A PROJECT REPORT ON ASSETS ACCOUNTING& WORKING

CAPITAL AT NTPC KAHALGAON

In partial fulfillment of requirement for

For completion of vocational training

By
SHASHI BHUSHAN PRASAD SINHA
PGDM(ITM)3rd

Under the guidance of

Mr. Praveen Kumar
Manager (finance)
N.T.P.C KAHALGAON
Finance & Account DEPARTMENT
N.T.P.C KAHALGAON
BHAGALPUR DIST;
BIHAR-813214

ACKNOWLEDGEMENT

I am very much thankful to Mr. S. Ghosh(DGM, finance), for his guidance during my training
and project work period throughout this VT, with his continuous vigilance, encouragement and
immense knowledge.

1
 I am very grateful to shri ( ), for helping me during the training smoothly and helped
me to gain good practical knowledge and experience.

I am very much thankful to Shri ( ) for his kind, friendly approach and for his
extended help & encouragement throughout the training and helped me a lot in preparing the
project report.

I am very grateful to Shri and Shri for

extended help throughout the training and helped me in completing my project work
successfully.

I also wish to express my thanks and gratitude to Shri B. R. Prasoon (Sr. Mgr., HR-EDC) for
his extended co-operation and suggestions during the vt training Programme.

Finally, I thank one and all who directly or indirectly extended their help during the training and
also to complete this project work.

NTPC-KAHALGAON S.B.P. SINHA

Content

S NO PROCESS PAGE NO
1 NTPCat a Glance 5
2 NTPC Kahalgaon 10

2
3 NTPC Vision, Mision&Core values 13

4 subsidiaries Of NTPC 15

5 Joint Ventures Of NTPC 16

6 Recognition & Awards 18
7 Organisational Chart 19
8 Swot Analysis Of NTPC 20
9 Objective Of Our Study 22
10 Research methodology 22
11 Introduction of assets accounting 23
12 Establishment of Asset Control authorities 30
13 Allotting of Asset Identification Number 31
14 Capitalisation of assets 33
15 Allocation of common expenses and IDC 38
16 Capitalisation of bought out assets 41
17 Depreciation Accounting 43
18 Transfer of Assets 46
19 Disposal of Assets 47
20 Maintenance of Fixed Asset Register (FAR) 48
21 Physical verification of fixed assets 49
22 Problems regarding assets accounting 54

23 Suggestion 55

24 Limitations of the study 56

25 References 57

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NTPC AT A GLANCE
NTPC, the largest power company of India, a NAVRATNA was established in 1975,NTPC,the
largest power company of the country has been consistently powering the growth of India. In
Forbes Global 2009, list of World’s largest Companies for the year 2009, NTPC occupies 317th
place.

With an installed capacity of 30644 Mega Watt(MW),NTPC today continues 28.60% of

the nation’s power generation with only 18.79% of India’s total capacity. It has 15 coal-based
power stations (24,395 MW), 7 gas based stations (3,995 MW) and 4 power stations in Joint
ventures (2,294 MW). The company has power generating facilities in all major regions of the
country. It plans to be a 75,000 MW company by 2017.

NTPC’s share on 31 Mar 2008 in the total installed capacity of the country was 18.71%
and it contributed 28.60 % of the total power generation of the country during 2008-09. NTPC
has set new benchmarks for the power industry both in the area of power plant construction and
operations. NTPC is listed as top 5 market capitalisation in domestic market.

An ISO 9001:2000 certified company, it is world’s 6th largest thermal power generator and
second most efficient in capacity utilization.

The corporation recorded a generation of 159.11 Billion units(BU) in 2004-05,through 13 coal

based,7 gas based power plants, and Joint Ventures projects spread all over the country.

Driven by its vision to lead, it has charted out an ambitious growth plan of becoming a 66000
MW plus company by 2017.

NTPC has been rated as one of the top most “Best Employer”of the country for the year
2003,2004 and 2005 in a row.

It has also been rated as one of the “best companies to work for india”by MercerHR consulting –
Business Today survey 2004,it has developed into a multi-location and multi-fuel company over
the past three decades

These achievements have been made possible by the 23500 strong and motivated workforce who
with their dedication are ever willing to take NTPC to greater heights.

NTPC has gone beyond the thermal power generation. It has diversified into hydropower,
coal mining, power equipment manufacturing, oil & gas exploration, power trading &

4
distribution. NTPC is now in the entire power value chain and is poised to become an Integrated
Power Major.

With its experiences and expertise in the power sector, NTPC is extending consultancy services
to various organizations in the power business. It provides consultancy in the area of power plant
constructions and power generation to companies in Indian and abroad.

HISTORY:-

A Retrospective
NTPC has come a long way from the day when construction of its first pithead super thermal
power project at Singrauli in Uttar Pradesh commenced. Here is a retrospective which chronicles
NTPC’s achievements, year after year.
1975
• Incorporated on November 7
1976
• Shri D.V. Kapur took over on March 19 as the first Chairman & Managing Director of
NTPC
• On December 8, the Government of India cleared NTPC’s first pithead super thermal
power project at Singrauli in Uttar Pradesh
• The authorised share capital of the Company was Rs. 125 crore
1977
• NTPC acquired the first patch of land at Singrauli in September
• The first batch of executive trainees joined the Company
• The first major contract of Rs. 57.5 million was awarded for site leveling work at
Singrauli in June
-----------------------------------

2007
• Ministry of Coal, Government of India granted in-principle approval for allocation of a
new coal block, namely, Chhati Bariatu South to NTPC, subject to the conditions
stipulated in the approval letter. The share of reserves was indicated as 354 million
tonnes

5
 • Tripartite agreement signed with the Government of Assam, Assam Power Generating
Co. Ltd., and NTPC for transfer of existing plant at Bongaigaon and to set up a new plant
of 750 MW with 3 units of 250 MW each
• 765 KV switchyard transmission system energised at Sipat, the largest in the country
• MOU signed between NTPC and Ministry of Energy, Federal Government of
Nigeria(FGN) for Energy cooperation
Vindhyachal Super Thermal Power Project became the largest power station in the
country with an installed capacity of 3260 MW
2008
• NTPC allocated 0.5% of distributable profits annually for its R & D fund for sustainable
energy for development of green & clean technologies
Strategic forays into manufacturing by forming Joint Venture Companies with BHEL and
Bharat Forge
A Memorandum of Understanding was signed with Asian Development Bank, GE
Energy Financial Services, USA, Kyushu Electric Power Co. Inc., Japan and Brookfield
Renewable power Inc., Canada. To set up a Joint Venture Company for undertaking
renewable power generation under Public-Private- Partnership
• Joint Venture Company under the name “National Power Exchange Limited” was
incorporated on 11th December 2008 with NHPC Ltd., PFC Ltd., and TCS Ltd., to
operate Power Exchange at national level
• NTPC was ranked Number 1 in the 'Best Work places for Large Organisations' and
Number 8 overall for the year 2008 by Great Places to Work Institute's, India chapter in
collaboration with the Economic Times
2009
• 500 MW Unit VI of Sipat brought under commercial generation
• NTPC has achieved the highest ever single day generation of 655.22 MUs on 2nd March,
2009 with highest ever single day coal based generation of 579.02 MUs

6
Installed Capacity

Be it the generating capacity or plant performance or operational efficiency, NTPC’s Installed

Capacity and performance depicts the company’s outstanding performance across a number of
parametres.

NO. OF PLANTS CAPACITY (MW)

NTPC Owned
Coal 15 24,395
Gas/Liquid Fuel 7 3,955
Total 22 28,350
Owned By JVs
Coal & Gas 4 2,294
Total 26 30,644

7
 Regional Spread of Generating Facilities

REGION COAL GAS TOTAL

Northern 7,035 2,312 9,347
Western 6,360 1,293 7,653
Southern 3,600 350 3,950
Eastern 6,900 - 6,900
JVs 8,14 1,480 2,294
Total 24,709 5,435 30,144

In October 2004, NTPC launched its Initial Public Offering (IPO) consisting of 5.25% as fresh
issue and 5.25% as offer for sale by Government of India. NTPC thus became a listed company
in November 2004 with the government holding 89.5% of the equity share capital. The rest is
held by Institutional Investors and the Public. The issue was a resounding success. NTPC is
among the largest five companies in India in terms of market capitalisation.

At NTPC people before Plant Load Factor is the mantra that guides all HR related policies.
NTPC has been awarded No.1, Best Workplace in India among large organisations for the year
8
2008, by the Great Places to Work Institute, India Chapter in collaboration with The Economic
Times.
The concept of Corporate Social Responsibility is deeply ingrained in NTPC's culture. Through
its expansive CSR initiatives NTPC strives to develop mutual trust with the communities that
surround its power stations.
Right from social to developmental work of the community and welfare based dependence to
creating greater self reliance; the constant endeavour is to institutionalise social responsibility on
various levels.

NTPC KAHALGAON

A lush green, Picturesque Kahalgaon in Bhagalpur district (BIHAR) is set like an emerald on the
bank of Ganga. The place was once abided to Vedic times. According to legend, the place
derived its name from Kohol Muni. Another famous story is that Saint Durvasha, famous for his
bad temper (Kalaha), hailed from this place. The kashri Hill, where Saint Durvasha had his
ashram 6.5 km north east of the town.

The ancient temple of Shiva & kali at Bateshwarathan (known as gupt kashi) is situated at
Kahalgaon on the Bank of Ganga. Lord Buddha feet are also believed to have imprints on this
holy place.

The site of ancient University of Vikramshila of the 8th century A.D. established by king
Dharampal is only 15 km from the town.

PROJECT NTPC KAHALGAON

9
NTPC Kahalgaon is one of the projects in eastern region. Contributing to NTPC’s good health,
its unit at Kahalgaon in Bihar was set up in 1987 with a technical collaboration from The USSR.
The source of coal is Rajmahal Eastern Coalfield (ECL, LALMATIA, ASANSOL and MCL),
which supply us Indian Bituminous Coal whose calorific value varies between 3200K.Cal/kg –
2700K.Cal.kg and the water requirement is met from the river Ganges. The project has two
stages; stage-I capacity is 840MW (210X4), which is under commercial operation since jan-95
and aug-96 while stage 2 has 3 units of 500 MW. The 5th and 6th unit has been commercialized
and 7th will be commercialized soon . 210MW is Burnaul Boiler Plant Russian design and
500MW are of KWU German design. The power produced by the plant is supplied to Bihar,
Jharkhand, Bengal and some north eastern states.

SALIENT FEATURES OF KhSTPP

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Land for Plant : 883 Acres

Land for Township : 432 Acres

Land for MGR : 522 Acres

Land for Ach Dyke : 1395 Acres

Make-Up Water : 28 Acres

System Approach Road : 70 Acres

Others : 30 Acres

Installed capacity : 840 MW

Configuration : Stage- I = 4 × 210 MW=840 MW

:Stage- II= 3  500 MW=1500 MW

=2340 MW

Fuel : Coal

Source of fuel : Rajmahal Hurra, Chuperbita coal fields of the Eastern coal fields Ltd
Foreign coal.
Nearest water source : River Ganges
Cooling Water System : Closed cycle induced draft system.
Beneficiary state : The states and UT’s of NR,WR,ER,SR
Approved project cost : Rs 1715 Crores for Stage-I
Rs 6330 Crores for Stage-II(As on 1st qtr.of 2000)

OUR VISION & MISSION

A WORLD CLASS INTEGRADTED POWER NAJOR, POWERING INDIA’S GROWTH

WITH INCREASING GLOBAL PRESENCE.

11
To be at par with the world leaders in the area of globalization, NTPC felt the need for new
business strategies to cope up with the changes. NTPC Corporate Plan was made introducing
vision for 2017 enabling Organizational Transformation with the help of Project Disha.

Methodology adopted for formulating the Plan

Vision, Mission, Values and Objectives

Past Performance Appraisal Business Environment Appraisal

Strengths and Weakness Opportunities and Threats

Business Portfolio and Functional Strategies

Capacity Addition Scenarios

Inputs from Project Financial modeling for Plan

‘Disha’ next 15 years to Implementation
recommendations determine availability of Strategies
funds

MISSION

Develop and Provide Power Related Products,Services at Competitive Prices Integrating

Multiple Energy Sources With Innovative and Eco-Friendly Technologies ad contribute to the
society.

12
 CORE VALUE

B-COMIT

➢ B- Busiess Ethics

➢ C- Customer Focus

➢ O- Orgaisational& Professional

➢ M-Mutual Respect&Trust

➢ I- Innovation & Speed

➢ T- Total Quality for Excellence

SUBSIDIARIES OF NTPC:

NTPC Electric Supply Company Ltd. (NESCL)

13
The company was formed on August 21, 2002. It is a wholly owned subsidiary company of
NTPC with the objective of making a foray into the business of distribution and supply of
electrical energy, as a sequel to reforms initiated in the power sector.
NTPC Vidyut Vyapar Nigam Ltd. (NVVN)
The company was formed on November 1, 2002, as a wholly owned subsidiary company of
NTPC. The company’s objective is to undertake sale and purchase of electric power, to
effectively utilise installed capacity and thus enable reduction in the cost of power.
NTPC Hydro Ltd. (NHL)
The company was formed on December 12, 2002, as a wholly owned subsidiary company of
NTPC with an objective to develop small and medium hydroelectric power projects of up to 250
MW.
Pipavav Power Development Co. Ltd. (PPDCL)
A memorandum of understanding was signed between NTPC, Gujarat Power Corporation
Limited (GPCL) and Gujarat Electricity Board (GEB) in 2004 for development of a 1000 MW
thermal power project at Pipavav in Gujarat by forming a new joint venture company between
NTPC and GPCL with 50:50 equity participation. Pursuant to the decision of Gujarat
Government, NTPC Ltd. has dissociated itself from this company. PPDCL is under winding up.
Kanti Bijlee Utpadan Nigam Limited, (formerly known as Vaishali Power Generating
Company Limited)
To take over Muzaffarpur Thermal Power Station (2*110MW), a subsidiary company named
‘Vaishali Power Generating Company Limited (VPGCL)’ was incorporated on September 6,
2006 with NTPC contributing 51% of equity and balance equity was contributed by Bihar State
Electricity Board. This company was formed to renovate the existing unit and run the plant. The
second unit has been successfully re-synchronised on October 17, 2007 after 4 years of being
idle. Renovation and modernisation of the first unit is under progress. The company was
rechristened as ‘Kanti Bijlee Utpadan Nigam Limited’ on April 10, 2008.
Bharatiya Rail Bijlee Company Limited (BRBCL)
A subsidiary of NTPC under the name of ‘Bharatiya Rail Bijlee Company Limited’ was
incorporated on November 22, 2007 with 74:26 equity contribution from NTPC and Ministry of
Railways, Govt. of India respectively for setting up of four units of 250 MW each of coal based
power plant at Nabinagar, Bihar. Investment approval of the project was accorded in January,
2008.

JOINT VENTURES:

14
 Name of the Date of Promoter’s Equity
Joint Venture Incorp- Holding as on 31.3.2008
Company oration Area(s) of Operation

NTPC 5.28% Trading of power, import/export of

NHPC 5.28% power and purchase of power from
PTC India 16.04.9
1 PFC 5.28% identified private power projects
Limited 9
Power Grid and selling it to identified
5.28% SEBs/others.
Corp
NTPC 50% To take up assignments of
Utility
23.11.9 Reliance construction, erection and
2 Powertech
5 Infrastructure 50% supervision in power sector and
Limited (UPL)
Ltd. other sectors in India and abroad.
NTPC 50% To own and operate a capacity of
SAIL 50% 564 MW as captive power plants
NTPC-SAIL
for SAIL’s steel manufacturing
Power 08.02.9
3 facilities located at Durgapur,
Company Pvt. 9
Rourkela and Bhilai. Another unit
Ltd.
of 250 MW is expected to be
commissioned shortly.
NTPC 50%
To take up Renovation &
NTPC-Alstom Alstom
20.09.9 Modernization assignments of
4 Power Services Power
9 50% power plants both in India and
Private Limited Generation
abroad.
AG
NTPC 50% To set up a coal-based power
Tamil Nadu station of 1000MW capacity, at
NTPC Tamil
23.05.0 Electricity 50% Vallur , using Ennore port
5 Nadu Energy
3 Board infrastructure facilities. The
Company Ltd.
construction work at site is under
progress.
NTPC 28.33% To take over and operate gas based
Ratnagiri Gas Dabhol Power Project alongwith
08.07.0
6 and power Pvt. LNG terminal. NTPC’s
5
Limited shareholding is to be revised to
32.88%.
7 Aravali Power 21.12.0 NTPC 50% To set up coal based power Project
Company 6 Indraprastha 25% of 1500 MW (3x500 MW),in
Private Ltd. Power Jhajjar District of Haryana. NTPC
Generation would also operate and maintain

15
 Co. Ltd.
Haryana
the station on Management
Power
25% Contract basis for at least 25 years.
Generation
Corp. Ltd.
NTPC 50% To jointly undertake the
NTPC-SCCL Singareni development and operation &
31.07.0
8 Global Venture Collieries maintenance of coal Blocks and
7 50%
Pvt. Ltd. Company integrated coal based power
Ltd. projects in India and abroad.
NTPC 50%
To set-up a power plant of 1320
Uttar Pradesh
Meja Urja MW (2X660 MW) at Meja Tehsil
02.04.0 Rajya Vidyut
9 Nigam Private or any other suitable site in
8 Utpadan 50%
Limited Allahabad district in the state of
Nigam
Uttar Pradesh.
Limited
NTPC 50% To carry out Engineering
Bharat Heavy Procurement and Construction
NTPC BHEL 50% (EPC) activities in the power sector
28.04.0 Electrical Ltd
10 Power Projects and to engage in manufacturing and
8
Pvt Ltd. supply of equipment for power
plants and other infrastructure
projects in India and Abroad.
NTPC 49% To establish a facility to take up
Bharat Forge manufacturing of castings,
BF-NTPC 51% forgings, fittings and high pressure
Energy 19.06.0 Limited
11 piping required for power projects
Systems 8
and other industries, Balance of
Limited
Plant (BOP) equipment for the
power sector
NTPC 50% To set-up a coal based power
Nabinagar
NTPC Bihar project having capacity of 1980
Power
09.09.0 State MW (3X660 MW) and operation &
12 Generating 50%
8 Electricity maintenance thereof at Nabinagar
Company
Board in district Aurangabad of State of
Private Limited
Bihar.
13 National Power 11.12.0 NTPC 16.67% To operate a Power Exchange at
Exchange 8 NHPC 16.67% National level.
Limited PFC 16.66%

16
 TCS 50%

RECOGNITION & AWARD

 Business Standard award- Star company of the year.

 Golden Peacock award for excellence in corporate governance.
 Golden Peacock Environment Management award-05.
 International project Management award 2008.
 HR-award-Great place to work 2008.
 Golden Peacock award for health & safety 2008.
 Listed in Indian stock markets among top 5 market Capitalisation in domestic market.
 “Respected”Indian stock on Iteratioal exchange.

ORGANIZATION CHART

SWOT analysis of NTPC

Key strengths:

 Largest market share in domestic power generation and a broad customer portfolio across
the country
 Excellent track record of performance in project implementation and plant operations
 Diversified thermal generation portfolio-multiple sizes and fuel types.

17
  Highly skilled and experienced human resources exposed to state-of-the-art technologies
in project execution and power generation.
 Navaratna status.
 High brand equity among stake holders.
 Strong Balance sheet-ability to raise low cost debt
 Engineering skills in project configuration and package design.
 High credit rating that is indicative of the confidence of the lenders.
 Established systems and procedures to institutionalize excellence in business operations-
received ISO accreditation in several functions/areas.
 In-house training facility (PMI),CENPEEP,R&D,etc. that assists in development of the
sector.
 Thrust on reducing social costs of capacity growth-strong execution of Resettlement and
Rehabilitation plans .

Key weakness:

 Low risk- diversification of business portfolio: Consists primarily of generation assets.

 Long and multilayered procurement process leading to long lead time and process delays.
 Fragmented IT structure
 Gaps in HR systems such as performance management, rewards and incentives and
career development.
 Inadequate deployment of a strong knowledge management system that could assist in
improving efficiency and effectiveness in all aspect of the business.
 Hierarchy for decision making that affects responsiveness.
 Role ambiguity and dilution within different level of the organization.

Key opportunities:

 Expand generation capacities by putting up thermal and hydro capacities, maintaining the
position of a dominant generating utility in the Indian power sector.
 Broad base fuel mix by considering coal, gas, domestic coal nuclear power etc with a
view to mitigate fuel risk and maintaining long run competitiveness.
 Lead the development and commercial deployment of non conventional energy sources
especially in the distributed generation mode.
 Expand services for ERC,R&M and OM activities-in the domestic as well as
international market.
 Backward integrate into fuel management to exercise greater control and understanding
of supply economies.
 Improve collections by trading, direct sale to bulk customers and active role in capacity
allocation in new plants.

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  Execute increased number of power plants that classify for mega power project status
thereby reducing the cost of projects and power generated.
 Forward integrate into the distribution business in India.

Key Threats:

 Limited experience of operating in a truly liberalized environment competition.

 Limited experience of operating in an independently regulated system.
 Delayed SEB reforms and continuing financial health.
 SERCs might mandate lower off take for slow reforming stakes.
 Redirecting power may be constrained by inter regional connectivity.
 Downward regulatory and competitive pressure on tariffs.
 Possibilities of issues of coal non availability as coal supply agreements of CIL
with the state Gencos and IPPs evolve.
 Lower than expected availability of gas.
 Stringent norms for approval of increase of capital costs for projects in event of
time over run.
 Stringent norms for the utilization of ash generated by power station in the
absence of adequate demand form user industries and due to high cost of
transportation of ash.
 Stringent environmental norms in the future may add to the cost of generation.

Absence of an independent regulator for coal industry and the delay in private investments
leading to the risk of low availability of coal in future.

OBJECTIVES OF OUR STUDY:

i. To take overview of plant and its primary activity.

ii. To know the problems associated with power sector in India.
iii. To know strength, weakness, opportunities and threat(SWOT) of NTPC.
iv. To know the various departments of Finance and Accounts and their functioning.
v. To study and analyse assets accounting done in NTPC LTD.
vi. To figure out various problems related to asset accounting and capitalization of spares.

RESEARCH METHODOLOGY:

The basic task of research is to generate accurate information for use in decision making,

19
 As the project involves analyzing of financial structure, the research is exploratory in
nature, covering financial parameters and come of the important ratios to carry out research.

There are basically two techniques adopted for obtaining information:

1. Primary Data.

2. Secondary Data.

Primary Data is gathered specifically for the project at hand through personal interviews with
the accounts officers. i.e. Officers of Finance Dept. of NTPC such as DGM.Finance,
Sr.Manager, Executive Trainees and other officers.

Secondary data is previously collected and assembled for some project other than the one at
hand. It is gathered and recorded by someone else prior to current needs of the researcher.i.e.
Handbook of NTPC, Reference books of Dept. officers , Magazines, Internet site.

INTRODUCTION
This Report provides the policies/ guidelines to be followed in respect of physical control of
fixed assets, various accounting issues such as capitalisation, depreciation, amortisation and
adjustments of discrepancies on physical verification.
Fixed Asset is defined as an asset held with the intention of being used for the purpose of
producing or providing goods and services and is not held for sale in the normal course of
business.
The fixed asset costs should be recorded in the book of accounts on a historical cost basis.
Classification of fixed assets
Fixed assets should be classified in the following categories:

20
 Goodwill
Land – Freehold and leasehold
Buildings – Plant and administrative, township, Guest house and others
Roads and Bridges
Railway Sidings
Plant and Machinery
Water supply, drainage and sewerage
Electrical installations
Temporary erections
Construction Equipment
Vehicles
Furniture, fixtures and other office equipments
Communication Equipments
EDP Equipments
Unserviceable/ obsolete items
Capital expenditure on assets not owned by the company
Components of cost of an asset
The cost of an item of fixed asset should comprise of its purchase/ contract price,
including import duties and other non-refundable taxes or levies and any directly
attributable cost of bringing the asset to its working condition or for its intended use.
Trade discounts and rebates, if any, should be deducted in arriving at the purchase price
Directly attributable costs include the following items:
• Site preparation
• Initial delivery and handling costs
• Installation costs, such as special foundations for plant
• Professional fees (fees to architects, engineers, etc.)

Determination of cost of an asset under certain circumstances

Assets acquired for a consolidated price
In case of several fixed assets purchased for a consolidated price, the total consideration

should be apportioned to the various assets on a fair basis (as determined by competent

valuers)
Assets acquired for consideration other than cash
• The cost of the fixed assets acquired in exchange for another asset is usually determined
by reference to the fair market value of the consideration given. The fair market value of
the asset acquired may be considered if that is more clearly evident.

21
 • Fixed assets acquired in exchange of shares or other securities in the enterprise should be
recorded at its fair market value or the fair market value of the securities issued
whichever is more clearly evident
Assets acquired on hire purchase
• Fixed assets acquired on hire purchase should be recorded at their cash value, which, if
not readily available, should be calculated by assuming an appropriate rate of interest.
These assets should be shown in the balance sheet with an appropriate narration to
indicate that the enterprise does not have the full ownership thereof.

Assets held jointly with others

• Where an asset is held jointly with others, proportionate value of the original cost,
accumulated depreciation and net book value of the asset are to be stated in the balance
sheet. Alternatively, the pro-rata cost of such jointly owned assets can be grouped
together with similar fully owned assets. Details of such jointly owned assets should be
indicated separately in the fixed assets register.
Construction of several assets for a lumpsum consideration
In respect of projects under turnkey contracts various assets are constructed for a lumpsum
contract value. The policies to be followed in this respect are as under:
• The fixed assets should be capitalised as per the account heads given in the Chart of
Accounts. The total contract value should be broken up into the various assets that are
being constructed under the contract.
• The break-up of the cost of the contract into the various items of assets being constructed
should be obtained from the contractor/ supplier at the time of finalisation of the Letter of
award.
• In circumstances where the system-wise break-up of the contract value is not
available,the total cost is to be apportioned to the various systems on the basis of
technical estimates keeping in view the project cost as approved by the GOI as well as
past experience of actual cost incurred in respect of the various systems in similar
projects.
• In case of other contracts common to more than one system also the total contract value
should be broken into the systems covered under the contract (on a similar basis as
mentioned above).
Capital expenditure not represented by assets

• In respect of capital expenditure incurred, which is not represented by assets (e.g.

approach roads, diversion of roads, etc), the expenditure should be amortised over a
period of 4 years and the same should also be disclosed as such in the financial
statements

22
Compensation, rehabilitation and other expenses relatable to land
• Any deposits, payments/ liabilities made towards compensation, rehabilitation and other
expenses relatable to land in possession should be treated as cost of land.
• Site leveling and grading expenditure (expenditure on landscaping) should be added to
the cost of the building/ structures built up on such land and should not be added to the
cost f the land

Adjustment to the cost of the assets

The cost of an asset may be subsequently adjusted due to any of the following:

Adjustments arising on passing of bills / adjustment of bills

Upward or downward revision due to exchange variation on loans/ foreign currency
liabilities for acquiring / construction of assets
Incidental / additional expenditure due to renovation and modernization
The accounting treatment in respect of each of the above items has been discussed subsequently.
Treatment of specific expenditure incurred during construction
Survey and Investigation expenses
• The expenses as incurred for survey and investigation i.e. on account of project reports,
feasibility studies, surveys, etc. should be accounted for as 'Miscellaneous expenses' till
such time as the administrative approval of the project is obtained from GOI. On receipt
of the approval from GOI the balance on this account should be transferred to the CWIP
account and thereafter capitalised on commissioning of the plant.
• The expenses incurred in respect of approved projects should be accounted for as CWIP
and subsequently the closing balance in the CWIP account should be allocated to the
various systems on a pro-rata basis

• In case a project is abandoned, the expenditure should be written off in the year in which
the project is abandoned.
Technical consultancy
• The common costs as incurred on technical consultancy should be allocated on the
systems falling within these categories on the basis of the technical norms as provided by
the concerned EIC.
Financial expenses
• The financing costs relating to deferred credits or to borrowed funds attributable to
construction or acquisition of fixed assets for the period up to the completion of
construction or acquisition of fixed assets are to be capitalised along with the asset to
which they relate
• The total interest cost incurred during a year (in the construction phase) should be
apportioned to the CWIP on the basis of the average balance of CWIP for the year.
Commissioning expenses

23
 • The expenditure incurred on start-up and commissioning of the project, including the
expenditure on trial runs should be capitalised. The sales revenue during the period
should be deducted from the commissioning expenses and the net expenses should be
capitalised.
• The costs identifiable to an asset should be capitalised with that asset and the common
costs should be allocated on a pro-rata basis to the various systems.
Training and Recruitment and R&D expenses
• Expenses incurred in respect of training and recruitment and R&D should be charged off
to revenue
Administration and other general overhead expenses during construction phase
• Expenditure incurred during the construction period should be capitalised on a pro-rata
basis to the various systems in the ratio of accretion to the CWIP.
• In case of projects which are both under operation and construction phases, these
expenses should be allocated between capital and revenue in the ratio of accretion to
CWIP and sales (including electricity duty).
Capitalisation of assets
• An asset is to be capitalised when it is ready to be put to use.
• Capitalisation of an asset should be done on the basis of an asset-commissioning
certificate issued by the competent authority.
• All capital expenditure (in respect of assets constructed) should be accounted for through
CWIP accounts. On commissioning of the assets the expenditure should be transferred to
the appropriate fixed assets account. However, bought out assets should be capitalised
directly i.e. without routing through the CWIP account.
Capitalisation of common assets/systems
• In respect of the systems that are common to more than one generating unit (e.g.
chimney,cooling towers, etc) the same should be capitalised on the basis of the
engineering estimates/ assessments. The common systems are to be commissioned with
the first unit.
• in case of any capital expenditure incurred subsequent to the commissioning (as required
for the subsequent units), these expenditures are to be treated as capital additions in the
year in which they are commissioned
• the total cost incurred on these systems during the different phases is to be identified to
the units on the basis of the technical estimates
• there are a few systems which are commissioned during the construction period itself
such as township, temporary water supply, power supply, office buildings. These can be
capitalised as and when such systems are put to use.
Treatment for mandatory spares

24
Machinery spares which are used only in connection with an item of fixed asset and
whose use is expected to be irregular should be capitalised with the main equipment
irrespective of the fact whether such spares have been procured initially with the main
equipment or subsequently and whether they have actually been put to use or not.

In case these spare items are procured initially the same are to be capitalised with effect
from the date of capitalisation of the concerned main equipment.

In case where the spare items are procured subsequently these should be capitalised and
amortised over the balance useful life of the main equipment concerned.
Materials used for construction
• The cost incurred for materials procured for construction should be treated as
Construction stores. After commissioning of the concerned asset the material in hand
should be transferred from the Construction Stores account to the Inventory account

Depreciation
• Depreciation should be provided for in the books at the rates as prescribed.
• In addition to the above, depreciation should also be computed at the rates prescribed in
the Companies Act, 1956 for the purposes of disclosure in the financial statements and as
per the Income-tax Act, 1961for the purposes of taxation.

Other policies
• Depreciation on assets acquired during the year is to be provided on a proportionate basis
• No depreciation is to be provided on the assets sold/ scrapped/ declared obsolete during
the year.
• Depreciation on the additions to fixed assets in the nature of effect of foreign exchange
fluctuations and rotational/ capital spares/ unit assemblies is to be provided prospectively
over the residual life determined on the basis of the rate of depreciation
• Depreciation on the fixed assets during the construction phase is to be capitalised.
Retirement and disposal of assets
• Items of fixed assets that have been retired from active use and are held for disposal
should be stated in the financial statements at the lower of their net book value and net
realisable value. Any expected loss should be recognised immediately in the profit and
loss statement.
• Fixed assets disposed off should be removed from the financial statements. The gains or
losses arising on the disposal are to be recognised in the profit and loss account.
Government Grants

25
 • Any grants received from the government should be initially treated as Capital Reserve
andsubsequently adjusted as income in the same proportion as the depreciation written
off on the assets acquired out of the grants
Physical verification and maintenance of Fixed Asset Register (FAR)
• All fixed assets procured/ constructed should be recorded in the FAR maintained for this
purpose. The FAR should be periodically reconciled with the books of account.
• The FAR should contain the particulars of the asset, location, rate of depreciation, and the
accumulated depreciation.
• Fixed assets should be verified at regular intervals and the discrepancies observed on
such verification should be adjusted in the books of account.
Disclosure requirements
The following disclosures are to be made in respect of fixed assets in the financial statements:
• Gross and net book value of fixed assets at the beginning and end of the accounting
period showing additions, deletions and other movements of assets
• Expenditure incurred on account of fixed assets in the course of construction or
acquisition
• The amount of exchange differences adjusted in the carrying amount of fixed assets
during the accounting period
• The accounting policy adopted for government grants

• The nature and extent of government grants recognised in the financial

statements,including grants of non-monetary assets given at a concessional rate or free of
cost
• The total depreciation for each class of assets and the related accumulated depreciation
• The depreciation methods used and the depreciation rates or the useful lives of the
assets,if they are different from the principal rates specified in the statute governing the
enterprise
• Any change in the method of depreciation adopted.

26
Process: Establishment of Asset Control authorities Process No.: 01
For exercising control over the assets an asset control authority is to be established for each
category of assets.
The asset control authorities for the various categories of assets are as follows:
• Land and Buildings- HR department
• Furniture and fixtures, office equipment, etc- HR department
• Plant and machinery - Technical departments concerned
• Laboratory & Workshop equipment- Departments concerned
• Vehicles- Autobase
• Construction equipment- Autobase/ Technical department concerned.
• Communication equipment- EDP
• Computers- EDP/ HR department.

27
 • Hospital equipment- CMO
• Township/ guest house/ community centre/ canteen/ school equipment – HR department
• Discarded assets- Stores

Movement of any asset should be effected with the approvals of the asset control authorities
concerned.

The asset control authorities should ensure the following:

• The asset identification number is painted/ indicated on all assets.

• Any movement, obsolescence, damage, loss due to theft, fire or any other reason, sale or
disposal of an asset (within and outside the premises of the Unit), are on the basis of duly
approved orders.
• The movement, obsolescence, damage, sale or disposal of an assets is intimated to the
F&A Deptt to update the FAR
• The differences observed, if any, on physical verification of assets are reconciled with
the user department concerned.

Process: Allotting Asset Identification Number Process No.: 02

This process outlines the procedure to be followed for allotting an asset identification
number (AIN) to moveable assets/ MBOA items. The AIN should be recorded in the FAR.

AIN structure

The AIN should be a seventeen digit alpha-numeric code representing the following:

28
 Accounting Types Of assets Assets Year Of Serial
Unit Control Auquisition Number
Main Sub
Authority
Category Category
XX XX XXX XX XXXX XXXX
alpha alpha alpha alpha Numeric Numeric

On receipt of MBOA items, the asset control authorities (ACAs) should ensure that AIN is
allotted to all the invoiced items and the same is indicated on the SRV. Finance should
release payments for such items only after ensuring that AIN has been allotted.

The asset control authorities should ensure the following:

• The AIN is painted/ indicated on all assets.

• A departmental asset control register is maintained and the details of each asset are
entered in the register indicating the location and the name of the person to whom the
asset has been issued.
• In case of any movement of an asset, the department asset register is updated for change
in location or any other change.
Procedure: Allocation of AIN

S. Activity Person Frequency Remark

Responsible
No
1 Receive the asset along with the Stores As and when
delivery documents from the
supplier.
2 Enter the details of the asset in the Stores Same Day

system.

Intimate the ACA concerned of the

receipt of the asset.

S. Activity Person Frequency Remark
Responsible
No
3 Inspect the asset and confirm

29
 acceptance of the same to Stores.

Update the Asset Control Register. ACA Same Day

AIN will be generated by the system.

Arrange to paint/indicate the AIN on

the assets.
4 Generate SRV and forward the SRV
to the F&A Department.
Stores Same Day
Ensure that the AIN is indicated on
theSRV

5 Receive the SRV and update the

FAR

F&A Deptt As and when

Ensure that the AIN is indicated on
the SRV before release of payment
as per the manual on Procurement
and Stores Accounting

6 Prepare SIV for issue of an asset.

Asset Control
Update the asset control register with As and when
Authority
the details of the person to whom
issued and the location thereof.

Document – Records

Document Document Format Ref. Frequency Distribution

Title Type

Asset Control Register- R FA/01 As & When ACA

departmental

FAR-Land R FA/02 As & When -

30
FAR-Plant & R FA/03 As & When -
Machinery

FAR-MBOA R FA/04 As & When -

ATN O As & When Book section,

Transferee Unit

Process: Capitalisation of assets Process No.: 03

This process lays down the procedure to be followed for capitalisation of assets.

Capitalisation

Township and other infrastructural facilities are to be capitalised as and when completed and
put into service. The assets associated with generating units are to be capitalised as and when
the generating units become commercially operative. The criteria for determination of date of
Commercial Operation are brought out at Appendix I.

The fixed asset heads against which capitalisations are to be effected have a corresponding
Capital Work-in-Progress Account code as detailed in the Chart of accounts. The modus
operandi and sequence for capitalisation are set out below:-

Step-I: Identify asset/package cost

For constructed assets all direct costs associated with a particular package/ job should
be identified with specific asset and accounted for as CWIP during construction stage.
As the classification of CWIP in the Chart of Accounts is identical to the
classification of fixed assets there would be no difficulty in transferring the cost from
CWIP to fixed assets at the time of capitalisation. The amount to be booked to CWIP
shall consist of the following:

1) Value of supplies received and accepted at site.

2) Freight insurance, custom duty, rates and taxes.
3) Value of physical progress of civil construction and erection.
4) Material issued on free of cost basis, to the extent it has been consumed
duly adjusted for return of scrap.
5) Consultancy fee etc

31
In case bills for materials/services rendered by contractors have not been received, the
booking to CWIP account should be made provisionally on the basis of engineering
estimates/ assessments.
In respect of turnkey contracts i.e. where a number of packages are envisaged to be
executed for a lumpsum consideration, the total contract value should be segregated
asset-wise to facilitate capitalisation. For this purpose, a detailed system wise break-
up of the total cost, if not readily available in the contract documents should be
obtained from the contractor. In circumstances where the system-wise break up is not
available from the contractor, the total cost should be broken up system wise based on
the project estimates and/or Engineering estimates/assessments.

The procedure to be adopted for obtaining the breakup in such a case should be as
follows:
1) Identification of each item of bill of quantity with different systems/sub-
systems to the extent possible on actuals/ technical assessments and further
linked to various account codes as per chart of accounts.
2) In case entire structural steel/civil works/erection works are awarded on a
lumpsum basis, allocation between buildings and foundations should be done
on technical assessment. The foundation cost should be further allocated to
plant and machinery heads on engineering estimates.
3) The taxes & duties and price adjustment should be allocated on actual basis.
4) Freight and insurance should be allocated as per the proportion of freight to
the contract cost.
Step-II: Complete the work-in-progress accounts
The package-wise WIP accounts should be completed by allocation/apportionment of
the following:-
A.Site leveling expenditure:
Site leveling expenditure (other than cost of landscaping) should be allocated to
the cost of buildings and structures constructed on the land and not added to the
cost of the land. The expenditure on leveling, grading should be directly related
with and added to the cost of particular buildings or other structure which stand on
each particular piece of land. In case the above is not practical, the cost of leveling
may be apportioned among the different buildings and structures standing on the
land in the ratio of the areas of the buildings/structures.
B. IEDC allocation to work-in-progress.

C. Technical consultancy-unallocated charges

Technical consultancy charges are being allocated to packages to the extent such
charges directly relate to a particular package. It is considered appropriate to
classify the unallocated charges i.e. charges which remain to be allocated after
direct identification of expenses to different packages, into the following broad
32
 categories and to allocate the same to individual systems falling within each
category on the basis of technical norms to be furnished by Engineers-in-charge :-
Categories:
Civil works
Electrical Works
Mechanical Works
General Items

D. Survey and investigation expenses

S&I expenditure of unapproved projects shall be accounted for and retained by the
unit (RHQ, T&CC offices, project, stations) incurring the expenditure and should
be accounted for as “S&I of new projects’.

On approval of the project the cumulative expenditure incurred on this account

should be transferred by the units concerned to the approved project through inter
unit advices.

In case the project is not taken up then the total expenditure should be transferred
to CC through IUA by the unit concerned and the same should be written off by
CC after obtaining approval of the competent authority.

These expenses together with further expenditure on this account during project
execution have to be allocated to various systems pro-rata to closing balance in
CWIP Accounts.
E. Commissioning expenses

Commissioning expenses (net of income from sales) are to be shown in the

accounts as a separate item in the CWIP schedule. However, it is necessary to
identify these expenses as far as possible with the systems and units to which they
relate so as to ensure maximum accuracy in classification of expenditure. For
example, expenses directly incurred for commissioning Coal Handling systems
should be capitalised with coal handling plant and similarly expenses directly
incurred for commissioning of boiler such as hydraulic testing, initial firing of
boiler etc. should be classified with the boiler cost. An analysis of the
commissioning expenses should, therefore, be effected to classify the expenses
with the individual package/units and accordingly costs should be transferred to
individual package and units. Any balance expenditure that is not susceptible to
identification should be allocated to various systems, packages and units pro-rata
to directly identified commissioning expenses. It should, however, be ensured
that commissioning costs recoverable from contractors, such as initial fill of chemicals,
spares etc.as per contract, are not included in commissioning expenses.

33
 Where commissioning expenses for systems other than SG and TG are considered
negligible, such expenses may be allocated to SG and TG prorata to the capital
cost.

F. Interest during construction (IDC)

G. Reallocation of costs of common systems such as piling and foundation,

station piping, control and power cables to main systems to which they relate.

There are also common systems, which are either in the nature of Associated civil works or
Equipment, which form an integral part of systems for purpose of classification of assets and
depreciation.The obvious examples are piling and foundation, which are partly in the nature
of associated civil works for SG, TG etc.and partly in the nature of foundation for
superstructure of buildings.Similarly, station piping, control and power cables are also to be
identified with other operating units or systems for the purpose of classification of cost in
fixed assets account. It is necessary to effect direct identification of costs with individual
units or systems wherever possible and in other cases cost should be allocated on the basis
of technical estimate to be certified by Engineer-in-charge.

Plant and machinery superstructure should be capitalized as plant along with boiler or TG or
other equipment with which such structure is associated. Other structures, which contain or
house plant and machinery, should be added to the cost of plant buildings.

Step-III: Once the package-wise costs are finalised then the same should be allocated
to the generating units. Analyse the actual cost of the package as reflected in
CWIP account to identify actual cost of:
1. Individual generating units.
2. Systems associated/commissioned exclusively with a specific
generating unit.
3. Common systems initially commissioned with the first generating unit, which,
later on, cater to more than one generating unit. In these cases, there may be
capital additions effected from time to time to take care of additional
requirements of generating units commissioned subsequently.

If data are not available for unit-wise identification of cost, it may be appropriate to
adopt the following steps for unit-wise analysis of various elements of costs:

34
A. Main Equipment
a) Equipment cost excluding escalation (Basic Cost) Capitalistion is to be effected
unit-wise prorata on tonnage basis.
b) Erection charges excluding escalation
The payments for erection work are effected in many cases on tonnage basis and
in a few cases by means of stge payments. In this case also, it is felt that unit-wise
analysis may be effected preferably on the basis of actuals. However, if this course is
not practicable, Capitalistion should be done on the basis of erection price (basic price)
per tonne unit as specified in the contract.
c) Freight, Insurance and Handling Charges:
Since the quantum of cost may not be substantial, it may not be practicable
to identify the same unit-wise withing the package, this cost should be
allocated prorata on tonnage basis
d) Escalation costs and taxes and duties:
These costs as recorded in the capital work-in-porogress account/job cost
cards and are to be allocated on acutal basis.

B. Common systems/Equipments
In the case of common equipment included in individual package (i.e.
equipments common to more than one generating unit, for example off-line
system included in DAS), capitalisation is to be effected with individual units
to the extent the common equipment is commissioned with such unit. The
balance of equipments which are linked with other generating units should be
treated as a capital additions and dealt with as such in the accounting year in
which the individual units concerned are commissioned.

Costs have to be allocated on the basis of technical norms keeping in view

value of work done and commissioned as included in the work-in-progress
account. Though technical norms may be the basis for ascertaining the cost of
the part system commissioned with individual units, the ultimate cost of the
system on completion of project has to necessarily reflect the actual cost as per
books of accounts.

C. Associated Civil Work Cost (e.g. piling& foundation)

The cost should be allocated unit-wise preferably on the basis of actual

quantitites (actual no. of piles) wherever available or on the basis of technical
norms to be certified by Engineer-in-Charge.

35
Process: IEDC and IDC Process No.: 04
This process lays down the procedure to be followed for identification of IEDC, IDC and
their allocation to various projects
IEDC (identification & Allocation)
• At CC .
The expenditure/income of Regional HQs, T&CC Offices, inspection offices and service
units like CSES Muradnagar should be absorbed and merged in Corporate Centre
expenses. As far as possible, the total expenditure/income at Corporate Centre should be
directly identified with construction or revenue activities. For example, generation
incentive expenditure and R&D expenditure are not at all related to any construction
activity and should be directly identified with revenue. Similarly construction incentive is
directly related to construction of projects and should in its entirety form part of IEDC.
The expenses/income, which cannot be directly identified, should be treated as common
expenses/income and allocated between revenue and capital in the ratio of sales including
electricity duty and annual capital outlay as per the accounting policy. The sum of
directly identified and common expenses would be the CC IEDC for the year, which
should be allocated to approved projects which are not fully under operation, prorata to
their annual capital outlay.
• At projects
In case of all approved projects, which are not fully under operation, all site
expenditure/income should be identified with construction/ revenue activities on the same
lines as detailed above, except for the fact that common expenses should be allocated
between revenue and capital in the ratio of sales including electricity duty, and accretions
to CWIP. The total expenditure which is identified for capitalization from the sites as
well as expenditure allocated from CC should be allocated to various CWIP packages
prorata to positive accretions to the CWIP during the year. No portion of expenditure/
income should be capitalized in the year in which all the units at a project are commercial
as at the beginning of the year.

It may be mentioned that segregation of expenses, which cannot be directly identified

with construction or revenue activities, upto the date of capitalization would be a very

36
 difficult exercise which may not be very practical also in view of the fact that several
units may be getting capitalized in a year at different points of time. Moreover the
method of allocation based on accretion to CWIP and sales itself gives weightage to the
period element both in respect of commissioned units and CWIP items while dealing with
common expenses. In view of these considerations, allocation of common expenses
should be dealt with only on annual basis.
Expansion of Projects
When a station undergoes expansion, only the expenditure directly identified with construction
of new units/ expansion activities should be capitalized. In such units care should be taken that
no part of incidental expenditure which would have been incurred even if the expansion had not
taken place gets identified as IEDC.
Accounting of IEDC
The portion of expenditure income identified for capitalisation should be debited to
account head for IEDC for the year by credit/debit to account codes for expenditure/
income during construction. Care should be taken that the gross expenditure for the year
appearing in the natural heads is not disturbed so that the same can be shown in its
entirety in the P&L account. The credit/ debit to expenditure/income during construction
should be shown as a deduction from the gross expenditure/income for the portion
identified for capitalization. The allocation to various CWIP packages should be routed
through IEDC allocated to CWIP account.
Borrowing costs
Borrowing costs are interest and other costs incurred in connection with the borrowing
and include the following:
• Interest
• Commitment charges, manager’s fee, arranger’s fee, upfront charges etc.

Where a loan has been taken for construction/ acquisition of a specific project/asset, the
borrowing cost relating to the period till the asset is ready for use should be capitalised as
a part of the cost of the asset. Where borrowings have been made which are not related to
any specific project/asset, the borrowing cost eligible for capitalization should be
determined by applying a capitalisation rate equal to the weighted average rate
ofborrowings to the capital expenditure on those projects/assets. An illustration of
calculation of interest/borrowing cost to be capitalized.
The borrowing cost identified for capitalisation should be allocated to various CWIP
packages on a yearly basis prorata to average balance appearing in the packages during
the year.
Exchange Rate Variation (ERV)
Exchange rate variation (ERV) arises as a result of settlement during the year/ translation
at the end of the year at closing rates of the receivables/ payables in foreign currencies.
The exchange rate variation relating to acquisition of capital assets should be adjusted in
the historical cost of such assets while that relating to current assets is to be recognized as
an income/expenditure in the Profit & Loss account.

37
At projects, debits for ERV on borrowings are being received from CC in addition to that
arising in their own books as a result of payment/translation of liabilities. The entire ERV
whether transferred from CC or resulting from settlement/translation at year-end, in
stations’ books, should be initially accounted for in the “Exchange rate variation control”
account.

The portion of ERV identified for capitalization should be debited to the related
asset/CWIP account by credit to “ERV adjustment (Capital) account” while the portion
relating to P&L account should be debited/ credited to respective revenue heads by credit/
debit to “ERV adjustment (Revenue)” account. The balance appearing at the year-end in
the ERV adjustment accounts should be used for disclosure purposes as per the
requirement of AS 11.

Accounting Entries:
For portion identified for capitalization
Expenses/income chargeable to IEDC -----Dr
Incomeduring construction ------Dr
Expenditure during construction -----Cr

For allocation of IEDC to CWIP

Identified CWIP packages ------Dr
IEDC allocated to CWIP -----Cr

Note: The codes for income during construction in 09 series correspond to the codes for
Income in 0 series while the codes for expenditure during construction in 9 series
corresponds to the expenditure series in 1 series. However, as the expenditure to be
capitalized is reduced from the gross expenditure, the expenditure during construction
will be a credit balance. The income during construction will be debit balance on the
same lines.

38
Process: Capitalisation of bought out assets Process No.: 05

This process lays down the procedure to be followed for capitalisation of bought out fixed assets.

Components of cost

The assets should be capitalised based on the acquisition price and the other costs incurred
For bringing the asset in a position that it is ready to use. It should be ensured that all the
relevant costs have been included in the cost of the asset as per the accounting policy. For
instance,
(1) The cost for land includes the following elements:
 Purchase price of land.
 Compensation for acquisition of land including structure, crop and tree.
 Legal charges, stamp duty, etc., incurred for securing title.
 Cost of measuring land, investigating its titles, land surveys, land acquisition
unit expenses, etc.
 Costs of demolition of unwanted structures.
 Any deposit/advance for land in respect of which either physical possession or
legal ownership has been obtained.
 Resettlement & Re-habilitation and Community development expenses directly
related to acquisition of land.
(2) Cost for building purchased includes the following elements:
 Purchase price
 Legal charges, stamp duty, etc. incurred for securing a title.
 Any payments to tenants (to cancel the tenancy rights) at the time of
acquisition.
 Repairs, alterations and improvements to put the building in usable condition.
 Architects fees for re-modeling, alterations, and improvements before the
building is first put to use.
In case a building is purchased along with the land at consolidated price, the

39
 purchase cost should be bifurcated between the land and building. In case the
breakup value is not readily available the cost should be allocated to land and
buildings based upon technical and commercial appraisal.
As the rate of depreciation on internal electrification of buildings is different
from the rate of depreciation on buildings, the cost of internal electrification of
buildings should be accounted for segregated and accounted for separately as
furniture &fixtures inline with the company’s accounting policy.
(3) Cost for other moveable assets acquired includes the purchase price and all
Other costs incurred for making the asset ready for use (e.g. transportation
costs,installation, etc.)
Provisional capitalisation
• At the year-end, in case assets have been received but the supplier’s bills have not
been received then the asset should be provisionally capitalised on the basis of the
purchase order raised for the item, and other incidental expenditure on estimated basis.

• After receipt and processing of the supplier’s bills the necessary adjustments should be
made to the capitalised value of the asset.

Procedure : Capitalisation of bought out assets

S. No Activity Person Frequency Remarks

Responsible

1 Receive the SRV. Ensure that the AIN is F&A Deptt As and
when
indicated on the SRV.

Process the SRV - as per the manuals on

Procurement & Stores Accounting.

2 Generate a JV to account for the assets F&A Deptt Same day

Received.

Accounting Entries:
Fixed Assets ----Dr
Supplier’s payable A/c -----Cr
Freight payable A/c ----Cr
Other charges A/c(s) ----Cr
Income Tax payable, if applicable ----Cr

40
Process: Depreciation Accounting Process No.: 06
This process lays down the procedure to be followed in respect of depreciation.

Depreciation should be computed as per the following:

• Electricity (Supply) Act, 1948 - for providing depreciation in the books of account.
• Companies Act, 1956 – for disclosure in the books
• Income tax Act, 1961 - for income tax purposes

Any change in the rates/ method of computing depreciation is to be intimated by Corporate

Centre to all the units.

Depreciation is to be provided in the books of account at quarter ends. The depreciation as

provided in the quarter-end is to be reversed at the beginning of the next quarter. The
depreciation for the year shall be calculated at the year-end and provided for in the books of
account.
The basis for computing depreciation under the various Acts is provided below:
Electricity (Supply) Act, 1948
• Depreciation is charged on the straight-line method to write off 90% of the cost of the
asset as per the rates prescribed under the Act.
• In respect of the assets where the rates have not been prescribed, depreciation is to be
provided on straight line method at the corresponding rates as provided in the Income
Tax Act, 1961.

41
Companies Act, 1956
• Depreciation under the Companies Act is provided on straight-line method to write off
95% of the cost of the asset at the rates as prescribed in the Act.
• In respect of the extra shift allowance, calculations are to be made for double/triple shift
working in the proportion in which the number of days in the year for which the
concerned asset actually works double/triple shift, bears to the number of days for which
the station actually worked during the year or 240 days whichever is greater

Income tax Act, 1961

• Depreciation is calculated on the diminishing balance method as per the rates prescribed
in the Act.

Depreciation on specific items

Renovated and modernized assets

In case of expenditure incurred on Renovation and Modernisation (R&M) the following

treatment should be followed:
• In case the R&M is likely to result in an increase in the life of the asset, the useful
residual life of the asset should be technically assessed and depreciation should be
charged prospectively at a rate so that 90% of the revised gross block is depreciated over
its revised useful life. However, it must be ensured that the rate so derived is not less than
the statutory rate under the ES Act/ rate derived from the IT Act, as may be applicable.
• In case the R&M expenditure results in an increase in the efficiency of the asset without
affecting the useful life of the asset, then the depreciation should be charged on a
prospective basis on the revised gross block over the remaining life.

Capital spares
• Machinery spares which can be used only in connection with an item of fixed assets and
whose use is expected to be regular should be capitalised with the fixed asset
concerned.Where the capital spares have been procured subsequent to the capitalisation
of the main equipment, the cost of such spares should be amortised over the useful
residual life of the related main equipment.

Construction equipment
• Depreciation on the construction equipment during the construction phase should be
capitalised as a part of incidental expenditure during construction. After the
commencement of commercial operations of the first unit of the project the gross block of

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 such equipment should be brought down to its written down value i.e. after adjusting the
depreciation amount provided during the period of construction. However, depreciation
on such assets should be provided on the historical value of the asset till 90 percent of the
original historical cost is written off.
Depreciable Assets whose historical cost undergoes changes
• Where the historical cost of a depreciable asset has undergone a change due to exchange
fluctuations, capitalisation of borrowing costs, price adjustments, changes in duties or
similar factors, the un-amortised depreciable value should be amortised over the residual
useful life of the asset.
Items of small value
Items of plant and machinery with a written down value of Rs 5,000/- or less at the
beginning of the year or items of plant of machinery costing Rs. 5,000/- or less acquired
during the year are to be fully depreciated.

Assets used during construction period

• Depreciation should be charged in respect of assets used during the construction period
(including construction equipment) at the prescribed rates.

• The depreciation charged during the construction period would also be capitalised as a
part of incidental expenditure during construction.

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Process: Transfer of Assets Process No.: 07
Process brief
This process lays down the procedure to be followed for transfer of assets. Assets of a unit may
be transferred within the unit or may be transferred to other units.Where an asset is transferred
within the unit, the ACA should update the Asset Control Register with the details of change in
location/ person to whom the asset is issued. On receipt of the repaired asset, F&A department
should be intimated of the receipt for updation of the FAR.
Transfer of an asset outside the unit may take place on account of despatch to the works of
manufacturer for repairs/rectification/replacement or on account of inter unit transfer on loan
or permanent basis. Transfer of an asset for repair purposes is recorded in the Asset Control
Register by way of recording the change in location and intimation to F&A department.

Inter unit transfer of an asset is effected through Asset Transfer Note (ATN) and it should be
ensured that:
• The transfer of the asset is approved by the competent authority.
• All asset transfers are supported by an Asset Transfer Note (ATN).
• The ATN is forwarded to the transferee unit along with an extract of the FAR of the asset
transferred.
• Copy of the ATN is forwarded to F&A department for updating the FAR.
• Depreciation for the year is provided in the books of the transferee unit.
• The assets transferred are disclosed by the transferor/ transferee units in a separate
column (i.e. Transfer in/out) in the Fixed Asset schedule annexed to the Final accounts of
the concerned unit to facilitate reconciliation.
Expenses incurred on the dismantling and transfer of asset
• The dismantling charges, as well as cost of civil works and erection charge for the initial
erection on the asset transferred should be written off to the revenue account by the

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 transferor unit.

• The erection and transportation charge incurred by the transferee unit should be
capitalised along with the cost of the asset.
Depreciation
Depreciation on the transferred asset should be provided for the whole year (in which the
asset has been transferred) by the transferee unit irrespective of the period for which such
asset was actually used by it.
Departments/ sections involved in the process
• Finance and Accounts department
• Book section
• Asset control authorities

Process: Disposal of Assets Process No.: 08

Assets should be disposed off only after the necessary approvals have been obtained from
the competent authority. The manner of disposal of an asset should be as per the guidelines
prescribed in this respect.

Where material items have retired from active use and are held for disposal then such items
should be stated at the lower of their net book value and net realizable value and shown
separately in the financial statements.

Assets may be disposed off through auction/tendering, draw of lots among employees, sale
to retired employees, replacements through buy back schemes etc. Prevalent guidelines as
applicable for each such method of disposal should be followed.

On disposal of an asset FAR should be updated.

Accounting Entries:

On Disposal for cash

Cash/Bank ----Dr
Accumulated depreciation ----Dr
Loss on disposal of fixed assets --- Dr
Profit on disposal of fixed assets ---Cr
Gross Block ---Cr

On disposal through buy back schemes

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 Gross Block (new asset) ---Dr
Accumulated depreciation (disposed asset) ---Dr
Loss on disposal of fixed assets ---Dr
Profit on disposal of fixed assets ---Cr
Gross Block(disposed asset) ---Cr
Cash/Bank(net difference to be paid) ---Cr

Process: Maintenance of Fixed Asset Register (FAR) Process No.: 09

The FAR is to be maintained and updated by the Book Section, F&A Department. The FAR
should be maintained in a format to contain the information as required under the Companies
Act, 1956.

The FAR should be maintained asset category-wise and item wise.

The balances (gross block and depreciation) as appearing in the FAR should be reconciled on
a quarterly basis with the balances in the General Ledger.

The FAR should be updated on:

• Acquisition/ commissioning of new asset

• Transfer of an asset based on Asset Transfer Note (ATN)
• On retirement from active use
• Disposal of the asset
• Receipt of the physical verification report

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Process: Physical verification of fixed assets Process No.: 10

The fixed assets should be physically verified periodically and the discrepancies noticed therein
should be adjusted in the books of account. The FAR should be accordingly updated .It should
be ensured that the fixed assets at all the locations are verified at least once every three years.

A programme for carrying out the physical verification should be drawn specifying the category
of fixed asset, the dates and the team for carrying out the verification, etc. It should be ensured
that an official,independent of the asset control authorities concerned should also form a part of
the physical verification team.
Appendix I prescribes the programme and the authority prescribed for supervision of the
physical verification for various asset categories.

On conclusion of the physical verification of the fixed asset a report should be prepared on the
discrepancies observed on the physical verification. The report should be submitted to the asset
control authority concerned for investigation and action.
In respect of the assets located at the residential offices, a certificate should be obtained from
the official concerned that the assets are located at his residential office and are in good working
condition.

Procedure: Physical verification of fixed assets

S.No Activity Person Frequency Remarks

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 Responsible

1. Issue a circular to all the asset control Book Section Annually

authorities for carrying out the physical

verification as per the schedule. The

circular should provide the following

particulars for the verification:

• Location
• Persons responsible for carrying
out the verification
• The format for preparation of the
report on physical verification
• Dates and authorities for
submission of the reports
• Other documents that also need
to be verified i.e. title deeds for
land,registration books of
vehicles etc.

S.No Activity Person Frequency Remarks

Responsible

2. Carry out the physical verification and Verification Annually

prepare the report as per the format team

provided.

Consolidate all the physical verification ACA

reports and verify with respect to the concerned
Asset Control Register.

Prepare a report on the discrepancies

observed.

Forward the physical verification report

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 and discrepancy report duly completed
to the Books Section.
3. Receive physical verification report and Books Section Within a week

discrepancy report from ACAs. Of receipt of

report

Prepare a consolidated statement of the

discrepancies on physical verification.

Forward the report to the competent

authority for approvals for adjusting the

discrepancies in fixed assets.

4. Generate a JV for providing for the Books Section Within 2 days

discrepancies on physical verification

after obtaining approvals of the

competent authority.

Update the FAR with the adjustments

made to the fixed assets.

Document - Records
Document Document Format Frequency Distribution

Title Type Ref.

Circular on Physical verification I Annually All asset control

Authorities

Report on physical verification R FA/MIR/01 Annually Books Section

Discrepancy Reports R Annually Books Section

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 Appendix I
CRITERIA FOR DECLARING COMMERCIAL OPERATION
The criteria for declaring commercial operation of a plant for coal and gas based units is
provided below:

Coal based units

All main equipment and auxiliary systems including fuel oil plant, coal handling plant, water
treatment plant, ash disposal system, MGR has been commissioned to give adequate capacity
to operate the unit.
All safety measures including segregating units in operation from units in construction and
fire protection system have been put in to service.

All permanent electrical supply systems including emergency supplies and instrumentation,
control and protection systems for operating the unit have been put into service.

Trial operation of the unit has been performed with the contractor and the trial operation
report has been jointly prepared with the contractor and signed without absolving the
contractor of his obligations under the contract. Trial operation of the unit shall be considered
successful if a unit has operated continuously for 14 days out of which at least 72 hours
should be at full load.

The unit has been in operation for a period of at least 1000 hours giving generation of not less
than 2500 KWH/KW/Year and shall cover the whole range of operation including full load
for a minimum period of 72 hours.

In case some major shortcomings have been noticed because of which it had not been
possible to carry out the trial operations of the unit as given above or to run the unit on stable
load in view of force majeure conditions such as non-availability of coal, non-completion of
MGR or other sub-systems, lack of system demand and reduction in generation imposed by
REB’s, etc. the period of “six months from the date of synchronising or four months from the
date of synchronizing after bearing inspection whichever is earlier” could be extended.

Extension shall be granted by the CMD on initiation of proposal by the GM (Project) before
six months after unit synchronisation.

Gas based units

Initial operation wherein the complete equipment has operated together with sub-systems and
supporting equipment as a complete plant has been carried out.
All permanent electric supply including emergency supplies and instrumentation, control and
protection systems for operating the unit has been put into service.

All safety measures including segregating units in operation from units under construction and

50
fire protection system have been put in to service.
Trial operation of the unit has been performed with the contractor and trial operation report
has been jointly prepared with the contractor and signed without absolving the contractor of
his obligations under the contract. Trial operation of the unit shall be considered successful if
a unit has operated for 14 days continuously out of which 72 hours shall be continuous
operation in full load.

After successful operation of trial operation, a time period not more than 30 days for gas
turbine shall be granted to complete the minor left over jobs and to permit adequate
debugging of teething problems and unit shall be declared commercial immediately after the
problems are attended to.

Even if it had not been possible to fulfill the conditions as mentioned above, the unit shall be
deemed to have been placed under commercial operation after a period not exceeding 2
months from the date of synchronization.

In case some major shortcomings have been noticed because of which it has not been
possible to carry out the trial operation of the unit as given above to run the unit on a
sustained basis in view of force majeure conditions such as non-availability of gas, lack of
system demand and reduction in generation as imposed by REBs, etc. the period as
mentioned above could be extended. Extension shall be granted by the CMD on initiation of
the proposal by the GM (Project) before 2 months after unit synchronisation.

For steam turbines of combined cycle, the procedures for declaring commercial operation
shall be same as mentioned above for coal stations, to the extent applicable.

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 Appendix II
S. No Category Program for verification

1 Land • Verify land title deeds every year.

• Carry out a survey to identify the physical

boundaries of the land with reference to survey
numbers and map plans and verify the
approximate area of land.

• Ensure that physical possession of the land is with

NTPC. In case of adverse possession, quantify
such land.

2 Building Verify the

• Physical existence
• Title deeds

3 Plant & machinery • Ensure that the plant & machinery are in use and
in working order

4 Furniture & fixtures Ensure

• The physical existence of the assets

• Assets are in use and in good working condition

5 Office equipment Ensure

• The physical existence of the assets

• Assets are in use and in good working condition

6 Vehicles • Ensure the physical existence of the vehicles

• Check the registration books of all the vehicles
for clean title.

7 Capitalised spares • The physical existence of the assets

• Assets are in use and in good working condition

8 Construction Equipment • The physical existence of the assets

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 • Assets are in use and in good working condition

9 Communication • The physical existence of the assets

• Assets are in use and in good working condition
Equipment
10 Computers • The physical existence of the assets
• Assets are in use and in good working condition

11 Hospital equipment • The physical existence of the assets

• Assets are in use and in good working condition

12 Township/ guest house/ • The physical existence of the assets

• Assets are in use and in good working condition
community centre/

canteen/ school equipment

Problems regarding assets accounting

Sometime processes involved like physical verification of assets especially capital spares and
other mandatory assets becomes a problem as their locations are not easily identifiable .

Lengthy process of allotment of assets of identification number and transfer detaiols of assets of
the concerned department often leads to delays and sometimes to the in accuracy of date.

Problems in updating fixed assets Register (FAR) on regular basis as NTPC possesses Large
number affixed assets ,so it must be updated at following :

• Acquisition\commissioning of new assets.

• Transfer of assets based on Assets Transfer Note.
• On retirement from active use.
• Disposal of assets.
• Receipt of physical verification report

Probleems of long and multilayered Procusementprocess leating to lang lead time and process
delays.

Problems of locations of various assets due to improper tagging.

Problems in disposal of assets retired from active use.

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Capitalisation of spares.

OTHER PROBLEMS

1. Problem of ash disposal.

2. Wastage of soares due to ubadequate warehousing facility.
3. Long lead time of procurement because of presailing beareaucratic system.
4. False and outdated rules and regulation and government policies hampers the growth of
power sector a lot.
5. Poor infrastru ctural development and facilities is a major hurdle in the growth of power
plant projects in India as well as in NTPC.
6. Limited presence of manufacturer leads to monopoly of manufacturers and limied scope of
advancement alongwith increased erpediture.
7. Inadequate availability of coal.

Suggestion
1. Application of system application programme (SAP) in the physical verification of assets
and allotment of AIN.
2. Capitalization of different kinds of assets must be tackken into account properly.
3. FAR must be updated at regular intervals such as on quarterly or on half yearly basis.
4. Proper tagging and location marking of assets with the use of SAP and other computer
based application.
5. Reduction in various kinds of lead time like procurement lead time administrative lea
time and arrangements for vendors inventory.
6. Quick movement of files.
7. Proper warehousing and accountings for the assets to be disposed.
8. Advanced techniques should be adopted for constructive use of ash.
9. Renewal of prevailing operation process and existing govt. policies leading to proper
exploration of new opportunities in market.
10. Acceleration infrastructural development and growth of manufacturing sector.

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 Limitations of the study

 Any institution along with Public Limited will not allow any Vocational Trainee in their
practical work generally in finance related work as it can cause distortion of data.
 Financial data are not reviled in front in of VT as this cause leakage of secret
information.
 People are already overloaded with work which has to be completed in time so they can’t
provide enough time for VTs.

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 REFERENCES

• EMPOLOYEES HANDBOOK OF NTPC

• INTRANET ACCESS AT NTPC
• SEARCH ENGINES –ntpc.com
• ANNUL REPORT OF NTPC
• VARIOUS MNNUALS OF NTPC Ltd.

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