations.

1.20 A transmission line shall be deemed to have been commissioned at the end of the month during which it achieves an availability factor which is equal to or more than the "Average Availability Factor of all other Transmission lines of the Board."

1.21 Sub-stations shall also be deemed to have been commissioned on achievement of the availability factor as in case of transmission lines. In both cases, commissioning shall be certified by the highest technical authority of the Board.

Determination of Revenue during Trial Stage of Generating Station

1.22 Revenue during the capitalisable period which is the full period of trial stage or the period of three months from the commencement of trial stage (whichever is shorter shall be computed as under :

The resultant shall be deemed to be the Revenue during the capitalisable period.

Depreciation

1.23 Procedural matters connected with the accounting policy on depreciation on fixed assets are set out in the following paragraphs.

General Framework for charging Depredation

1.24 The general framework for charging depreciation is outlined below :

(1) The existing practice of charging depreciation on straight line method shall continue.

(2) 90 per cent of the cost of fixed asset shall be depreciated over the estimated useful life of the asset.

(3) "Estimated useful life of the asset".

- as prescribed by the central government in consultation with the Central Electricity Authority.

- as prescribed by the State Government in respect of assets where the Central Government has not prescribed any period.

(4) No depreciation shall be provided on an asset in the year in which it is first put to use by the Board.

(5) Depreciation shall be charged on an asset even if during the year, it permanently ceases to be used by the Board.

Periodic Review of prescribed 'Estimated useful life'

1.25 Central Government shall periodically carry out an exercise to assess the need for any change in the estimated useful life of assets' prescribed by it, required in view of technological changes in the assets normally used by various Boards of the country. Based on the findings of the exercise, such changes shall be made to the schedule of prescribed period of estimated useful life of assets as are considered necessary by the Central Government. All changes to the schedule of prescribed period of estimated useful life, shall be prospective and shall be applicable only for depreciation chargeable in subsequent years.

Assets of Common Retirement Date

1.26 An area where the concept of 'Assets of Common Retirement Date' would become operative in subsequent additions at a generating plant, substations or transmission lines, resulting, in assets which would be retired alone with the assets installed earlier, although as such, the number of years or estimated useful life of the newly added assets would not expire by then This concept is illustrated below :

Example :

(1) Estimated life of water circulating system is say 25 years and granting plant also 25 years.

(2) A totally new arrangement of water circulating system at a generating plant felt necessary in say 11th year of the generating plant with balance life 15 years (i.e., 25 years less 10 years expired).

(3) The water-circulating system would have normally been depreciated over 25 years. However the expenditure on new water-circulating system in this case would be required to be depreciated over the balance 15 years since it would not be of any use after the generating plant itself is retired in the 15th year from now.

Subsequent Change in the Purpose of use of an Asset

1.27 Any change in the purpose of use of an asset shall be recognised only prospectively for charging depreciation in the years subsequent to such change. For example Building containing Diesel Generating Sets is to be depreciated over say 30 years, the DG sets are scrapped earlier since they were obsolete in technology and the building is, after some notifications used for say office purpose (for which estimated life is say 50 years). The change in the estimated useful life of the asset owing to a change in the purpose for which the asset is used, shall be recognised only for future depreciation.

Wear & Tear during Construction Stage

1.28 In a project period of say 4 to 5 years, assets which were constructed in say first year but lying idle until completion of other assets, do suffer wear and tear during the following 3 to 4 years. No depreciation shall be charged towards such wear and tear of such idle assets at construction stage.

Assets Transferred to Other Divisions/Circles

1.29 In respect of the assets transferred between accounting units during the year, the accounting unit which held the assets at the beginning of the year shall charge full year s depreciation on the transferred asset and no depreciation on the assets shall be charged for the year by the transferred location (s).

Retirement, Scrapping, Obsolescence and Sale of Assets

1.30 Procedural matters, connected with the accounting policies relating to retirement, scrapping obsolescence and sale of assets are set out in the following paragraphs.

Sale of Assets for which written-down value is not known

1.31 Fixed Assets sold by the Board for which written-down value is not known shall be deemed to have been sold without any loss or gain. The written-down value shall be deemed to be equal to the sale proceeds.

Provision for Loss on Obsolescence

1.32 Provision shall be made for loss if any expected to arise from the obsolescence determined by the Board of any of its capital assets whether in service or removed from service. Similar provision shall be made for loss from obsolescence of capital spares. The provision shall be utilised to meet the loss arising on disposal/scrapping of those assets.

Assets taken over from licensee

1.33 The accounting policy prescribed for assets taken over from licensee requires adoption of provisional valuation in case of disputes. On final valuation of the taken over assets the following procedures should be adopted-

(1) Any increase or decrease from the provisional valuation shall be adjusted to the cost of the assets.

(2) Small and low value assets shall be written off.

(3) Depreciation on all the balance assets which are capitalised shall be reworked from the date on which the assets were vested in the Board.

(4) Difference between the provisional depreciation and the reworked depreciation shall be credited or debited (as the case may be) to the Revenue Account for the year in which final valuation of taken over assets is done. Such debit or credit shall be disclosed in the Revenue Account as Prior Period Gain or Charge.

1.34 The reworking of depreciation referred to in the above paragraph shall also incorporate changes, if any, made to the estimates of useful life of the assets which were adopted for charging provisional depreciation. This may be necessary when the State Government has finally fixed the estimated useful life. If however the final estimate of useful life is made after the reworking of depreciation then the changes in life shall be recognised only for future depreciation without any retrospective reworking.

Disputed Claims under Warranty for Repairs

1.35 Supplies/Contractors of capital equipments may have provided warranty of repairs of assets Boards claims under such warranties may get disputed by suppliers/Contractors. Repairs expenditure incurred by the Board for which reimbursement is claimed but is disputed shall be fully charged to Revenue Account for the year in which the costs are incurred. Reimbursement when granted by the Supplier should be credited to Revenue Account in the year of receipt of reimbursed amount.

Excess/Deficits observed on Physical Verification

1.36 Any excess observed on physical verification of assets shall be brought into Board's books by valuing each excess item at one rupee each. The credit will be given to miscellaneous income account.

1.37 The written-down value of assets not found on physical verification and established after investigation as deficit shall be written off by transferring the cost and accumulated depreciation on such assets to the Revenue Account.

Certain Disclosures required to Board's accounts

1.38 Board's accounts shall disclose by way of a note-

(1) Book value of assets, if any, which are likely to require surrender of the assets by the Board to the Suppliers/Lenders since the Board has failed to make certain payments in respect of purchase price of the asset or loans raised on the security of such assets.

(2) The Assets in respect of which an effective title is not vested in the Board.

Liability for capital Supplies/Capital Works

1.39 The accounting procedures relating to providing of liability in respect of Capital Supplies/Capital Works shall be as follows-

(1) Liability to Supplier contractor shall be created by the Board on acceptance by the Board of the Goods supplied by supplier or works carried out by Contractor.

(2) Capital Supplies in respect of which the property in the goods has passed to the Board although the Board has actually not received the goods shall be accounted for at the year end and capital supplies in transit and corresponding the liability towards the supplier shall be created in Boards books.

(3) At the year end, the capital works completed by contractors in respect of which bills are not received by the Board or received but not passed shall be identified and certified by Board's engineers and provided for in accounts to create liability to Contractors as ascertained on the basis of the contracts. This requirement shall not apply to contracts with total contract value of less than Rs. 25 lakhs.

(4) In respect of imported capital equipment kept in Bonded warehouse no provision need be made for the customs duty which will become payable on removal of the equipments from the bonded warehouse.

Cash Discount

1.40 Cash discounts earned by the Board on making timely or early payments to Suppliers/Contractors shall not be reduced from the cost of the assets but shall be credited to Revenue Account as an income for the year in which the cash discount is earned.

Interest on Advances to Suppliers/Contractors

1.41 Interest receivable by the Board on advances to suppliers and contractors for capital supply/works shall not be deducted from the cost of the assets purchased or constructed but shall be credited to Revenue Account as an income for the year in which the interest income accrues.

Capitalisation of Interest on funds utilised during construction stage

1.42 In computing the interest on funds utilised during construction stage of capital assets the following factors shall be taken into consideration :

(1) The full amount of interest payable for the year would be considered for this purpose.

(2) Arrears of interest shall not distort the computation of interest on funds utilised construction as these arrears are required to be debited to a Restructuring Account and then adjusted to surplus/losses.

(3) In view of the difficulties in identifying a source to its use no attempt shall be made for source use identification.

(4) The exercise of computation of capitalisable interest shall be carried out at head office of the Board.

(5) This exercise shall be carried out considering rupees in thousands only.

1.43 Interest on funds utilised during construction stage of capital assets shall for the purpose of capitalisation of such interest be computed as outlined below :

(1) The Net Assets shown in the Balance Sheet shall be split into :

(a) Assets at Construction Stage (ACS) )This would be established with reference to Schedule 21 to the Balance Sheet).

(b) Balance Net Assets (BNA).

(2) The ACS computed under 1(a) above shall be reduced by excess if any of Liability for Capital Supply Works over Capital Stores and Advances for Capital Supply/Works.

(3) BNA shall be derived after the balance current liabilities are netted off against the current assets.

(4) Total Funds as per Balance Sheet will be first classified as under :

(a) Borrowing for Working Capital.

(b) Payments due on Capital Liabilities

(c) Loans having an initial period of interest-holiday

(d) Other interest-free liabilities

(e) Reserve Funds

(f) Reserves and Surplus

(g) Interest-bearing capital liabilities.

(5) Matching of each of the above-mentioned different items of funds with the Assets for the purpose of determining Interest-bearing ACS' and 'Interest-bearing BNA shall be carried out as under :

(a) Borrowings for Working capital and payments due on capital liabilities shall be deemed to be financing BNA and therefore deducted from BNA.

(b) Capital loans which provide an interest-free period for the first few years shall be fully appropriated against the ACS on the grounds that interest-holiday is specifically to provide interest-free finance at construction stage.

(c) Interest-free capital liability if any shall be proportionately divided over ACS and BNA.

(d) Reserve funds shall be set against the investments made against the funds.

(e) Reserves surplus and the excess of Reserve fund over its investment as per 5(d) above shall be added up to determine 'Own Funds'. 'Own Funds' shall be divided proportionately over ACS and BNA.

(f) Where the Board has negative 'Own Funds' in its Balance Sheet because of accumulated losses no adjustment of own funds shall be made (meaning that a part of the funds of capital liabilities is sunk by way of losses).

(6) Balance ACS and BNA after carrying out the matching as described in (5) above would represent 'Interest-bearing ACS' (IB-ACS) and 'Interest-bearing BNA' (IB-BNA). The aggregate of the two should be equal to interest-bearing capital liabilities (as reduced by negative own funds if any).

(7) Interest-bearing ACS at the beginning of the year and at the end of the year shall be used to determine Average Interest Bearing ACS. Similarly Average interest-Bearing BNA' shall be computed.

(8) The interest payable for the year on capital liabilities shall be proportionately divided over the average IB-ACS and average IB-BNA.

(9) The portion of interest payable allocated to IB-ACS would represent the amount of interest to be capatilised.

2. Fuel and Materials Accounting

2.1 The procedural matters regarding Fuel and Materials accounting are laid down in this section.

Quantitative Measurement of Fuel

2.2 The procedure in respect of quantitative measurement of receipts consumption and stock of fuel are discussed in the following paragraphs :

Need for measurement

2.3 Proper measurement of quantity of fuel is of critical importance for the following purposes :

(1) Computation of cost of fuel consumed.

(2) Valuation of fuel stocks.

(3) Facilitating dealings with third parties, such as, fuel suppliers transporters fuel handling contractors.

The method and basis for such measurement needs to be precise because any small inaccuracy in the basis would when applied to large volumes of fuel result in a significant inaccuracy in the measurement.

2.4 In view of the need for a precise measurement, it is essential that all receipts and consumption of fuel of each type be quantified through actual measurement/weighment.

2.5 Actual measurement would require installation and continuous maintenance of facilities like weight, bridges, flow meters, belt scale, etc. which would involve expenditure ranging from small to large amounts depending on the adequacy of the existing facilities. Such an expenditure should however be treated as justified in view of the importance of precise measurement of fuel receipt, consumption and stocks.

Oils

2.6 Certain physical parameters like specific gravity of oil, etc. have to be used for converting readings from oil flow meters and dip measurement in oil storage tanks into quantity of oil. Such parameters shall be established through laboratory analysis periodically.

Gas

2.7 Quantitative measurement of gas also requires use of certain norms and physical parameters for converting readings from gas flow meters into volume of gas. Such norms and parameters shall be used after they are established through periodic analysis in the laboratory.

Coal

2.8 With regard to quantitative measurement of coal, however, certain factors need to be considered :

(1) Inadequate facilities at the receiving point would slow down the unloading process. Any delay in unloading wagons would result in a liability to pay demurrage apart from increasing the wagon turnaround' time.

(2) Quantity of coal to be handled by weighing facilities is relatively high.

(3) The weighment facilities in coal handling plants work in quite rugged conditions.

(4) Receipt and consumption of coal is a day and night affair.

2.9 On a proper consideration of these factors the procedures requiring 100 per cent, measurement in all cases of fuel receipt and consumption has been modified in case of coal. The modified procedure is discussed below :

(1) Wherever adequate facilities including spare equipment to meet the requirements during the period of equipment break-down are available, full quantity, of all the receipts of coal should be weighed.

(2) Wherever adequate weighing facilities are installed but owing to a short period of breakdown of weighing facilities, 15 to 20 per cent of the receipts during the month remain unmeasured, the results obtained for the (80 to 85 per cent) receipts during the month which have been weighed should be applied to the unweighed wagons to estimate quantity therein.

(3) Where adequate weighing facilities are not existing, such facilities should be installed. In the intervening period, coal receipts during each month should be quantified on the basis of a sampling method.

A sample of receipts which are statistically representative of all the receipts during the month must be drawn each month.

The sample of wagons should be weighed and the weighment recorded in a register alongwith the carrying capacity (including permissible overloading) of the wagon. Total of weighment should be deducted from the total of carrying capacity. The resultant figure would give quantity of transit loss of coal.

The transit loss so derived during the month and total carrying capacity for weighed receipts should be considered alongwith such transit loss derived in similar manner during, say, each of the preceding two months so as to compute as weighed percentage to transit loss.

Such a weighed percentage to transit loss should be used for estimating the total quantity of coal received in the wagons (whether weighed or not weighed).

Consumption of Coal

(1) Where adequate weighment facilities (including spare equipment for use during the period of break-down) are available to ensure that consumption during full period can be weighed accurately, the total consumption should be quantified through actual measurement/weighment.

(2) Where adequate weighment facilities are existing but are facing a breakdown for a short period during the month, the consumption during that period should be worked out on the basis of formula or norms to be laid down for that power station on the lines described in sub-para (4) below.

(3) Where facilities for weighment of coal consumption do not exist, such facilities should be installed. In the intervening period, consumption of coal should be estimated on the basis of formula or norms to be laid down for that power station in the manner described in sub-para (4) below.

(4) The basis for estimation of consumption should be laid down after reviewing plant performance in a representative sample of observations drawn from the current data on consumption.

(5) The formula should be fixed after considering all the relevant factors. An illustrative list of the factors to be considered while fixing the formulae/norms is:

(a) Quality of the fuel normally received.

(b) Specification of the fuel required.

(c) Plant design, boiler design etc.

(d) Age of the plant.

(e) Various options of fuel mix.

(f) Plant efficiency.

(6) It is vital that the approach/method of fixing formulae or norms, for estimating the consumption of fuel be uniform for all the power plants of a Board.

(7) In this respect, involvement of one or more independent technical/scientific bodies, technical representatives of suppliers etc. would ensure a fair and proper fixation of formulae or norms.

(8) Formulae/norms should be operative for a specified period at the end of which a periodic review should be carried out.

Fuel Stocks

2.10 The stock of all types of fuel at the year end shall be physically verified and the quantity of stock determined through appropriate methods such as weighment, volumetric measurement etc.

Determining Quality of Fuel Receipts

2.11 For the purpose of valuation of fuel receipts, the quality of fuel, receipts shall be determined by analysing in the laboratory, under established methods, all the samples of fuel receipts drawn under accepted statistical sampling methods.

Accounting for Inferior Grade of Coal

2.12 In the cases where a claim is preferred by the Board on the collieries or reimbursement of the loss on account of receipts of inferior grade of coal, a provision shall be made at the year-end to cover the loss expected to arise from the refusal by the collieries of the claims made on them. Such a provision may be of an amount equal to a part or whole of the claims remaining unsettled at the year-end.

2.13 The quantum of provision shall be in accordance with the provisions of a formal agreement between the Board and the collieries which would govern the sampling techniques and basis of computation of amount payable by either party on grade differences. Until such times as a formal agreement in-connection with grade differences is entered into between the Board and the collieries, the provision shall be :

(1) 100 per cent, of the amount of claims remaining unsettled at the year-end as reduced by

(2) an amount of claims which is, in view of the past experience and an appraisal of future, considered likely to be granted by the collieries.

Accounting for Superior Grade of Coal

2.14 In respect of receipts of superior grade of coal, a provision for gain shall be made in accordance with a formal agreement between the Board and the collieries dealing with grade differences or coal receipts. Until such time as a formal agreement is entered into the provision for again shall be made for an amount considered by the Board as not payable in view of past experience and an appraisal of factors likely to govern future decisions.

Accounting for Coal Wagons in Transit

2.15 Coal wagons in transit would mean 'wagons allotted to an SEB and despatched by the collieries but which are :

- not received by Board by the year-end.

- not claimed from the Railways as "missing wagons".

2.16 Coal wagons in transit at the year-end shall, whether or not any payment is made to the collieries for those wagons, be disclosed as coal-in-transit at the amount billed by the collieries.

2.17 Liability in respect of coal wagons in transit which are not paid for by the SEB for the year-end would be provided for at the year-end at an amount equal to the amount billed by the collieries.

Treatment of Excess/Shortage on Physical Verification of Fuel Stocks

2.18 Fuel stocks at the year-end shall be physically verified to ascertain the quantity of stock to be considered for valuation and disclosure in financial statements. Fuel stock as per accounting records shall be adjusted for the shortage or excess, if any observed on physical verification of stocks. Valuation of shortage or excess, if any, shall be at the rate to be applied to the closing stocks for the month in which the storage or excess has been observed.

Basis for Valuation of Gas Consumption

2.19 Valuation of gas consumption would be at the purchase order rate applicable to the receipts during the month.

Materials Accounting

2.20 Accounting procedures relating to materials cost are laid down hereinbelow :

(1) Stores which are exclusively catering to the requirements of construction projects shall be treated as "Capital Stores".

(2) Stores which are providing materials for both capital and O&M purposes shall book purchase related transactions basically as an O&M stores except that the value of issues on capital jobs shall be booked separately.

(3) Fast moving items shall be covered by a standard rate system in which receipts issues and stocks shall be valued at scientifically determined standard rate and the variance between actual costs and standard rate shall be collected in a separate account called "Materials Cost Variance".

(4) In case of items not covered by the Standard Rate System, the receipts shall be valued at Basic price plus Excise Duty plus Sales Tax". In such cases, the issues shall be valued at the weighted average rate applicable to the closing stock of the previous month. Where the closing stock of the previous month is nil, the valuation of issues shall be at the rate of first receipt of the month.

(5) Subsequent increase/decrease in the cost of receipts shall be adjusted in the issue rate prospectively and no retrospective adjustment shall be made to the value of past issues made out of the concerned receipts or to the assets constructed out of such issues.

(6) Freight on materials purchased (whether incurred and billed by supplier or incurred by the Board) shall not be treated as materials cost and shall be recorded in the separate account provided for this purpose.

(7) All other incidental costs such as packing charges Octroi etc. shall also not be treated as materials cost and shall be recorded in separate accounts provided for this purpose.

(8) Returns from out of the materials issued in the past shall be valued at the issue rate applicable for the month in which the materials are returned.

(9) The prescribed basis of valuation of issues and returns may lead to certain anomalies in stock values. Such anomalies if any shall be removed at the end of every quarter and the amount by which the stock values required adjustment shall be accounted for in a separate account prescribed for this purpose.

(10) The liability to be created on the receipt of materials shall be made

- at the standard rate in case of fast-moving items and

- at the purchase order rate in case of other items.

(11) Accounting for advance adjusted and recoveries and deductions made from a suppliers bill passed by the Board and recognition of the liability for the net amount due on that bill shall not be deferred till the actual discharge of the net liability.

(12) Loss on shortage in materials stock shall be provided for in the period in which the shortages are observed.

Treatment of Materials Cost Variance

2.21 Under the standard rate system referred to above materials cost variance if any in respect of receipts at construction locations or at O&M locations shall not be charged to Revenue Account or to Capital Works.

2.22 The balance in the "Materials Cost Variance Account" at the year-end shall be treated as follows :

(1) Credit balance shall be created to a Reserve called "Reserve for Materials Cost Variance."

(2) Debit balance shall be debited to the "Reserve for Materials Cost Variance". If as a result of such debit the net balance in this Reserve account is a debit balance the amount of debit balance shall be charged to Revenue account for the year.

2.23 Accounting treatment for materials cost variance prescribed above assumes that the standard rates are fixed appropriately and that a system exists for periodic revision of rates whenever significant variances are being observed.

2.24 The amount of materials cost variance recorded by construction divisions and circles and treated on the above lines shall be shown by way of note in the fixed Assets Schedule in the Board's annual account.

3. Borrowings and Investments

3.1 The procedural matters regarding accounts of borrowings and investments are laid in this section.

Deferred Credit Usance Bills

3.2 Usance bills may be issued by a Board under Deferred Credit Scheme. Such bills may include even the interest for future years. In a balance sheet such interest portion should be shown as a deduction from the amount of outstanding usance bills.

Debentures issued as Collateral Security

3.3 Debentures or any other debt certificates issued as a collateral security shall not be recorded in the books as a liability but be disclosed by way of a note.

Provision for Depreciation or Appreciation in value of Investment

3.4 No provision need be made for the depreciation in the market value of securities (bonds and debentures or government promissory notes) held by the board as investments (i.e, market value being lower than the cost of the investments) since it would be fair assumption in the case of such securities that the securities would would be held till maturity when full value of the security would be realised. However, there may be securities in respect of which such an assumption about holding till maturity does not hold good. No provision shall be created even in such cases for depreciation in the value of investments. Similarly no provision for any appreciation in the market value of investments shall be made by a Board.

4. Other Accounting Areas

4.1 The procedural matters relating to other accounting areas are laid down in this section.

Provision for Doubtful Dues From Consumers

4.2 A fixed percentage of dues from consumers (except for a slight variation in the case of large consumers discussed later) shall be maintained as a provision for meeting debts which turn bad. This will eliminate the need for case-wise investigation at the time of creating a provision. Such investigation can be conducted independently and in depth at the time of actually writing off a debt. A detailed study should be conducted periodically to ascertain the appropriate percentage for each Board and to update the percentage so determined. One exception to the above rule is the case of high tension/large supply consumers. In such cases, individual bad debts can sometimes be large enough to affect any overall percentage. Doubtfulness of balances due from such consumers should be reviewed case-wise and if the doubtful amount exceeds and fixed percentage, the amount of such excess should be additionally provided for. However, if the doubtful amount so determined is less than the fixed percentage, the percentage should be nevertheless provided as a measure of conservation.

Accounting for Write-Off of Bad Debts

4.3 Any receivables for sale of power to be written off shall be charged to the Revenue Account as bad debts written off, without touching the general provision for doubtful debts directly.

Disclosure of Unissued Cheques

4.4 Cheques which are prepared under authorised payment vouchers but remain unissued at the year (i.e., not yet issued to payee) will, in accordance with the prescribed accounting policy, be debited to relevant liability account on preparation of such cheques. However, since such cheques are not issued to payee and therefore liability not actually discharged, the total amount of such cheques shall be disclosed in Board's Accounts under a separate account "Liability under Unissued Cheques". Correspondingly, the bank balance shall be restored to the level existing before debiting such unissued cheques. Provision for Obsolescence

4.5 Provision shall be made every year to cover the loss arising from technological obsolescence to the extent such loss has been determined, in respect of fixed assets in use, construction stores or operating stores in stock and assets under construction. Such provision shall be treated as a charge against the revenue for the year.

Insurance

4.6 If a Board has not got its assets insured with an outside insurer, the fact shall be disclosed in the Board's account.

4.7 Under the practice of self-insurance (where the Board sets aside an amount Rs. an insurance premium, so that the amount so accumulated can be used for meeting loss of assets on account of fire flood cyclone etc.) the amount aside every year shall be treated as a charge against revenue. However it needs to be ensured that the amount of insurance premium for this purpose is scientifically established.

Research and Development Costs

4.8 Research and development costs incurred by a Board as a result of which no tangible asset is acquired by the Board shall be written-off in the year of incurring the costs. This shall be done even in cases where the E&D cost are expected to result in an increase in revenue of future years. The R&D expenditure for acquiring tangible assets shall be treated like expenditure for acquiring any other fixed asset.

Amortisation of Intangible Assets

4.9 Intangible assets of a Board shall be amortised over the period estimated to be benefited. A proportionate amount (calculated with reference to the benefits during the year such as additional revenue arising as a result of the asset) shall be charged to revenue account for each of such years benefited.

Transmission of Power

4.10 If a Board receive power from one State for onward transmission to another State under purchase/sale arrangement between the former State and the latter State, the intermediary transmitting Board shall show the units so transmitted as a deduction from its gross figures of units purchased and units sold.

Disclosure of Contingent Liabilities

4.11 The amount of contingent liabilities (as on the date of the Balance Sheet) which are material shall be disclosed in the annual accounts of the Board.

4.12 Contingent liability would mean an obligation relating to current year or past years which is dependent upon the happening or non-happening of an event. Example of contingent liabilities are :

(1) claim by the supplier or contractor for a price higher than the one adopted by the Board for booking liability to him in relation to purchases or contract work during the current year or past years. This would include all cost escalation claims for supplies/works.

(2) claim for refund of an increase in tariff made by consumers or by anyone else by contesting it in a court of law.

(3) claim by the lenders for a higher interest or for a penal interest for any default in repayment instalments or in paying interest or for any other reason.

(4) claim against the Board for payment of tax on income or profit of the Board or for excise duty, levies etc. not accepted by the Board.

Refunds of Customs Duty/Port Trust Charges

4.13 Refunds of customs duty or port trust charges shall be credited to revenue unless the amounts are material in which case the portion, if any, relating to import of capital assets shall be deducted from the cost of the assets.