fixed asset accounting project report

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PREFACE

The confidence of an individual is boosted as one successfully completes theresponsibilities shouldered on him. The theoretical concepts only help us togain Knowledge. However an administrative skill, the pre-requirement forthe completion of a success story comes with experience.

The ON THE JOB practical training is a stepping stone towardsthe success story. A mere tenure of two months in the industrial world givesyou a birds view of the internal happening of the vast and complex world.It was a privilege to undergo practical training inNHPC (National HydroElectrical Power Corporation Ltd.) which allowed me to see the most recentmanagement tools, techniques and methods being put in to practice.

NHPC has given me so much in this short duration that I feelconfident and capable of taking up challenge in this industrial world andmake a success story of my career. Out of different offices located indifferent states of India, I visited one in Himachal Pradesh at Nagwain(Mandi) i.e. Parbati Hydroelectric Project Stage-II.

The present training report deals with the work done during training

period at six weeks in Finance department. It is outcome of observation,discussion, practical work.

Report has been divided in to two parts. First deals with Introductionabout NHPC& Parbati Hydro Electric Project-II. Second part deals with theProject Report on Fixed Asset Accounting and Accounting Standards relatedwith Fixed Asset Accounting.

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CONTENTS

PART-I

INTRODUCTORY ANALYSIS

1 BRIEF INTRODUCTION ABOUT NHPC

2 INTRODUCTION ABOUT PHEP-II

PART-II

PROJECT REPORT ON FIXED ASSET ACCOUNTING

WITH RESPECT TO NHPC

1 FINANCE AND ACCOUNTS FUNCTION

2 DEFINITION OF FIXED ASSET

3 TERMS IN FIXED ASSET ACCOUNTING

4 ACCOUNTING STANDARDS

5 PROCESSES OF FIXED ASSETS

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PART-I

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NHPC Limited (NATIONAL HYDRO-ELECTRIC POWERCORPORATION LTD) was incorporated in 1975 by Govt. of India to

plan, design, construct, operate and maintain hydro electric powerprojectsin central sector.

HYDRO ELECTRIC POWER

India is blessed with immense amount of hydro-electric potential and ranks

5th in terms of exploitable hydro-potential on global scenario. As perassessment made by CEA (Central Electricity Authority), India is endowedwith economically exploitable hydro-power potential to the tune of 1, 48,701MW of installed capacity. The basin wise assessed potential is as under :-

Basin/Rivers Probable Installed Capacity (MW)

Indus Basin 33,832

Ganga Basin 20,711

Central Indian River system 4,152

Western Flowing Rivers of southern India 9,430

Eastern Flowing Rivers of southern India 14,511

Brahmaputra Basin 66,065

Total 1,48,701

In addition, 56 number of pumped storage projects have also been identifiedwith probable installed capacity of 94,000 MW. In addition to this, hydro-Potential from small, mini & micro schemes has been estimated as 6, 782MW from 1 512 sites. Thus, in totality India is endowed with hydro-

potential of about 2, 50, 000 MW. However, exploitation of hydro-potentialhas not been up to the desired level due to various constraints confrontingthe sector.

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In 1998, Government of India announced "Policy on Hydro PowerDevelopment" under which impetus is given to development of hydropowerin the country. This was a welcome step towards effective utilization of ourwater resources in the direction of hydropower development. DuringOctober 2001, Central Electricity Authority (CEA) came out with a rankingstudy which prioritized and ranked the future executable projects. As per thestudy, 399 hydro schemes with an aggregate installed capacity of 1 06 910MW were ranked in A,B & C categories depending upon their inter-seattractiveness. During May 2003, Govt. of India launched 50 000 MW hydroinitiative in which preparation of Pre Feasibility Reports of 162 Projectstotalling to 50 000 MW was taken up by CEA through various agencies. ThePFRs for all these projects have already been prepared and projects with lowtariff (first year tariff less than Rs.2.50/kWh) have been identified for

preparation of DPR

How it works

So just how do we get electricity from water? Actually, hydroelectric andcoal-fired power plants produce electricity in a similar way. In both cases a

power source is used to turn a propeller-like piece called a turbine, whichthen turns a metal shaft in an electric generator , which is the motor that

produces electricity. A coal-fired power plant uses steam to turn the turbineblades; whereas a hydroelectric plant uses falling water to turn the turbine.The results are the same.

Take a look at the diagram of a hydroelectric power plant to see the details:

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The theory is to build a dam on a large river that has a largedrop in elevation. The dam stores lots of water behind it in the reservoir atFRL ( full reservoir level)and a live storage of 1.98 Mcum . Near the bottomof the dam wall there is the water intake .Gravity causes it to fall through the

penstock inside the dam. At the end of thepenstockthere is a turbinepropeller, which is turned by the moving water. The surge shaft (restrict the

surges within the height of shaft) from the turbine goes up into the generator,which produces the power. Power lines are connected to the generator thatcarry electricity to your home and mine. The water continues past the

propeller through the tail race tunnel (TRT) into the river past the dam. Bythe way, it is not a good idea to be playing in the water right below a damwhen water is released.

The diagram of a hydroelectric generator given below shows howgenerator works:

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"A hydraulic turbine converts the energy of flowing water into mechanicalenergy. A hydroelectric generator converts this mechanical energy into

electricity. The operation of a generator is based on the principles discoveredby Faraday. He found that when a magnet is moved past a conductor, itcauses electricity to flow. In a large generator, electromagnets are made bycirculating direct current through loops of wire wound around stacks ofmagnetic steel laminations. These are called field poles, and are mounted onthe perimeter of the rotor. The rotor is attached to the turbine shaft, androtates at a fixed speed. When the rotor turns, it causes the field poles (theelectromagnets) to move past the conductors mounted in the stator. This, inturn, causes electricity to flow and a voltage to develop at the generatoroutput terminals."

ABOUT NHPC

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FINANCIAL PROFILE

1 An authorized share capital ofRs.70, 000 Millions.

2 Government of Indias approval of increasing the authorized share

capital of the corporation Rs 100,000 millions

3 Investment base of over Rs. 155,000 Millions and paid up capital of

Rs. 62,709 Millions

4 In terms of investment NHPC is one of the TOP TEN COMPANIES

in the country.

CONSULTANCY SERVICES:

1 An expert in the arena of hydro power development with experience

of over 27 years.

2 Consultancy services to other agencies/ organizations, both in Public

and Private sector.

3 Achieved new consultancy assignments totaling Rs.171.80 Millions

(2001-2002).

4 A registered "Consultant" in the area of hydro power with World

Bank, Asian Development Bank, African Development Bank and

Kuwait Fund for Arab Economic Development.

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DESIGN & ENGINEERING:

Pool of talent, powering excellence Multi-disciplined

interactive design Division; well equipped and capable of handling intricate

design of all the structures associated with hydro power projects from

concept to commissioning, operation and maintenance.

ENGINEERING, GEOLOGY AND GEOTECHNICAL:

Specialized in the field of Engineering, Geology, Geo-

Physics and Construction material, well equipped and capable of handling

Survey/investigations of Hydroelectric Projects and preparation of DPR

(Detail Project Report) in record time.

International Experts rated NHPC's Geological Data &

interpretation of high standards.

CORPORATE VISION

1 Clean Power for every home.

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2 To be a World doss organization in hydroelectric, wind, tidal & geo-

thermal power with dominant Indian leadership and global presence.

3 To attain organization excellence by developing true potential of

human resources and providing opportunity for growth, well being

and enrichment.

4 Preservation of environment matrix and bio-diversity in the project

areas as well as protecting rights of project affected people (PAP's).

CORPORATE MISSION

1 To harness the vast hydro, tidal, wind and geo-thermal potential of the

country by covering all aspects of investigation, planning, design,

construction operation and maintenance to produce pollution free and

Inexhaustible power.

2 Uphold high standards of organizational values and ethos.

3 Commitment to health, safety, environment and human resource

development.

4 Faster the culture of commitment and transparency making working

as stimulating and challenging.

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CORPORATE OBJECTIVES

1 Development of vast hydro potential at faster pace and optimum cost

elimination time and cost over-run.

2 Completion of all on going projects within stipulated time frame.

3 Ensure maximum utilization of installed capacity and help in better

system stability.

4 Generation of sufficient internal resources for expansion and setting

up new projects.

5 Corporate development along with simultaneous human resource

development.

PERFORMANCE OF NHPC

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* NHPC has been conferred Mini Ratna status by the Government ofIndia.

* Name of the Company has been changed from National HydroelectricPower Corporation Ltd. to NHPC Limited.* Crossed profit figure ofRs. 1000 crore and installed capacity of 5000MW. Registered a net Profit of Rs. 1,002 crore against Rs. 925 croreduring the previous financial year.

* Poised to pay highest ever dividend.

* Achieved an all time high sales turnover of Rs. 2,311 crore as againstRs. 1,963 crore during the previous year.

* Achieved 100% revenue realization of Rs. 2270 crore.

* Enjoys highest credit rating i.e. AAA for domestic borrowings andrating equivalent to Sovereign rating for external borrowings fromreputed International rating agencies.

* Memorandum of Association of the Company has been amended toinclude trading, power development including forward, backward orhorizontal integration ancillary and other allied industries.

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* Generated 14811.35 Million Units electricity against 13048.74 MillionUnits generated during previous corresponding year, thereby registeringan increase of 13.5 %.

* The Power Stations achieved a Capacity Index of 96.13 % against theMoU target of 94.50 %.

* Implementing Indias largest hydroelectric project, the 2000 MWSubansiri Lower Project in Arunachal Pradesh.

* Plans to become 10000 MW plus company by 11th Plan.* Recommendation of PIB (Public Investment Board) for Govt. sanctionand TEC (Techno Economic Clearance) of CEA obtained for the 3000

MW Dibang Multipurpose Project. Dr. Manmohan Singh, Honble PrimeMinister of India laid the foundation stone of the Project on 31.1.2008.

* MoU signed with Govt. of Manipur for implementation of 66 MWLoktak Downstream Project by NHPC in Joint Venture with Govt. ofManipur. Ministry of Environment and Forest has accorded pre-construction activities on the project.

* Environment clearance has been accorded by Ministry of Environmentand Forest for 195 MW Kotli Bhel-1A, 320 MW Kotli Bhel-1B, 120 MWVyasi Projects, all in Uttarakhand and 1000 MW Pakal Dul Project inJammu & Kashmir.

* Implementing Enterprise Resource Planning (ERP) of IFS AB, Swedenacross the organization.

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The Bulk Power Consumers of NHPC Limitedin North India are the power utilities belongingto the states of Haryana, Punjab, HimachalPradesh, Uttar Pradesh, Uttarkhand, Rajasthan,

Delhi and J&K and Union Territory ofChandigarh. These states are being suppliedpower from Baira Siul, Salal-I & II, Tanakpur,Chamera-I, Chamera-II,Uri, Dhauliganga &Dulhasti Power Stations. In the EasternRegion, Rangit Power Station is supplyingenergy to the states of West Bengal, Sikkim,Bihar, Jharkhand and Damodar ValleyCorporation. In the North-Eastern Region,Loktak Power Station is supplying energy to

the states of Assam, Manipur, Meghalaya,Tripura, Nagaland, Arunachal Pradesh andMizoram.

Since commencing of commercial generation in 1982, the Energy sales and revenuesof the corporation have grown significantly. The Energy sales from all operating

projects of the Corporation during the last 25 years has risen from Rs. 228.60 Millionin the year 1982-83 to Rs. 23110 Million in the year 2007-2008. Year-wise details of

sales after deduction of advance against depreciation since 1982-83 are given below :-

YearSale & Revenue

(Million Rs.)

1990-1991 1581

1991-1992 1556

1992-1993 1552

1993-1994 20871994-1995 4805

1995-1996 5091

1996-1997 5344

1997-1998 9930

1998-1999 11944

1999-2000 10757

2000-2001 11799

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FINANCIAL REVIEW(2007-08)

* Registered a net profit (after tax) of Rs. 1,002.06 crore against the netprofit (after tax) of Rs. 9, 24.80 crore registered during the previous financial

year.

* Achieved an all time high sales turnover of Rs. 2,311.47 crore as againstRs.1,962.76 crore achieved during the year 2006-07

* Poised to declare an all time high dividend for the year 2007-08. Aninterim dividend of Rs.100 crore for the year 2007-08 has already been paidto Government of India.

* Better business management coupled with prudent financial policies likeefficient sales realization, better grid management, efficient treasurymanagement systems etc. have resulted in sound financial position whichmade the Company self reliant for the resources generation for ambitiouscapacity addition program in XI and XII Five year plans.

*No budgetary support from Government during the year 2007-08.

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* Signed financing agreements with PFC aggregating approximately Rs.4,000 crore at most competitive terms.

* Necessary financial closure of all ongoing projects in place.

* Likely to come up with IPO in August 2008.

GRAPHICAL PRESENTATION

GENERATION

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SALES VS PROFIT

DETAIL ABOUT PROJECTS OF NHPC

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LOCATION MAP OF N.H.P.C. PROJECTS

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S No. Project State Installed Capacity(MW) Total Capacity (MW)

1 Parbati - II Himachal Pradesh 4 * 200 800

2 Sewa - II Jammu & Kashmir 3 * 40 120

3 Subansiri (Lower) Assam 8 * 250 2000

4 Uri-II Jammu & Kashmir 4 * 60 240

5 Chamera-III Himachal Pradesh 3 * 77 231

6 Teesta Low Dam - III West Bengal 4 * 33 132

7 Kishenganga Jammu & Kashmir 3 * 110 330

8 Teesta Low Dam - IV West Bengal 4 * 40 160

9 Parbati - III Himachal Pradesh 4 * 130 520

10 Nimmo-Bazgo Jammu & Kashmir 3 * 15 45

11 Chutak Jammu & Kashmir 4 * 11 44

Total 4622

S No. Project Country/State Capacity Total Capacity Status

1 Teesta - V Sikkim 3 * 170 510 Commissioned

2 Omkareshwar* Madhya Pradesh 8 * 65 520 Commissioned

3 Parbati - II Himachal Pradesh 4 * 200 800 Under Construction

4 Sewa - II Jammu & Kashmir 3 * 40 120 Under Construction

5 Subansiri (Lower) Assam 8 * 250 2000 Under Construction

6 Uri-II Jammu & Kashmir 4 * 60 240 Under Construction

7 Chamera-III Himachal Pradesh 3 * 77 231 Under Construction

8 Teesta Low Dam - III West Bengal 4 * 33 132 Under Construction

9 Teesta Low Dam - IV West Bengal 4 * 40 160 Under Construction

10 Parbati - III Himachal Pradesh 4 * 130 520 Under Construction

11 Nimmo-Bazgo Jammu & Kashmir 3 * 15 45 Under Construction

12 Chutak Jammu & Kashmir 4 * 11 44 Under Construction

Total 5322

* NHDC - A Joint venture between NHPC & Govt. of Madhya Pradesh

PARBATI HYDRO ELECTRIC PROJECT-II

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In November 1998

agreement for

harnessing power

potential of Parbati

basin has been

executed with Government of Himachal Pradesh.

Potential of river Parbati will be harnessed in three stages comprising

Stage-I (750 MW), Stage-II (800 MW) and Stage-III (520 MW).NHPC has

therefore taken up planned development of the Basin with construction of

Stage-II initially, and completion of balance investigation of Stage-I and

Stage-Ill projects before taking up these for construction.

The Parbati Hydroelectric Project Stage-II is a run of the river scheme toharness hydro potential of lower reaches of the river Parbati. The Parbatiriver along with Tosh Nallah will be diverted by way of constructing aConcrete Gravity Dam at village Pulga.

Location

NAME PARBATI HYDROELECTRIC PROJECT (STAGE -II)

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DISTRICT KULLU

STATE HIMACHAL PRADESH

NEAREST RAIL HEAD KIRATPUR (190 KM FROM SAINJ, POWER HOUSE SITE)

NEAREST AIRPORT BHUNTER (35 KM FROM SAINJ, POWER HOUSE SITE)

RIVER PARBATI (A TRIBUTARY OF RIVER BEAS)LOCATION OF DAM &

POWERHOUSE

DIVERSION DAM ON RIVER PARBATI AT PUGLAVILLAGE AND POWREHOUSE ON RIVER SAINJ RIGHTBANK OF SUIND VILLAGE.

INSTALLED CAPACITY 4 X 200 (800 MW)

ANNUAL GENERATION 3076.95GWh

DATE OF CCEA APPROVAL SEPTEMBER 2002

LATEST ESTIMATED COST RS.4120.25CRORES

BENEFICIARY STATES H.P, DELHI, J&K, PUNJAB, HARYANA, RAJASTHAN, U.P

Hydrology

Four Catchments of the project are:

1.Parbati River

Catchment Area at Diversion Dam 1155Sq.km.

Snow Catchment 971Sq.km.

Maximum observed discharge 369.10Cumecs

2. Jigrai Nallah

Catchment Area at Diversion site 42Sq.km.

Snow Catchment 21Sq.km.

3. Hurla Nallah


Snow Catchment 9.5Sq.km.

4. Jiwa Nallah


Package: Lot PB-I

Description Details

Work Description Civil and Hydromechanical works for Diversion Damand Part Head Race tunnel.

Agency / Name of Contractor Joint Venture comprising of M/s Patel Engg Ltd and

M/s SEW Constructions Ltd.

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Value of Award

Contract Price for Civil Works 29929

Contract Price for Hydro Mechanical Works 2361.09

Total of the above two works 322,90.09

Percentage of Foreign currency payments 23.82% in US $ 2.19% in EuroDate of Award 11.09.2002

Original Schedule of completion (date as per

contract)

60 months (10.09.2007) from the date of issue ofNotification of Award .

Package: Lot PB-II

Description Details

Work Description Civil and Hydromechanical works for Head Race tunneland Associated works.

Agency / Name of Contractor Joint Venture comprising of M/s Maytas Infra Ltd, M/sSri Shankarnarayana Construction Co. and M/sNagarjuna Const. Co. Ltd. (Collectively Know asHimachal Joint Venture)

Value of Award

Contract Price for Civil Works 41623.41 lacs.

Contract Price for Hydro Mechanical Works 365.30 lacs.

Total of the above two works 41988.71 lacs.

Percentage of Foreign currency payments 23.82% in US $ 2.19% in Euro

Date of Award 11.09.2002


contract)

60 months (10.09.2007) from the date of issue ofNotification of Award .

Package:

IPackage: Lot PB-III

Description Details

Work Description Civil and Hydromechanical works for Power House,Pressure shaft, Surge shaft and Part Head Race tunnel.

Agency / Name of Contractor M/s Gammon India Ltd.

Value of Award



Total of the above two works 603,69.26 lacs.

Percentage of Foreign currency payments 11.50% in US $ 8.00% in Euro


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contract)

54 months (13.03.2007) from the date of issue ofNotification of Award.

Package:: Lot PB-IV -IVPackage: Lot PB-IV 908a

Description Details

Work Description Civil and Hydromechanical works for Jiwa Nallah &Associated works.

Agency / Name of Contractor Joint Venture comprising of M/s Bholasingh JaiprakashConstruction Ltd, M/s Techno Trade and M/s HarbhajanSarabjeet & Associates. (BJ-Techno-HSA JV)

Value of Award



Total of the above two works 56,46.99 lacs.

Percentage of Foreign currency payments Nil



contract)

60 months(10.09.2007)from the date of issue ofNotification of Award.

Package: Lot PB-V FIRST CONTRACTPackage PB-V First Contract

Description Details

Work Description Ex-works Supply and CIF / CIP Supply of all equipmentsand materials including Mandatory Spares Electrical andMachanical Works.

Agency / Name of Contractor M/s Bharat Heavy Electricals Ltd

Value of Award CIF / CIP Supply of all Off-shore equipments

and materials including Mandatory SparesUS $ 11,228,000.00

Ex-works Supply and CIF / CIP Supply of all

equipments and materials including

Mandatory Spares

US $ 54,516,000.00

Total of the above two works US $ 65,744,000


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contract)

52 months (23.04.2007)from the date of issue ofNotification of Award.

pPackage: Lot-V SECOND CONTRACT PB-V Second Contract

Description Details

Work Description Providing all services i.e. inland transportation fordeliveryu at site, unloading, storage, handling at site,insatallation, Testing and Commissioning includingPerformance Testing in respect of all the equipmnetssupplied under the 'First Contract' and any other servicesspecifie in the Contract documents for Electrical andMachanical Works.

Agency / Name of Contractor M/s Bharat Heavy Electricals Ltd

Value of Award

Local transportation including Port clearanceand Port Charges and Inland Insurance

670.00 lacs.

Installation and other services 3420.00 lacs.

Total of the above two works US $ 65,744,000



contract)

52 months (23.04.2007) from the date of issue ofNotification of Award.

Revenue to HP Government due to construction of project up to October

2004

Sales Tax Rs. 589.75 lakhs.

Royalty Rs. 49.17 lakhs.

Total Rs. 638.92 lakhs.

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Vehicles Taken on Hire Basis

Light Vehicles/Tractors belonging to locals are bin hired by NHPC as well as by our majorcontactors.

Hired By Inspection Vehicle Tractor/Truck NHPC 35 Nos. 11 Nos. (HRTC Buses)

HJV 4 Nos. 18 Nos.

Gammon 7 Nos. 7 Nos.

BJ Techno 5 Nos. 1 Nos.

Total 51 Nos. 37 Nos.

Contract Given to Local Contractors

Details of work contract/work order given to various contractors of H.P. by Parbati HEProject

Area Total No. of works awarded Total Amount

DAM Complex 219 Rs.9,05,67,980

HRT Complex 142 Rs.3,51,43,429

Township Complex 160 Rs.9,85,33,931

Power House Complex 180 Rs.9,64,18,802

JNW Complex 4 Rs.1,53,48,264

Total 705 Rs.33,60,12,406

POWER HOUSE

The proposed surface power house is located on the right bank of River

Sainj near Village Sainj at about 200 m downstream of the confluence of

River Sainj and Jiwa Nallah. The power house shall have an installed

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capacity of 800 MW with four generating units of 200 MW each. Short Tail

Race Channels shall discharge the waterfrom Power House to river Sainj.

ENVIRONMENTAL ASPECTS

Based on Environment Impact Assessment Studies conducted by the State

Forest Department, an Environment Management Plan has been prepared

incorporating the Catchments Area Treatment Plan and Compensator

Afforestation scheme. The project involves diversion of 87.79 ha of forest

land. In lieu of this forest land to be acquired, compensatory forestation is

proposed over 190.28 ha of land. Biological and engineering soil

conservation measures have been proposed under Catchments Area

Treatment Plan. Other environmental measures proposed include wildlife

protection, heath measures, subsidized fuel , supply to laborers etc.

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PART-II

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FINANCE

DEFINITION:

A branch ofeconomics concerned with resource allocation as well as resourcemanagement, acquisition and investment. Simply, finance deals with matters related tomoney and the markets.

FINANCE AND ACCOUNTS FUNCTIONS

F&A department is responsible for carrying out all the activities and

aspects related to the finance and accounts function and to assist theCorporation in achieving the corporate objectives.

ACCOUNTING FUNCTIONS

The F&A department is responsible for the book keeping function

and ensuring maintenance of proper books of accounts in accordancewith the generally accepted ACOUNTING STANDARDS and inconformity with the COMPANIES ACT, 1956.

The books of accounts are required to be maintained in a manner that

these contain necessary data, audit trails etc. Necessary checking,review and internal controls are to be exercised to ensure theaccuracy of the books of accounts.

Annual accounts of Corporation are required to be prepared on an

annual basis in accordance with the relevant laws and getting these

audited by the Statutory auditors and CAG ( Controller AuditorGeneral of India).There is also the requirement ofpreparing the

periodic accounts( monthly/ quarterly/ six monthly).

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The Accounting Functions include:

To maintain journal, cash-book and bank book. To maintain price store ledger To maintain work accounts To maintain Fixed Asset Register To maintain loan ledgers To prepare salary bills and disburse payment To make deductions on account of income tax,

EPF (Employee Provident Fund) To maintain subsidiary ledger and general ledger To prepare monthly trial balance To prepare periodic profit & Loss Accounts, Balance Sheet

etc.

To interact with Internal Auditors, Statutary Auditors, CAG(Controller Auditor General) of India.

To compile the accounting and financial data for informationand use of various stakeholders like banks, financial institutions, bond/debenture holders, share holders etc.

PAYMENT FUNCTION

The F&A department is responsible for the bill passing and payment.Necessary adjustments/ deductions are to be made from the bills (such asfor advances, recoveries, taxes, shortages etc.)

The Payment Function includes:

To prepare bank accounts To handle cash To make payment to suppliers and contractors on the basis of bills

approved for the payments To ensure that all expenditure is incurred with due economy as if

and with as much care as a person with ordinary prudence would take incase of his own business

To follow instructions regarding EPF and other Employees Trustsand Family Pension Scheme

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FINANCIAL MANAGEMENT

The F&A department is to assist the management in exercisingadequate financial management over the operations of the Corporation in

terms of budgetary control over revenue and capital expenditure.

The financial management functions include:

To assist inpreparations of long term and annual capital budgetand operating budget for each project and the corporation.

To assist the management in making various investment decision.

To assist the management in formulating profitability/performance improvement plans. To analyse periodically the reason for time and cost overrun. To maintain cost account records and generate costing reports. To manage working capital and ensure that the working capital is

with in the budget / norms.

TAX MANAGEMENT

The F&A department is responsible for tax planning and ensuringcompliance with the tax laws viz income tax, sales tax, custom duty etc.

The tax management function includes:

To maintain necessary records as per the tax laws To make recovery/ deduction and deposit of taxes as per the

prescribed time limits To file various tax returns

To carry out tax planning so as to minimize tax incidence To ensure compliance with the tax laws

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FIXED ASSETS

Item that has physical substance and a life in excess of one year. It is bought

for use in the operation of the business and not intended for resale tocustomers. Examples arebuilding, machinery, auto, and land. Fixed assetswith the exception of land are subject to Depreciation. Fixed assets areusually referred to asproperty, plant, and equipment.

Fixed asset, also known asproperty, plant, and equipment (PP&E), is a termused in accountancy forassets and propertywhich cannot easily beconverted into cash. This can be compared with current assetssuch ascash or bank accounts, which are described as liquid assets. In most cases,only tangible assets are referred to as fixed.

Fixed assets normally include items such as land and buildings, motorvehicles, furniture, office equipment, computers, fixtures and fittings,and plant and machinery. These often receive favorable tax treatment(depreciation allowance) over short-term assets because they depreciateover time.

Current assets are those that form part of the circulating capital of abusiness. They are replaced frequently or converted into cash during the

course of trading. The most common current assets are stocks, trade debtors,and cash.

Compare current assets with fixed assets. A fixed asset is an asset of abusiness intended for continuing use, rather than a short-term, temporaryasset such as stocks.

Fixed assets must be classified in a company's balance sheet as intangible,tangible, or investments. Examples of intangible assets include goodwill,

patents, and trademarks. Examples of tangible fixed assets include land and

buildings, plant and machinery, fixtures and fittings, motor vehicles and ITequipment.

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How should the changing value of a fixed asset be reflected in a

company's accounts?

The benefits that a business obtains from a fixed asset extend over severalyears. For example, a company may use the same piece of productionmachinery for many years, whereas a company-owned motor car used by asalesman probably has a shorter useful life.

By accepting that the life of a fixed asset is limited, the accounts of abusiness need to recognise the benefits of the fixed asset as it is "consumed"over several years.

This consumption of a fixed asset is referred to as depreciation.

RELEVANT COST OF FIXED ASSET

The cost of a fixed asset includes all amounts incurred to acquire the assetand any amounts that can be directly attributable to bringing the asset intoworking condition.

Directly attributable costs may include:

- Delivery costs

- Costs associated with acquiring the asset such as stamp duty and importduties

- Costs of preparing the site for installation of the asset

- Professional fees, such as legal fees and architects' fees

Note that general overhead costs or administration costs would notbe included as part of the totalcosts of a fixed asset (e.g. the costs of the factory building in which the assetis kept, or the cost of the maintenance team who keep the asset in goodworking condition)

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The cost of subsequent expenditure on a fixed asset will beadded to the cost of the asset provided that this expenditure enhances the

benefits of the fixed asset or restores any benefits consumed.

This means that major improvements or a major overhaul maybe capitalised and included as part of the cost of the asset in the accounts.

However, the costs of repairs or overhauls that are carried outsimply to maintain existing performance will be treated as expenses of theaccounting period in which the work is done, and charged in full as anexpense in that period.

USEFUL LIFE OF A FIXED ASSET

An asset may be seen as having a physical life and an economic life.

Most fixed assets suffer physical deterioration through usage andthe passage of time. Although care and maintenance may succeed inextending the physical life of an asset, typically it will, eventually, reach acondition where the benefits have been exhausted.

However, a business may not wish to keep an asset until the end

of its physical life. There may be a point when it becomes uneconomic tocontinue to use the asset even though there is still some physical life left.

The economic life of the asset will be determined by such factorsas technological progress and changes in demand. For purposes ofcalculating depreciation, it is the estimated economic life rather than the

potential physical life of the fixed asset that is used.

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RESIDUAL VALUE OF A FIXED ASSET

At the end of the useful life of a fixed asset the business will dispose of itand any amounts received from the disposal will represent its residual value.

This, again, may be difficult to estimate in practice. However, an estimatehas to be made. If it is unlikely to be a significant amount, a residual valueof zero will be assumed.

The cost of a fixed asset less its estimated residual value represents the totalamount to be depreciated over its estimated useful life.

CHARACTERISTICS OF ASSETS

There are three essential characteristics of assets:

It embodies a probable future benefit that involves a capacity,singly or in combination with other assets, to combine directlyor indirectly to future net cash in flows.

Aparticular entity can obtain the benefit and control others

access to it.

The transaction or other event giving rise to the entitys right to or controlof the benefit has already occurred.

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FIXED ASSET ACCOUNTING

Fixed Asset Accounting uses a highly flexible approach to revaluation,ensuring that your capital, financial, and strategic plans are based on themost current information. You can elect constant currency or current costaccounting as the basis for asset revaluation and leverage governmentindices to quickly revalue a large number of assets.

Fixed Asset Accounting automatically creates the necessaryjournal entries, so business decisions can be based on timely, accurate fixed-asset records.

Fixed Asset Accounting allows you to ethods.

With Fixed Asset Accounting, you can easily makecomprehensive changes across your accounting structureand maintain theintegrity of the systemby leveraging global updates to revise accountnumbers, business units, or companies.

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TERMS USED IN FIXED ASSET

ACCOUNTING

AccountingThe collecting, recording, compiling and forecasting offinancial information.

Auditing A check by an independent company that accounts are beingkept accurately and up to date. E.g. CAG of India, Statutary auditors.

BALANCE SHEET

A balance sheet is a statement of the total assets and liabilities of anorganisation at a particular date - usually the last date of an accounting

period.

The balance sheet is split into two parts:

(1) A statement offixed assets, current assets and the liabilities(sometimesreferred to as "Net Assets")

(2) A statement showing how the Net Assets have been financed, forexample through share capital and retained profits.

The Companies Act requires the balance sheet to be included in thepublished financial accounts of all limited companies. In reality, all otherorganisations that need to prepare accounting information for external users(e.g. charities, clubs, partnerships) will also product a balance sheet since itis an important statement of the financial affairs of the organisation.

A balance sheet does not necessary "value" a company, since assets andliabilities are shown at "historical cost" and some intangible assets (e.g.

brands, quality of management, market leadership) are not included.

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Example Balance Sheet

Set out below is a summarised balance sheet for Tesco plc to illustrate the

main elements of the balance sheet.

Tesco plc: Balance Sheet (amounts shownin ' millions)

24 February

2001

26 February

2000

FIXED ASSETS 10,038 8,527

Current Assets 1,694 1,342

Short-term creditors (4,389) (3,487)

NET CURRENT LIABILITIES (2,695) (2,145)

Total Assets less Current Liabilities 7,343 6,382

Long-term creditors (1,927) (1,565)

Provisions (24) (19)

TOTAL NET ASSETS 5,392 4,798

Equity shareholders funds 5,356 4,769

Minority interests 36 29

Total Capital Employed 5,392 4,798

DEFINITION OF LIABILITIES

To acquire its assets, a business may have to obtain money from various

sources in addition to its owners (shareholders) or from retained profits. Thevarious amounts of money owed by a business are called its liabilities.

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DEPRICIATION

"the wearing out, using up, or other reduction in the useful economic life of

a tangible fixed asset whether arising from use, effluxion of time or

obsolescence through either changes in technology or demand for goodsand services produced by the asset.'

A portion of the benefits of the fixed asset will be used up orconsumed in each accounting period of its life in order to generate revenue.To calculate profit for a period, it is necessary to match expenses with therevenues they help earn.

In determining the expenses for a period, it is therefore importantto include an amount to represent the consumption of fixed assets during that

period (i.e., depreciation).

In essence, depreciation involves allocating the cost of the fixedasset (less any residual value) over its useful life.

To calculate the depreciation charge for an accounting period, the followingfactors are relevant:

- the cost of the fixed asset;

- the (estimated) useful life of the asset;

- the (estimated) residual value of the asset.

Straight-Line Method:

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ACCOUNTING STANDARDS

The ACCOUNTING STANDARDS given byICAI have been followed byevery organization in India. These are some fixed rules which are being usedin accounts. There are 29 Accounting Standards out of which following arerelated with fixed asset accounting:

As-1 Disclosure of Accounting Policies

As-6 Depreciation Accounting

As-10 Accounting for Fixed Assets

As-11 Effects on Change in Foreign Exchange Rates

As-12 Government Grants

As-16 Borrowing Cost

As-26 Accounting for Intangible Assets

As-28 Impairment of assets

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AS -1 Disclosure of Accounting Policies

INTRODUCTION

1. This statement deals with the disclosure of significant accounting policiesfollowed in preparing and presenting financial statements.

2. The view presented in the financial statements of an enterprise of its stateof affairs and of the profit or loss can be significantly affected by theaccounting policies followed in the preparation and presentation of thefinancial statements.

AREAS IN WHICH DIFFERENT ACCOUNTING POLICIES

ARE ENCOUNTERED:

* Methods of depreciation, depletion and amortization

* Treatment of expenditure during construction

* Conversion of foreign currency items

* Valuation of fixed assets

* Recognition of profit on long term contracts

* Treatment of retirement benefits

* Valuation of investments

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AS-6 (Depreciation Accounting)

Depreciation has a significant effect in determining and presenting thefinancial position and results of operations of an enterprise.

* Depreciation is charged in each accounting period by reference to theextent of the depreciable amount, irrespective of an increase in the marketvalue of the assets.

* Assessment of depreciation and amount to be charged in respect of inan accounting period are usually are based on the following three factors:

- Historical cost or other amount substituted for the historical costof the depreciable asset when the asset has been revalued;

- Expected useful life of the depreciable asset; and

- Estimated residual value of the depreciable asset.

* The useful life of a depreciable asset is shorter than its physical lifeand is:

- Pre-determined by legal limits, such as the expiry dates ofrelated leases;

- Directly governed by extraction or consumption.

DISCLOSURE:

The following information should be disclosed in the financial statements:

*gross and net book values of fixed assets at the beginning and endof an accounting period showing additions, disposals, acquisitions and othermovements;

* Expenditure incurred on account of fixed assets in the course ofconstruction or acquisition.

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AS-10 (Accounting for Fixed Assets)

Financial statements disclose certain information relating to fixed assets. Inmany enterprises these assets are grouped into various categories, such as

land, buildings, plant and machinery, vehicles, furniture and fittings.

* This statement does not deal with accounting for the followingitems to which special considerations apply:

-forests, plantations and similar regenerative naturalresources;

- Wasting assets including mineral rights, expenditure on theexploration for and extraction of minerals, oil, natural gas;

- Livestock.

* This statement does not cover the allocation of the depreciableamount of fixed assets to future periods since this subject is dealt with inAccounting Standard 6 on Depreciable Accounting.

* This statement does not deal with the treatment of governmentgrants and subsidies, and assets under leasing rights. It makes only a briefreference to the capitalization of the borrowing costs and to assets acquired

in an amalgamation or merger.

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FIXED ASSET ACCOUNTING WITH

RESPECT TO NHPC

INTRODUCTION:

Historical cost

The fixed asset costs shall be recorded in the books of account

on a historical cost basis, i.e. the cost of acquisition construction. Thehistorical cost shall be determined in accordance with the accountingguidelines as described in this manual.

Components of cost of a fixed asset

The cost of an item of fixed asset shall comprise of itspurchase contract price, including import duties and other non-refundabletaxes or levies and any directly attributable costs of bringing the asset to itsworking condition or for its intended use. Trade discounts and rebates, ifany, shall be deducted in arriving at the purchase price.

Directly attributable costs shall 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.)

Other costs incurred for bringing the asset in a position that it is ready

to use

The assets shall be capitalized based on the acquisitionprice and the other costs incurred for bringing the asset in a position that it isready to use. It should be ensured that all the relevant costs have beenincluded in the cost of the asset as per the accounting policy.

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The assets shall be capitalized as and when they are readyfor use. The capitalization of assets should not be deferred till the asset is putto actual use.

The cost of a fixed asset may undergo changes subsequentto its acquisition or construction on account of final settlement of bills,changes in duties, settlement of arbitration / legal cases in respect of workscompleted and capitalized in earlier years etc. Subsequent adjustments shall

be made to the cost of the assets as and when it is incurred with prospectiveeffect on depreciation as per the accounting guidelines given in this manual.

Assets on lease

Lease premium payable on acquiring lease rights on assets

shall be treated as the cost to the leasehold assets. However periodic rentalspayable on leasehold assets shall be charged to revenue in the year in whichthe rental accrue.

Survey and Investigation expenses

The expenses incurred on survey and investigation for newprojects shall be treated as Capital Work in Progress under a separate head.

Such expenses shall be capitalised to the assets

constructed on capitalisation of the project.

In case a project is abandoned, the expenditure should bewritten off in the year in which the project is abandoned.

Incidental expenses during construction period

In respect of projects under construction the incidentalexpenses during construction period of a project shall be capitalized and in

the manner given below.

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Borrowing costs

The borrowing costs comprise of interest andcommitment charges, exchange rate variation arising from foreign currency

borrowings to the extent regarded as adjustment to the interest costs, etc.The borrowing costs attributable to construction or acquisition of fixedassets for the period up to the completion of construction or acquisition offixed assets are to be capitalized.

The capitalization of borrowing costs as part of the costof an asset should commence when all the following conditions are satisfied:

i. expenditure for the acquisition or construction of the asset is beingincurred;

ii. borrowing costs are being incurred; andiii. activities that are necessary to prepare the asset for its intended use

are in progress.

Capitalization of borrowing costs should cease whensubstantially all the activities necessary to prepare the asset are complete.

When the construction of a qualifying asset iscompleted in parts and completed part is capable of being used whileconstruction continues for the other parts, capitalization of borrowing costs

in relation to a part should cease when substantially all the activitiesnecessary to prepare that part are complete.

Exchange rate variation

Exchange rate variation (ERV) may arise in respectsettlement or restatement of foreign currency liabilities (except for interest

covered above under the head borrowing cost) relating to acquisition/construction of assets shall be treated as capital expenditure and are to becapitalized along with the asset to which they relate. This may arise duringconstruction period as well as after the construction period i.e. till loan isfully repaid / settled.

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However if any ERV arises relating on an assets that hasalready been retired from active use/ declared surplus/ held for disposal, itshall be charged to the profit and loss account for the period when the ERVarises.

Administration and other general overhead expenses

during construction phase

The following expenditure incurred as an incidentalto construction of a project shall also be included in the IEDC:

Expenditures on upgradation, widening of roads, culverts, etc. notbelonging to NHPC

Share of maintenance expenditure of common public facilities usedduring construction of project

Depreciation

In case of assets which are purchased / constructed for use in theconstruction of the project such as construction plant and equipment,depreciation is charged based on the normal rates of depreciation and

booked to IEDC(Incidental expenditure during construction).

Further adjustment should be made in case any such item of fixed assethas been retired from active use/ declared surplus and is held for disposal atthe date of commercial operation, based on theNet Realisable Value(NRV).The NRV shall be determined based on Engineering estimates or throughapproved valuers.

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LOSSES DURING CONSTRUCTION

Losses during construction period shall be treated dependingupon whether they are avoidable losses or unavoidable losses.

UNAVOIDABLE LOSSES:

* Losses which takes place during construction period like crakes incivil structure, collapses of loose strata, cavity formation in tunnel, etc. otherthan natural calamities are part of normal construction activity in HydroProjects. Expenditure incurred on encountering such problems afteradjusting actual insurance shall form part of relevant Capital Work In

Progress.

* Losses due to natural calamities e.g. floods, earthquakes, accidentslike fire, etc. which do not form part of relevant Capital Work In Progressare due to unavoidable reasons.

AVOIDABLE LOSSES:

Avoidable losses are attributable to the negligence of the personal engagedin the construction activities. In such cases the losses after insurance receipt

if any, shall be charged off to the Profit and Loss Account.

INCOME DURING CONSTRUCTION PERIOD

Income during construction period shall be adjusted against theexpenditure during construction period, before the allocation of the IEDC iscarried out.

In such case income is taxable as per the provisions of the IncomeTax Act, then tax liability in respect of these items shall be considered asIEDC.

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ALLOCATION OF IEDC ( INCIDENTAL

EXPENDITURE DURING CONSTRUCTION) TO

ASSETS:

IEDC is allocated at the time of capitalization of the project.IEDCshall be allocated on the major immovable assets (other than land andinfrastructural facilities) on commissioning of the project. The incidentalexpenditure should be allocated to various CWIP (Capital Work In Progress)assets heads in the ratio of the yearly capital expenditure incurred on theCWIP asset heads and yearly IEDC incurred which is to be identified andallocated to any specific asset item, such as borrowing cost, ERV etc.

Capitalization of assets

An asset is to be capitalized when it is ready to be put to use.

There are a few assets which are commissioned during theconstruction period itself such as township, office buildings, etc. These can

be capitalized as and when these assets are ready to use.

However assets which cannot be used in isolation without otherassets/ completion of the project shall not be capitalized even if they arefully constructed. Such assets shall be capitalized only when they be used oncompletion of the other assets/ project. (e.g. powerhouse/ dam/ tunnel, etc.are capitalized on commissioning of the project while individually they may

be complete prior to commissioning of the project)

Capitalization of assets shall be done on issue of AssetCommissioning Certificate from the relevant technical authority of the

Corporation.

All capital expenditure (in respect of assets constructed) should beaccounted for through CWIP accounts. On capitalization of the assets theexpenditure should be transferred to the appropriate fixed assets account.However, bought out assets should be capitalized directly i.e. withoutrouting through the CWIP account.

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Assets used during construction period

The following types of assets are used during construction period:

Construction facilities: Construction plant and equipment (tipper,dumper, etc.)

Fixed assets: Assets required during construction as well as operation

period

The capitalization on the above assets should take place as andwhen completed and ready to use. The capitalization should not be withheldtill construction period is over.

Depreciation in respect of assets used during the construction

period (including construction equipment) should be charged at theprescribed rates/ based on the balance useful life.

Construction stores

The cost incurred for materials procured for constructionshould be treated as Construction stores and disclosed as part of the

Construction Stores and Advances Schedule under the head Fixed CapitalExpenditure in the Balance sheet.

After commissioning of the concerned asset the material inhand, which is required for operation of project should be transferred fromthe Construction Stores account to the Inventory account.

Advances to contractor/ supplier

The advances given to contractor /supplier in respect of the

construction activities shall be accounted for as Capital advances anddisclosed as part of the Construction Stores and Advances Schedule underthe head Fixed Capital Expenditure in the Balance sheet.

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Construction of several assets for a lump sum

consideration

The fixed assets should be capitalized as per the account headsgiven in the Chart of Accounts (COA). The total contract value should be

broken up into the various assets that are being constructed under thecontract.

Renovation and modernization

Only expenditure that increases the future benefits from the

existing asset beyond its previously assessed standard of performance, e.g.,an increase in capacity is to be capitalized.

The cost of an addition or extension to an existing assetwhich is of a capital nature and which becomes an integral part of theexisting asset is usually added to its gross book value. However any additionor extension, which has a separate identify and is capable of being used afterthe existing asset is disposed off, is accounted for separately.

DEPRECIATION

* Depreciation shall be provided in the books of account at the prescribedrates. As per the existing policy of NHPC the rates are as follows:

Straight Line Method at rates prescribed by Central ElectricityRegulatory Commission.

In respect of assets where rates have not been prescribed by

CERC, SLM at rates Income Tax Act, 1961.

* In respect of the leasehold assets the depreciation to be charged everyyear shall be such an amount as is required to write off 100% of the cost ofthe leased asset on the straight line method:

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Over the estimated useful life of the asset, or

Over the period of lease

* Depreciation on the assets purchased during the yearcosting less

than or equal to Rs.5000/- (but more than Rs.750/-) or assets with anopening written down value less than or equal to Rs.5000/- shall be fullydepreciated during the year, with Re.1/- as a balance value.

TRANSFER OF ASSETS

* Inter unit transfer of asset takes place on the receipt of advice(either debt or credit advice). Such advice shall be authorized by the Head of

project of the transferee unit and by the Head of concerned department atcorporate office.

* The dismantling charges, as well as cost of civil works and erectioncharge for the initial erection on the asset transferred should be written off tothe profit & loss account/ IEDC/A/c by the transferor unit.

PHYSICAL VERIFICATION AND MAINTENANCE

OF FIXED ASSET REGISTER

* All fixed assets constructed should be recorded in the FAR(Fixed Asset Register) maintained. The FAR should be periodically

reconciled with the books of account.

* The FAR should contain the particulars of the assets,quantity, location rate of depreciation, accumulated depreciation, etc.

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S.NO. ACCOUNTING

PERIOD

REFERENCE

ASSET

DESCRIPTION

DIFFERENCE IN

QUANTITY AS PER

PHYSICAL

VERIFICATION

AMOUNT

(Rs.)

DETAILS

OF ACTION

GROSS NET

TOTAL

SUMMARY OF FIXED ASSET REGISTER

S.NO ASSET

CATEGORY

GROSS BLOCK DEPRECIATION NET

VALUE

Opg

blnc

Add

during

year

Adj

during

year

Closg

blnc

Opg

blnc

Add

during

year

Adj

during

year

Closg

blnc

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PROCESSES OF FIXED ASSETS

PROCESS 1: (Establishment of Asset ControlAuthorities)

For exercising control over the assets an asset control authority is to beestablished for each category of assets.

The Head of each unit should decide the specific asset control

authorities (ACA) for the assets and the compilation section of the F&Adepartment should maintain the list for same.

The suggestive ACA for the various categories of assets can be asfollows :

* Land- Township department

* Roads, bridges, culverts, aerodromes, buildings( township, hospitaletc.) Township department

* Railway siding, hydrolic works, generating plant and machinery, plantand machinery substation and transmission lines Conserned technicaldepartment

* Construction equipment Stores and Mechanical Division

* Furniture and fixtures Personnel department

* Communication equipment IT and Communication department

* Hospital equipment Chief Medical Officer

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ACA should ensure the following:

* The asset identification number is indicated on all assets, where relevant

* Any movement of asset ( within or outside the premises of the unit), is onthe basis of duly approved orders

* The movement, damage, sale or disposal of an asset is intimated to theF&A Department to update the Fixed Asset Register(FAR)

DEPARTMENTAL FIXED ASSET REGISTER:

Each department having the custody of the assets, shall alsomaintain a Departmental FAR. Such register should be prepared to recordthe quantitative detail of all the assets held by the department. The registershould be updated in the following cases:

* Receipt of asset

* Transfer of asset

* retirement of asset

* Physical verification of the asset

ASSET CONTROL REGISTER

S.No. Stores document

detail

Source

of

receipt/

purchase

order

no. anddate

Date of

receipt in

the

departmen

t

Asset

identification

no.

Received

quantity

Location Transfer details Balance

quantity

Re

type No. date Location quantity

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PROCESS 2: (Allocating Asset Identification

Number)

The AIN should be recorded in the FAR.

AIN Structure:

Accounting unit

(Location code)

Asset sub

category

Year of

Acquisition./

Transfer in

Serial number Custodial

department/section

XX XX XX XXX XX(Numeric) *(alpha) (numeric) (numeric) (numeric)**

- * Asset subcategory may need to be defined for the following assetscategory, as there are only generic heads in the Chart of Account.

** The custodial department shall be defined by each accounting location.

The AIN should be given for the following main category of fixed assets:

* Movable plant and machinery

* Electrical installations

* Furniture and Fixtures

* EDP equipment/ computers

* Office equipment

* Other movable assets

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On receipt of fixed assets through stores the ACA should ensure thatAIN is allocated to all the items.

Finance should ensure that AIN has been allocated and update the FAR.The custodial department code shall be allotted on issue and shall be updatedfor any inter transfer department.

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PROCESS 3: (Capitalisation of Assets other than

Bought Out Assets)

This process lays down the procedure to be followed for maintenance of

capital work in progress register and capitalization of assets.

CAPITALISATION PROCESS:

Capitalisation process will involve the following:

* Determination of date of capitalisation

* Completion of all records till the date of capitalisation

* Determination of direct cost on works

* Allocation of survey and investigation expenses

* Allocation of borrowing cost

* Allocation of ERV

* Allocation of IEDC to capital works

* Based on the above, arrive at the total cost for the works and working ofasset cost for each fixed asset item, as per the Chart of Account heads

* Accounting for surplus construction material etc.

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Date of Capitalisation

Commissioning of an asset is technical matter which involvesconsideration of various factors such as trial, testing etc. Capitalisation ofasset shall be done o issue of Asset Commissioning Certificate. The cutoff date for the project being declared ready for use shall be the datenotified by Director (Technical) of NHPC by issue of the completioncertificate.

On this date the plant shall be capitalized and shall enter theOperation and Maintenance period.

Completion of all records till the date of capitalization

All records pertaining to the project/ unit to be capitalized should becompleted and finalized before the process of determination of costs andallocation of expenses are undertaken. The finalizing of records/ accountsshall include the following:

* Passing of all bills pertaining to contractors, supplier, others till the date ofcapitalization

* Identification of surplus fixed assets used during construction period and

bringing the WDV (Written Down Value) of these surplus items down totheir NRV (Net Realisation Value)

* Credit for sale of power during trial run is given* Charging depreciation till the date of commissioning on the assets used

during construction period

Direct costs incurred on capital works

CWIP REGISTER

To facilitate capitalization of fixed assets under the relevant fixedassets account head, the chart of accounts provides capital work in progressheads which are parallel to the relevant fixed assets heads.

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The CWIP register shall be maintained contact wise to record the totalexpenditure incurred on a particular work. The amount to be booked toCWIP for each contract/ work shall include the following:

* Direct payments under the contract:

- Value of suppliers received and accepted at the site

- Value of physical progress of civil construction and erection

* Other payments such as freight, insurance, custom duty, rates and taxes

* The CWIP register shall be maintained by the Works Accounts Group in

the F&A Department.

* The CWIP register may also be maintained in form of a sub ledger linkedto the CWIP Heads.

DETERMINATION OF DIRECT COST

* All direct costs associated with particular work/ asset head should be

identified in CWIP register.

* At the time of capitalization, the works section should ensure from theavailable records and the MB (Measurement Book) that all the bills have

been passed.

Incidental expenditure during construction:

The IEDC would include the expenditure incurred by theprojects as well as allocated by the Corporate Office and Regional Office.

Regional Office Expenses

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Regional office shall allocate their expenses to the projectsunder them on annual basis, as per the procedure given in the Final Accountsmanual.

Corporate Office Expenditure

The expenditure/ income of liaison offices shall be absorbed andmerged in Corporate Centre Expenses

Expenditure By Projects

IEDC expenditure should be debited to the natural heads of accountsprovided in the chart of accounts.

The portion of expenditure identified for capitalization should betransferred to IEDC heads under the CWIP category in the chart of accounts,by credit/ debit to account codes for expenditure/ income duringconstruction.

Allocation of IEDC

As per Accounting Policy the IEDC and other indirect costs are to beallocated only on major components of the project. The major componentsof the project, as identified by NHPC, consists of the following assets:

Buildings

1. Building containing Hydro Electric Generating Plant

Hydrolic Works ( Dams, Water conductor System, Hydro MechanicalGates)

2. Dams and Barrages

3. Canals and Channels

4. Desilting basins

5. Tunnels and pipe lines

6. Penstocks

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7. Tailrace Channel

8. Tailrace Tunnel

Generating Plant and Machinery

9. Main generating Equipment

10. Generator Step Up Transformer

STATEMENT OF ALLOCATION OF IEDC

Year: (separate folio for each year)

Particulars Amount

( Rs.)

IEDC incurred till the end of current year (as per current years annualaccounts) AIEDC incurred till the end of last year (as per last years annual accounts)* BDifference (i.e. IEDC incurred during the year) C=A-B

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ALLOCATION OF IEDC FOR THE YEAR

S.No. Asset

Head**

Opng

blnc in

CWIP

(as perlast

years

annual

a/c

Clsng

blnc in

CWIP

(as percurrent

years

annual

a/c

Difference

(i.e.

annual

accretionto CWIP

for the

year)

IEDC for

the year

allocated

IEDC

allocated

on these

assets tillthe

previous

year*****

Total

IEDC

allocated

till date

D E F G H=G-F I*** K L=I+K a (a/i)*C

b (b/i)*C

c (c/i)*C

d (d/i)*C

e (e/i)*C

f (f/i)*C

g (g/i)*C

h (h/i)*C

Total IEDC

allocated

i J= Sum of

all the

above***

*

* Cross checked from the previous folio

** To include only those assets identified by NHPC as major componentsof Fixed Assets

*** Total IEDC of the year i.e. C to be allocated in the ratio of annualaccretion to CWIP

**** Cross check with J=C

***** Brought forward from previous folio

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Borrowing Cost

Where a loan has been taken for construction of a specificproject/ asset, the borrowing cost relating to the period till the asset is

ready for use should be capitalized as a part of the cost of the asset. Suchborrowing cost should be reduced by any income on temporaryinvestment of such borrowing during the period.

Exchange Rate Variation

ERV arises as a result of settlement during the tear/ translation atthe end of the year at closing rates of the receivable/ payables in the

foreign currencies.

The balance ERV should be allocated to various CWIP assetheads.

Determination of Total Cost to be Capitalised

Necessary accounting entry shall be passed through JournalVoucher, for creation of asset records. The exercise should be reviewedand cross checked by another senior officer and approved by Head ofFinance and Head of Project.

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PROCESS 4: ( Capitalisation of Bought Out

Assets)

This process lays down the procedure to be followed for the

capitalization of bought out assets.

The following type of assets may be bought out:

* Land

* Buildings

* Movable assets

Such assets would generally be ready for use on acquisition. However insome cases there would be a stage treating them as Capital Work InProgress.

CONTRACT

* The process of procurement of assets purchased through contracts isprescribed in the Manual on works contract accounting. The capitalization ofthe assets shall take place as and when the completion certificate is issued bythe engineer in charge (IEC), to the effect that the asset is ready for use. Thecapitalization shall be carried out by the works account group.

* In case the work is finished and the completion certificate is awaited / finalbill is pending, the capitalization should not be stopped. Thus the EIC shallinform the work accounts officer as and when the construction is complete

and the asset is ready for use. On this date the work officer closes the workrecord and accounts for the capitalization.

* The compilation section shall generate the Fixed Asset ledgers on amonthly basis and update the FAR for the additions.

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PURCHASE ORDERS

* In case the procurement is made through purchase orders then the receiptof the assets shall be accounted for through stores department. The AIN is

allocated at the time of preparation of the Goods Received Note (GRN).

* In respect of these assets the Stores Bill section shall send a statement toCompilation section every month end and the compilation section shall passthe necessary accounting entries for capitalization.

* In case the assets are ready for use items the capitalization shallimmediately be carried out after confirmation from the ACA.

* No accounting shall be carried out by the stores officer for issue from the

stores.

ACCOUNTING ENTRIES:

Event Voucher Accounting Entry Subsidiary Record/

RegisterDebit Credit

Land acquired by NHPC BPV Land a/c Bank a/c FARLand given by Govt. atno cost- where title istransferred to NHPC

JV Land a/c Capitalreserve

FAR

Right to use land given

by govt. at no cost-where title is nottransferred to NHPC

JV Land

rights

Capital

reserve

Right to use land givenby govt. at cost-wheretitle is not transferred toNHPC

BPV Landrights

Bank a/c

Expenditures incurredon land

BPV Land a/c Bank FAR

Amortization of leasehold land:

- periodic payments

- lumpsum payments

BPV

JV

Leaserentalwritten

off

Leasewrittenoff

Bank a/c

Leaseholdland

FAR

Capitalization of fixedassets

JV Relevantfixed assethead

Relevantsundrycreditorsa/c

FAR

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PROCESS 5: (Depreciation Accounting)

* Depreciation is a measure of the wearing out, consumption or other loss ofvalue of a depreciable asset arising from use, effluxion of time or

obsolescence through technology and market changes. Depreciation includesamortization of assets whose useful life is predetermined.

* Depreciation shall be charged in the books of accounts at the ratesprescribed. As per the existing depreciation policy of NHPC the depreciationrates are as follows:

Straight Line Method (SLM) a rates prescribed by CentralElectricity Regulatory Commission (CERM)

Straight-Line Method:

In respect of assets where rates have not been prescribed byCERM, SLM at rates prescribed in the Income Tax Act, 1961

* In respect of leasehold assets the depreciation to be charged every yearshall be such an amount as is required to write off 100% of the cost of theleased assets on the SLM:

Over the estimated useful life of the asset, or

Over the period of lease,

Whichever, is earlier.

* Depreciation on assets acquired during the year is to be provided on aproportionate basis from the month the asset was ready for use. In case theasset was ready for use for less than 15 days in the month, the depreciationshall be charged from the following month.

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* Depreciation on assets purchased during the year costing less than Rs.5000/- (but more than Rs. 750/-)or assets with a opening written down valueless than Rs. 5000/- (excluding immovable assets) shall be fully depreciatedduring the year,with Re. 1/- as a balance value.

* Any addition or extension which retains a separate identity and is capableof being used after the existing asset is disposed off, should be depreciatedindependently on the basis of an estimated of its own useful life.

CHANGE IN DEPRECIATION RATES

Where the historical cost of a depreciable asset undergoessubsequent changes arising as a result of increase or decrease in long termliability on account of exchange fluctuations, price adjustments, change in

duties, etc. depreciation on the revised unamortized depreciable amount isprovided prospectively over the residual useful life of the asset.

CHANGE IN DEPRECIATION METHOD

* In case of change in method of depreciation, depreciation isrecalculated in accordance with the new method from the date of the assetcoming into use. In case the change in the method results in surplus, the

surplus is credited to the statement of profit and loss.

* Such a change is treated as a change in accounting policy and itseffect is quantified and disclosed.

ACCOUNTING ENTRIES

Event Voucher Accounting entry Subsidiary

Record/ RegisterDebit Credit

Depreciationprovision

JV Depreciation(relevant assetcategory)

Accumulateddepreciation

FAR

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PROCESS 6: (Transfer of Assets)

This process lays down the procedure to be followed for transfer ofassets. Assets of unit may be transferred within the unit or may be

transferred to other units.

TRANSFER WITHIN A UNIT:

* Transfer of an asset within a unit should take place as approved bythe competent authority and after intimating the concerned ACA.

* The ACA shall forward a copy of the above approval to the

compilation section forupdation of FAR. The ACA shall update the AssetControl Register with the details of change in location/ person to whom theasset is issued.

INTER UNIT TRANSFERS:

* Inter unit transfers of assets take place on receipt of the requisitioni.e. Inter Unit Advice (IUA) from the transferee unit. Such requisition shall

be authorized by the Head of Project of the transferee unit and by the head ofthe concerned department at corporate office. The requisition shall be sent tothe head of the transferor unit.

* The head of the transferor unit shall approve the transfer. A copysuch approval shall be forwarded to the concerned ACA for his information.

Expenses Incurred on the Dismantling and Transfer of Asset:

The dismantling charges, as well as cost of civil works and erectioncharge for the initial erection on the asset transferred should be written off tothe Profit & Loss A/C by the transferor unit.

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Depreciation:

Depreciation on the transferred asset should be provided for the wholeyear by the transferee unit irrespective of the period for which such assetwas actually used by it.

ACCOUNTING ENTRIES

Event Voucher Accounting Entry Subsidiary

Record/

Register

Transfer of assets bytransferor unit

JV Debit Credit FAR

Accumulated

depreciation ofthe relatedasset

Gross block of

the assettransferred

Receipt of the IUA(Inter Unit Advice)from the transferorunit

JV Gross block of the assettransferred

Accumulateddepreciation ofthe relatedasset

FAR

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PROCESS 7: (Maintenance of Fixed Asset Register)

* The FAR is to be maintained and updated by the compilationsection, F&A Department. The FAR shall contain the information as

required under the Companies Act, 1956.

* The FAR should be maintained asset category-wise and itemwise.

The FAR should have the following details:

Category/sub-category Account Code

Shift:Single/Double/TripleshiftDepreciation RateCERC notification Companies Act Tax Act.

Life.

S.No.

AIN Voucher Reference

Asset Details Gross Block Depreciation CERC/IT/Cos Act WDVNo D

t.assetdesc

supplier /source ofreceipt

yr.ofcommissioning

Location

qty

opngblnc

addduring

year

adjduringyear

clsng

blnc

opngblnc

addduringyear

adjduringyear

clsng

blnc

The FAR should be updated on :

* Acquisition/ commissioning of new asset

* Transfer of an asset based on Stock Transfer Note (STN)

* On retirement from active use

* Disposal of the asset

* Receipt of the physical verification report

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At the end of each quarter a complete set of FAR should be printedand a summary prepared of the balances appearing in the FAR. Suchsummary and complete set of FAR should be installed by the Head ofFinance.

SUMMARY OF FIXED ASSET REGISTER:

Location Name:

Location Code:

(Amount in Rs.)

S.No. Asset

Category

Gross Block Depreciation Net

valueopg

blnc

add

duringthe

year

adj

duringthe

year

closg

blnc

opg

blnc

add

duringthe

year

adj

duringthe

year

closg

blnc

Prepared By:

Authorised By:

* The summary of balances (gross block and depreciation) as perFAR should be reconciled on a quarterly bases with the balances in thegeneral ledger.

* The FAR should also be reconciled with the ACA register and

the departmental register on a quarterly basis.

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PHYSICAL VERIFICATION REPORT:

Name of Division/ Department: Officer: concerned division

Financial year: Officer: internal audit wing

Date of verification: Officer: P&A division

Report reference no.: Officer: ACA

s.no. Register

folio

number#

Nomenclature

of the asset

A

I

N

No. of

items

as per

registe

r

No. of

items as

per

physical

verificatio

n

Discrepency Condition

of asset

Action

taken

to

adjust

Signature of physical verification item:

Signature of officer in charge

# Departmental fixed asset register

COMPILED PHYSICAL VERIFICATION OF FIXED ASSETS

REPORT

Date:

Name of asset:

Physical verification report reference number:

S.No. Reportreferencenumber

AIN Location Quantity as per Remarks

FAR Departmentalregister

Physicalverificatio

n

Difference

Total

Prepared by:

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Process 9: (Accounting for Disposal of Fixed

Assets)

This process deals with accounting for disposal of fixed assets.

The sale of fixed assets may take in the following circ

fixed asset accounting project report

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