Sh As Hi

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

3

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 NTPC Owned Coal Gas/Liquid Fuel Total Owned By JVs Coal & Gas Total

CAPACITY (MW)

15 7 22

24,395 3,955 28,350

4 26

2,294 30,644

7

Regional Spread of Generating Facilities

REGION Northern Western Southern Eastern JVs Total

COAL 7,035 6,360 3,600 6,900 8,14 24,709

GAS 2,312 1,293 350 1,480 5,435

TOTAL 9,347 7,653 3,950 6,900 2,294 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

10

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 : Stage- I = 4 × 210 MW=840 MW

Configuration

:Stage- II= 3  500 MW=1500 MW =2340 MW Fuel Source of fuel :

: Coal Rajmahal Hurra, Chuperbita coal fields of the Eastern coal fields Ltd Foreign coal.

Nearest water source

: River Ganges

Cooling Water System Beneficiary state

: Closed cycle induced draft system.

: 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 ‘Disha’ recommendations

Financial modeling for next 15 years to determine availability of funds

Plan Implementation Strategies

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 Joint Venture Company

1

PTC India Limited

Date of Incorporation

Promoter’s Equity Holding as on 31.3.2008

NTPC NHPC 16.04.9 PFC 9 Power Grid Corp

5.28% 5.28% 5.28% 5.28%

NTPC 50% Utility 23.11.9 Reliance 2 Powertech 5 Infrastructure 50% Limited (UPL) Ltd. NTPC-SAIL Power 08.02.9 3 Company Pvt. 9 Ltd.

NTPC SAIL

NTPC NTPC-Alstom Alstom 20.09.9 4 Power Services Power 9 Private Limited Generation AG

50% 50%

50% 50%

NTPC 50% Tamil Nadu NTPC Tamil 23.05.0 Electricity 50% 5 Nadu Energy 3 Board Company Ltd. NTPC

28.33%

Ratnagiri Gas 08.07.0 6 and power Pvt. 5 Limited 7 Aravali Power 21.12.0 NTPC 50% Company 6 Indraprastha 25% Private Ltd. Power Generation

Area(s) of Operation Trading of power, import/export of power and purchase of power from identified private power projects and selling it to identified SEBs/others. To take up assignments of construction, erection and supervision in power sector and other sectors in India and abroad. To own and operate a capacity of 564 MW as captive power plants for SAIL’s steel manufacturing facilities located at Durgapur, Rourkela and Bhilai. Another unit of 250 MW is expected to be commissioned shortly. To take up Renovation & Modernization assignments of power plants both in India and abroad. To set up a coal-based power station of 1000MW capacity, at Vallur , using Ennore port infrastructure facilities. The construction work at site is under progress. To take over and operate gas based Dabhol Power Project alongwith LNG terminal. NTPC’s shareholding is to be revised to 32.88%. To set up coal based power Project of 1500 MW (3x500 MW),in Jhajjar District of Haryana. NTPC would also operate and maintain 15

Co. Ltd. Haryana Power Generation Corp. Ltd. NTPC NTPC-SCCL Singareni 31.07.0 8 Global Venture Collieries 7 Pvt. Ltd. Company Ltd.

25% 50% 50%

NTPC 50% Uttar Pradesh Meja Urja 02.04.0 Rajya Vidyut 9 Nigam Private 8 Utpadan 50% Limited Nigam Limited NTPC 50% Bharat Heavy 50% NTPC BHEL 28.04.0 Electrical Ltd 10 Power Projects 8 Pvt Ltd.

BF-NTPC Energy 11 Systems Limited

NTPC 49% Bharat Forge 51% 19.06.0 Limited 8

Nabinagar Power 09.09.0 12 Generating 8 Company Private Limited

NTPC 50% NTPC Bihar State 50% Electricity Board

13 National Power 11.12.0 NTPC Exchange 8 NHPC Limited PFC

16.67% 16.67% 16.66%

the station on Management Contract basis for at least 25 years.

To jointly undertake the development and operation & maintenance of coal Blocks and integrated coal based power projects in India and abroad. To set-up a power plant of 1320 MW (2X660 MW) at Meja Tehsil or any other suitable site in Allahabad district in the state of Uttar Pradesh. To carry out Engineering Procurement and Construction (EPC) activities in the power sector and to engage in manufacturing and supply of equipment for power plants and other infrastructure projects in India and Abroad. To establish a facility to take up manufacturing of castings, forgings, fittings and high pressure piping required for power projects and other industries, Balance of Plant (BOP) equipment for the power sector To set-up a coal based power project having capacity of 1980 MW (3X660 MW) and operation & maintenance thereof at Nabinagar in district Aurangabad of State of Bihar. To operate a Power Exchange at National level.

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 operationsreceived 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. 18

 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. ii. iii. iv. v. vi.

To take overview of plant and its primary activity. To know the problems associated with power sector in India. To know strength, weakness, opportunities and threat(SWOT) of NTPC. To know the various departments of Finance and Accounts and their functioning. To study and analyse assets accounting done in NTPC LTD. 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 Unit

Types Of assets Main Category

XX

XX

alpha

alpha

Sub Category XXX alpha

Assets Control Authority XX alpha

Year Of Auquisition

XXXX Numeric

Serial Number

XXXX 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

No

Person Responsible

Frequency

1

Receive the asset along with the delivery documents from the supplier.

Stores

As and when

2

Enter the details of the asset in the

Stores

Same Day

Person Responsible

Frequency

Remark

system. Intimate the ACA concerned of the receipt of the asset. S.

Activity

No 3

Remark

Inspect the asset and confirm 29

acceptance of the same to Stores. ACA

Update the Asset Control Register.

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.

Same Day

Stores

Ensure that the AIN is indicated on theSRV 5

Receive the SRV and update the FAR

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

6

F&A Deptt

As and when

Prepare SIV for issue of an asset. Asset Control Update the asset control register with the details of the person to whom issued and the location thereof.

Authority

As and when

Document – Records Document

Document

Title

Type

Format Ref.

Frequency

Distribution

Asset Control Registerdepartmental

R

FA/01

As & When

ACA

FAR-Land

R

FA/02

As & When

30

FAR-Plant & Machinery

R

FA/03

As & When

-

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) 2) 3) 4)

Value of supplies received and accepted at site. Freight insurance, custom duty, rates and taxes. Value of physical progress of civil construction and erection. 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 breakup 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/subsystems 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 Incomeduring construction Expenditure during construction

-----Dr ------Dr -----Cr

For allocation of IEDC to CWIP Identified CWIP packages IEDC allocated to CWIP

------Dr -----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

indicated on the SRV.

As and when

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 42

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.

43

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 44

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 Accumulated depreciation Loss on disposal of fixed assets Profit on disposal of fixed assets Gross Block

----Dr ----Dr --- Dr ---Cr ---Cr

On disposal through buy back schemes 45

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

---Dr ---Dr ---Dr ---Cr ---Cr ---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

46

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

47

Responsible 1.

Issue a circular to all the asset control

Book Section

Annually

Person

Frequency

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

Remarks

Responsible 2.

Carry out the physical verification and

Verification

prepare the report as per the format

team

Annually

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

discrepancy report from ACAs.

Within a week 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 Title Circular on Physical verification

Document Type

Format

Frequency

Distribution

Annually

All asset control

Ref.

I

Authorities Report on physical verification

R

Discrepancy Reports

R

FA/MIR/01

Annually

Books Section

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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S. No 1

2

Appendix II Program for verification

Category Land

Building

3

Plant & machinery

4

Furniture & fixtures

•

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.

Verify the

• •

Physical existence Title deeds

•

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

Ensure • •

5

Office equipment

The physical existence of the assets Assets are in use and in good working condition

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 52

9

Communication Equipment

•

Assets are in use and in good working condition

• •

The physical existence of the assets Assets are in use and in good working condition

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. 53

Capitalisation of spares.

OTHER PROBLEMS 1. 2. 3. 4.

Problem of ash disposal. Wastage of soares due to ubadequate warehousing facility. Long lead time of procurement because of presailing beareaucratic system. 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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