Documente Academic
Documente Profesional
Documente Cultură
MANAC Accounting
Principles of Assets &
Liabilities in Power Industry
1. Introduction:
Power or Electricity is the most critical component of infrastructure which affects the economic growth
and well-being of a nation. Coal based power generation accounts for 65% of power generation,
hydroelectric power plants accounts for 22%, nuclear power plants accounts for 3% and other alternate
sources accounts for 10% of the power generation in the country.
The Top 10 companies in India as per market as per total assets:
S. No
Company Name
1.
2.
Total Assets
Net Sales
(2012-13)
Net Profit
(2012-13)
Other
Income
(2012-13)
2688.89
570.89
NTPC
137,222.35
72,018.93
10,974.74
Power Grid
92,460.31
12,757.85
4,234.50
Corporation
3.
Adani Power
27343.14
10,714.43
595.26
4.
Reliance Infra
24,329.93
14,322.03
1999.52
1082.82
5.
Jaiprakash Power
22,401.61
2,252.58
329.15
38.22
Ventures
6.
Tata Power
20,450.52
8627.04
954.08
655.76
7.
JSW Energy
11,556.11
6396.45
993.03
304.78
8.
Torrent Power
10,356.04
8129.87
384.96
140.10
9.
SJVN
9,849.12
1,682.10
1,052.34
234.52
10.
Gujarat Industries
2,354.25
1,416.03
218.88
14.27
Power Co. Ltd.
Source www.MoneyControl.com We have omitted few companies from the original list since their
latest annual reports were either not available or carried negligible information on Revenue Recognition
principles
The accounting principles applied for assets & liabilities for each company are as listed below.
1. NTPC:
Asset
Fixed Assets: Represented as
Gross Block (Depreciation +
Impairment) = Net block
Capital Work-in-Progress is
represented separately.
Depreciation + Impairment
Principles
Fixed Assets:
Fixed Assets are stated at historical cost.
Repair work carried out to increase life or efficiency of a fixed assets is
added to the cost of asset
Cost of software / right to use assets is recognized as intangible asset.
Assets common to more than one business unit are capitalised based on
engineering estimates.
Capital work in progress:
Capital expenditure on assets not owned by the Company is reflected as
part of capital work-in-progress till completion and thereafter in the
tangible assets
Depreciation:
Depreciation is done on a straight line basis
Assets costing up to 5000/- are fully depreciated in the year of acquisition
Leasehold land and buildings relating to generation of electricity business
Asset
Liability
Loan funds
Principles
are fully amortized over lease period or life of the related plant whichever
is lower. Leasehold land acquired on perpetual lease is not amortized
Land acquired for mining is amortized on the basis of balance useful life of
the project. Other leasehold land acquired for mining business is amortized
over the lease period or balance life of the project whichever is less
Impairment:
The carrying values of assets / cash generating units are reviewed for
impairment at each balance sheet date.
An impairment loss is recognized in the statement of profit and loss where
the carrying amount exceeds the recoverable amount of the cash
generating units.
The impairment loss is reversed if there is change in the recoverable
amount and such loss either no longer exists or has decreased.
Long term investments are stated at cost
Current Investments are carried at lower of cost or fair value
Premium paid on long term investments is amortized over the period
remaining to maturity
CURRENT ASSETS, LOANS AND ADVANCES
Inventories: Valued at lower of cost and NRV
Costs include all nonrefundable duties and all charges incurred in bringing
the goods to the present location and condition.
Cash & Bank balances:
Cash comprises cash on hand and demand deposits with banks
Cash equivalents are highly liquid investments that are readily convertible
into known amounts of cash and which are subject to insignificant risk of
changes in value
Other current assets:
Consists of interest receivables & unbilled revenue
Principles
LOAN FUNDS - Secured Loans; Unsecured Loans
Current Liabilities
Liabilities which have to be fulfilled in the next one year such as borrowings, trade
payables, provisions & other liabilities.
Contingent Liabilities
Provisions
Capital Work-in-Progress is
represented separately.
Depreciation + Impairment
Principles
Fixed Assets:
Fixed Assets are shown at Historical. Repair work carried out to increase
life or efficiency of a fixed assets is added to the cost of asset
Cost of software (which is not an integral part of the related hardware)
intended for internal use and which is expected to bring significant future
economic benefit to the company is recognized as Intangible Asset.
.
Capital work in progress:
Expenditure incurred on
survey/Studies/Investigations/Consultancy/Administration are capitalized
and treated as Capital Work in Progress
Depreciation:
Fixed assets are depreciated under the straight line method.
Fixed assets costing up to Rs 5000/ are fully depreciated in year of
acquisition.
Impairment:
Impairment loss if any is recognized in profit & loss.
Impairment loss, if need to reversed subsequently, is accounted for in the
year of reversal.
N/A
Current Liabilities
Contingent Liabilities
Provisions
3. Adani Power
Asset
Fixed Assets: Represented as
Gross Block (Depreciation +
Impairment) = Net block
Capital Work-in-Progress is
represented separately.
Depreciation + Impairment
Principles
Fixed Assets:
Fixed assets are stated at cost less accumulated depreciation and
impairment losses, if any. The cost of fixed assets comprises of its purchase
price, any non-refundable duties and taxes and any directly attributable
cost for bringing the assets ready for their intended use.
Borrowing costs directly attributable to qualifying assets / capital projects
are capitalized and included in the cost of fixed assets to the extent they
relate to the period till such assets are ready for their intended use.
Intangible assets are stated at cost, less any accumulated amortization and
impairment losses.
Depreciation:
Depreciation is done on a straight line basis
Cost of Leasehold land is amortized over a period of lease.
Intangible assets are amortized over the useful economic life of the assets.
Assets costing less than 5,000 are written off in the year of purchase.
Impairment:
The carrying values of assets / cash generating units are reviewed for
impairment at each balance sheet date.
If impairment exists, the recoverable amount is estimated. An asset is
treated as impaired when the carrying cost of assets exceeds its
recoverable value.
The recoverable amount is the greater of the net selling price and their
value in use. Value in use is arrived at by discounting the future cash flows
to their present value based on an appropriate discount factor.
An impairment loss is charged to the Statement of Profit and Loss in the
period in which an asset is identified as impaired. The impairment loss, if
any, recognized in prior accounting periods is reversed if there has been a
change in the estimate of recoverable amount.
Long term investments are stated at cost.
Current Investments are carried at lower of cost or fair value.
Liability
Current Liabilities
Principles
Liabilities which have to be fulfilled in the next one year such as borrowings, trade
payables, provisions & other liabilities.
Contingent Liabilities
Contingent liabilities are not recognized but are disclosed in the notes. Contingent
assets are neither recognized nor disclosed in the consolidated financial
statements.
Provisions
4. Reliance Infra
Asset
Fixed Assets: Represented as
Gross Block (Depreciation +
Impairment) = Net block
Capital Work-in-Progress is
represented separately.
Depreciation + Impairment
Principles
Fixed Assets:
The financial statements are prepared under historical cost convention, on
accrual basis of accounting.
Cost comprises cost of acquisition or construction of assets (excluding
revalued assets) including borrowing costs attributable to bringing the
assets to their intended use.
Intangible Assets are stated at cost of acquisition. Acquisition cost of
residual interest in the monthly cash flow of the toll road businesses have
been accounted as intangible assets.
Cost incurred on the project which is incomplete as on balance sheet date
has been shown as Intangible Assets under Development.
Depreciation:
Fixed assets are depreciated under the straight line method.
Software pertaining to the electricity business are amortized over a period
of 3 years.
Depreciation on revalued assets is charged over the balance residual life of
the assets considering the life prescribed as per the Electricity regulations.
EPC and Contracts Business: Fixed assets of EPC Business have been
depreciated under the reducing balance method.
Intangible Assets representing acquisition of Residual Interest in Toll
Businesses are amortized over a contract period ranging from 9 to 17
years, on the basis of projected revenue
Current Liabilities
Contingent Liabilities
The Company does not recognize a contingent liability but discloses its existence in
the notes to financial statements. Contingent assets are neither recognized nor
disclosed in the financial statements.
Provisions
Provisions are recognized when the Group has a present obligation, as a result of
past events, for which it is probable that an outflow of economic benefits will be
required to settle the obligation and a reliable estimate can be made for the
amount of the obligation.
Capital Work-in-Progress is
represented separately.
Depreciation + Impairment
Principles
Fixed Assets:
Fixed Assets are stated at Cost of acquisition or construction inclusive of
freight, erection & commissioning charges, duties and taxes, expenditure
during construction period, Interest on borrowings, financing cost, foreign
exchange loss/gain, up to the date of commissioning.
Intangible assets are stated at cost of acquisition less accumulated
amortisation on straight line basis from the date the assets are put for
commercial use.
Depreciation:
Depreciation is done on a straight line basis
Intangible assets are amortized over the useful economic life of the assets.
Assets costing less than 5,000 are written off in the year of purchase.
Impairment:
Assets included in each cash generating unit is determined for any
indication of impairment.
If any such indication exists, the recoverable amount of the asset is
estimated in order to determine the extent of impairment loss.
Recoverable amount is the higher of an assets net selling price and value
in use. In assessing value in use, the estimated future cash flows expected
from the continuing use of the asset and from its disposal are discounted
to their present value.
Reversal of impairment loss is recognized immediately as income in the
profit and loss account.
Investments are stated at Cost and where there is permanent diminution
in the value of Investments a provision is made wherever applicable.
Dividend will be accounted for as and when the Company has a right to
receive the same on or before the Balance Sheet date.
CURRENT ASSETS, LOANS AND ADVANCES
Inventories of Stores & Spares are valued on the basis of Weighted
Average Cost Method.
Material in Transit is valued at cost.
Liability
Contingent Liabilities
Principles
Contingent liabilities are not recognized but are disclosed in the notes. Contingent
assets are neither recognized nor disclosed in the consolidated financial
statements.
Provisions
6. Tata Power
Asset
Fixed Assets: Represented as
Gross Block (Depreciation +
Impairment) = Net block
Capital Work-in-Progress is
represented separately.
Depreciation + Impairment
Principles
Fixed Assets:
Fixed assets, except Tangible Assets at its Strategic Engineering Division
are carried at cost.
Fixed assets of Strategic Engineering Division are recorded at revalued
amount done on 1st April 2013.The revalued assets are carried at the
revalued amounts less any accumulated depreciation and impairment
losses.
Subsequent expenditure relating to fixed assets is capitalised only if such
expenditure results in an increase in the future benefits from such asset
beyond its previously assessed standard of performance
Capital Work-in-Progress:
Projects under which tangible fixed assets are not ready for their intended
use and other capital work-in-progress are carried at cost, comprising
direct cost, related incidental expenses and attributable borrowing costs.
Intangible Assets under Development:
Expenditure on research and development eligible for capitalization are
carried as Intangible assets under development where such assets are not
yet ready for their intended use.
Depreciation:
Depreciation is done on a straight line basis.
Intangible assets are amortized over the useful economic life of the assets.
Leasehold Land is amortized on straight line basis over the period of the
lease.
Intangible assets are amortized over the useful economic life of the assets
or 5 years, whichever is lower. Computer software has been amortized
rate of 16.21% for TPDDL.
Impairment of Asset:
If any indication of impairment exists for the asset/cash generating unit,
the recoverable amount of such assets is estimated and impairment is
recognized.
If the carrying amount of these assets exceeds their recoverable amount,
the recoverable amount is the greater of the net selling price and their
value in use. Value in use is arrived at by discounting the future cash flows
to their present value based on an appropriate discount factor.
Reversal of impairment loss is recognized in the Statement of Profit and
Asset
Investments: Include the long
term trade investments at the
original cost
Liability
Current Liabilities
Contingent Liabilities
Provisions
Principles
Loss, except in case of revalued assets.
Long-term investments are carried individually at cost less provision for
diminution.
Current investments are carried individually, at the lower of cost and fair
value.
CURRENT ASSETS, LOANS AND ADVANCES
Inventories:
Inventories are valued at lower of cost (on weighted average basis) and
net realizable value after providing for obsolescence and other losses.
Work-in-progress and property under development are valued at lower of
cost and net realizable value. Cost includes cost of land, material, labor
and other appropriate overheads.
Cash and Equivalents:
Cash comprises cash on hand and demand deposits with banks.
Cash equivalents are highly liquid investments that are readily convertible
into known amounts of cash and which are subject to insignificant risk of
changes in value.
Other current assets:
Consists of interest receivables & unbilled revenue
Principles
Liabilities which have to be fulfilled in the next one year such as borrowings, trade
payables, provisions & other liabilities.
Contingent liabilities are not recognized in the financial statements and are
disclosed in the notes.
A provision is recognized when the Company has a present obligation as a result of
past events and it is probable that an outflow of resources will be required to
settle the obligation in respect of which a reliable estimate can be made.
7. JSW Energy:
Asset
Fixed Assets: Represented as
Gross Block (Depreciation +
Impairment) = Net block
Capital Work-in-Progress is
represented separately.
Principles
Fixed Assets:
Fixed assets are stated at cost which includes all direct and indirect
expenses up to the date of acquisition, installation and / or
commencement of commercial generation of power
Intangible assets are recognized only when it is probable that the future
income benefits that are attributable to the assets will flow to the
company and that the costs can be measured reliably. Intangible assets are
stated at cost less accumulated amortization and impairment loss, if any
Capital Work in Progress (CWIP)
Cost of material consumed, erection charges thereon along with other
related expenses incurred for the projects are shown as CWIP for
capitalization
Asset
Depreciation + Impairment
Liability
Current Liabilities
Principles
Expenditure attributable to construction of fixed assets are identified and
allocated on a systematic basis to the cost of the related asset
Interest during construction and expenditure (net) allocated to
construction are apportioned to CWIP on the basis of the closing balance
of specific asset or part of asset being capitalized. The balance, if any, left
after such capitalization is kept as a separate item under the CWIP
Schedule
Depreciation:
Depreciation is done on a straight line basis.
Leasehold Land acquired by the Company, with an option in the lease
deed, entitling the Company to purchase on outright basis after a certain
period at no additional cost is not amortized
Software is depreciated over an estimated useful life of 3 years
Depreciation on impaired assets related to a cash generating unit is
provided by adjusting the depreciation charge in the remaining periods so
as to allocate the revised carrying amount of the asset over its remaining
useful life
Impairment of Asset:
If any indication of impairment exists for the asset/cash generating unit,
the recoverable amount of such assets is estimated as the higher of its net
selling price and its value in use
An impairment loss is recognized in the profit and loss statement
whenever the carrying amounts of such assets exceed its recoverable
amount
Long-term investments are stated at cost
Current investments are carried at the lower of cost and fair value.
Asset
Contingent Liabilities
Provisions
Principles
A present obligation arising from a past event, when it is not probable that
an outflow of resources will be required to settle the obligation or a
reliable estimate of the amount of obligation cannot be made
a possible obligation arising from past events, the existence of which will
be confirmed only by the occurrence or non-occurrence of one or more
uncertain future events not within the control of the enterprise.
A provision is recognized when the Company has a present obligation as a result of
past events and it is probable that an outflow of resources will be required to
settle the obligation in respect of which a reliable estimate can be made.
8. Torrent Power
Asset
Fixed Assets: Represented as
Gross Block (Depreciation +
Impairment) = Net block
Capital Work-in-Progress is
represented separately.
Depreciation + Impairment
Principles
Fixed Assets:
Fixed assets are stated at cost of acquisition or construction less
accumulated depreciation. Cost includes purchase price, taxes and duties,
labor cost and other direct costs incurred up to the date the asset is ready
for its intended use.
Allocation of indirect expenses to capital account is done on the basis of
technical evaluation by the Management.
Certain computer software costs are capitalized and recognized as
Intangible assets based on materiality, accounting prudence and significant
benefits expected to flow therefrom for a period longer than one year.
Depreciation:
Depreciation is done on a straight line basis.
Leasehold Land acquired by the Company, with an option in the lease
deed, entitling the Company to purchase on outright basis after a certain
period at no additional cost is not amortized
Software is depreciated over an estimated useful life of 3 years
Depreciation on impaired assets related to a cash generating unit is
provided by adjusting the depreciation charge in the remaining periods so
as to allocate the revised carrying amount of the asset over its remaining
useful life
Impairment of Asset:
If any indication of impairment exists for the asset/cash generating unit,
the recoverable amount of such assets is estimated as the higher of its net
selling price and its value in use
An impairment loss is recognized in the profit and loss statement
whenever the carrying amounts of such assets exceed its recoverable
amount
Long-term investments are stated at cost
Current investments are carried at the lower of cost and fair value.
Liability
Current Liabilities
Contingent Liabilities
Provisions
9. SJVN:
Asset
Fixed Assets: Represented as
Gross Block (Depreciation +
Impairment) = Net block
Capital Work-in-Progress is
represented separately.
Principles
Fixed Assets:
Fixed Assets are stated at historical cost reduced by accumulated
depreciation/ amortization and impairment in value, if any.
Cost of software and expenditure incurred on compensatory afforestation,
soil conversation are reflected as intangible assets. This amount is
amortized on a pro-rata basis based on estimated life.
Construction equipment declared surplus are shown at lower ofbook value
and net realizable value
Assets common to more than one business unit are capitalised based on
engineering estimates.
Capital Work in Progress:
Asset
Depreciation + Impairment
Principles
capitalized on the basis of engineering estimates/assessment.
Depreciation:
Depreciation is charged on straight line method
Expenditure on software is recognized as Intangible Asset and amortized
fully over four years
Leasehold land is amortized pro-rata through depreciation overthe period
of lease or 35 years
Long-term investments are stated at cost
Current investments are carried at the lower of cost and fair value.
Inventories:
Valued at the lower of cost arrived at on weighted average basis and net
realizable value
Loose tools issued during the year are charged to consumption
Liability
Current Liabilities
Principles
Liabilities which have to be fulfilled in the next one year such as borrowings, trade
payables, provisions & other liabilities.
N/A
Contingent Liabilities
Provisions
Provisions created for leave encashment, medical and other retirement benefits
payable to employees, proposed dividend, interest on arbitration award, etc.
Capital Work-in-Progress is
represented separately.
Principles
Fixed Assets:
Cost of fixed includes all expenses incurred to bring the assets to its
present location and condition.
Intangible Assets are recognized only if it is probable that the future
economic benefits that are attributable to the assets will flow to the
enterprise and cost can be measured reliably.
Mines Development Expenditure under Fixed Assets comprises of initial
expenditure for lignite mines and expenditure for removal of overburden.
Such expenditure is amortized over quantities of lignite actually extracted.
Relevant stripping ratio is also considered while determining amortization
of expenditure for removal of overburden.
Works under erection/installation /execution (including such work
pertaining to a new project) are shown as Capital Work in Progress.
Asset
Depreciation + Impairment
Principles
In the case assets put to use, where final settlement of bills with
contractors is yet to be effected, capitalization is done on provisional basis
subject to necessary adjustment in the year of final settlement.
Depreciation:
Depreciation on all fixed assets (except those listed below) is provided on
straight line method
Leasehold land is amortized over the period of lease on straight-line basis.
Capital Spares are depreciated over the useful life of such spares.
Amortisation:
Computer software is amortized on straight-line basis over a period of five
years.
Impairment of Asset:
The carrying values of assets / cash generating units are reviewed for
impairment at each balance sheet date.
If impairment exists, the recoverable amount is estimated. An asset is
treated as impaired when the carrying cost of assets exceeds its
recoverable value.
The recoverable amount is the greater of the net selling price and their
value in use. Value in use is arrived at by discounting the future cash flows
to their present value based on an appropriate discount factor.
An impairment loss is charged to the Statement of Profit and Loss in the
period in which an asset is identified as impaired. The impairment loss, if
any, recognized in prior accounting periods is reversed if there has been a
change in the estimate of recoverable amount.
Asset
Liability
Contingent Liabilities
Principles
Principles
Contingent liabilities are not recognized but are disclosed in the notes.
Provisions
2. Comparative Analysis: The following table provides a comparative analysis of the accounting
principles with respect to assets and liabilities of the ten chemical companies listed in the report.
Revenue
Recognition
Category
Fixed Assets
Depreciation
Investment
Principe followed
Company Name
Depreciation follows
Reducing Written down
Value (Reducing
Balance) Method
Amortisation
Impairment
All Companies
Current Investments
are stated at lower of
cost or market value.
Depreciation follows
straight line method
All companies.
All Companies
Revenue
Recognition
Category
Inventories
Principe followed
Company Name
booked at lower of
weighted average cost
and NRV
booked at Weighted
Average cost
Provisions
Provisions are
recognized as per
accounting principles
Contingent
Liabilities
Contingent Liabilities
are recognized as per
the accounting
principles