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ACKNOWLEDGEMENT
No endeavor however small can be successfully accomplished without the concrete efforts of all concerned. I was fortunate in being given full cooperation & help whenever I sought it in the course of my training. In this respect I would like to thank Mr. Anurag Bharadwaj (Manager HR) who allowed me to under go training in NHPC (Parbati Project Stage II) at Nagwain (Mandi). I express my sincere thanks to Mr.K.K.Goel (Sr.Manager Finance) who accepted me as a trainee in NHPC& for taking keen interest in my training. I have no appropriate words express my sense of gratitude to Mr.Amit Bansal C.A.(Trainee Officer) & Mr.Vishal (Trainee Officer) under whom I was placed during the training tenure. I must thank Mr. Devinder Kumar C.A. (Dy. Manager) for his guidance. I am also thankful to Mr. Satish (IT Supervisor) for his kind support. I owe a special thanks to all the executives, supervisors & staff of various sections for their co-operation & making my training period a valuable & pleasant experience for me.

JULY,2008

PREFACE
The confidence of an individual is boosted as one successfully completes the responsibilities shouldered on him. The theoretical concepts only help us to gain Knowledge. However an administrative skill, the pre-requirement for the completion of a success story comes with experience. The ON THE JOB practical training is a stepping stone towards the success story. A mere tenure of two months in the industrial world gives you a birds view of the internal happening of the vast and complex world. It was a privilege to undergo practical training in NHPC (National Hydro Electrical Power Corporation Ltd.) which allowed me to see the most recent management tools, techniques and methods being put in to practice. NHPC has given me so much in this short duration that I feel confident and capable of taking up challenge in this industrial world and make a success story of my career. Out of different offices located in different 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 Introduction about NHPC& Parbati Hydro Electric Project-II. Second part deals with the Project Report on Fixed Asset Accounting and Accounting Standards related with Fixed Asset Accounting.

CONTENTS

PART-I
INTRODUCTORY ANALYSIS
1 2 BRIEF INTRODUCTION ABOUT NHPC INTRODUCTION ABOUT PHEP-II

PART-II
PROJECT REPORT ON FIXED ASSET ACCOUNTING
WITH RESPECT TO NHPC 1 2 3 4 5 FINANCE AND ACCOUNTS FUNCTION DEFINITION OF FIXED ASSET TERMS IN FIXED ASSET ACCOUNTING ACCOUNTING STANDARDS PROCESSES OF FIXED ASSETS

PART-I

NHPC Limited ( NATIONAL HYDRO-ELECTRIC POWER CORPORATION LTD) was incorporated in 1975 by Govt. of India to plan, design, construct, operate and maintain hydro electric power projects in 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 per assessment made by CEA (Central Electricity Authority), India is endowed with economically exploitable hydro-power potential to the tune of 1, 48,701 MW of installed capacity. The basin wise assessed potential is as under :-

Basin/Rivers Indus Basin Ganga Basin Central Indian River system Western Flowing Rivers of southern India Eastern Flowing Rivers of southern India Brahmaputra Basin Total

Probable Installed Capacity (MW) 33,832 20,711 4,152 9,430 14,511 66,065 1,48,701

In addition, 56 number of pumped storage projects have also been identified with probable installed capacity of 94,000 MW. In addition to this, hydroPotential from small, mini & micro schemes has been estimated as 6, 782 MW from 1 512 sites. Thus, in totality India is endowed with hydropotential of about 2, 50, 000 MW. However, exploitation of hydro-potential has not been up to the desired level due to various constraints confronting the sector.
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In 1998, Government of India announced "Policy on Hydro Power Development" under which impetus is given to development of hydropower in the country. This was a welcome step towards effective utilization of our water resources in the direction of hydropower development. During October 2001, Central Electricity Authority (CEA) came out with a ranking study which prioritized and ranked the future executable projects. As per the study, 399 hydro schemes with an aggregate installed capacity of 1 06 910 MW were ranked in A,B & C categories depending upon their inter-se attractiveness. During May 2003, Govt. of India launched 50 000 MW hydro initiative in which preparation of Pre Feasibility Reports of 162 Projects totalling to 50 000 MW was taken up by CEA through various agencies. The PFRs for all these projects have already been prepared and projects with low tariff (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 and coal-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, which then 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 turbine blades; 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:

The theory is to build a dam on a large river that has a large drop in elevation. The dam stores lots of water behind it in the reservoir at FRL ( full reservoir level)and a live storage of 1.98 Mcum . Near the bottom of the dam wall there is the water intake .Gravity causes it to fall through the penstock inside the dam. At the end of the penstock there is a turbine propeller, 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 that carry electricity to your home and mine. The water continues past the propeller through the tail race tunnel (TRT) into the river past the dam. By the way, it is not a good idea to be playing in the water right below a dam when water is released.

The diagram of a hydroelectric generator given below shows how generator works:
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"A hydraulic turbine converts the energy of flowing water into mechanical energy. A hydroelectric generator converts this mechanical energy into electricity. The operation of a generator is based on the principles discovered by Faraday. He found that when a magnet is moved past a conductor, it causes electricity to flow. In a large generator, electromagnets are made by circulating direct current through loops of wire wound around stacks of magnetic steel laminations. These are called field poles, and are mounted on the perimeter of the rotor. The rotor is attached to the turbine shaft, and rotates at a fixed speed. When the rotor turns, it causes the field poles (the electromagnets) to move past the conductors mounted in the stator. This, in turn, causes electricity to flow and a voltage to develop at the generator output terminals."

ABOUT NHPC
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NHPC has successfully commissioned 13 hydro-electric projects with total installed generation capacity of 5175 MW including 1000 MW Indira Sagar Project and 520MW Omkareshwer Project in joint venture with Govt. of Madhya Pradesh. 11 projects having generation capacity of 4622MW are under construction, besides number of projects are under Govt. clearance and under DPR preparation stage.The asset value of corporation is 200,000 Million. With the commissioning of 180MW Baira Siul project in 1981, NHPC started earning profit since 1982. The first turnover was Rs.24cr and its net profit was 8cr. NHPC is also planning to take Wind and Tidal wave projects in the country. Considering the impediments faced during execution of these projects such as unfavourable geological conditions, difficult law and order problems, inaccessible and remote locations, the achievement so far is commendable. The generation performance of these stations has been outstanding. The corporation has witnessed a tremendous growth during the last few years and is likely to be a 10,000 MW plus company by the end of XI th plan. Besides provides consultancy services, NHPC is also entering into the field of Non-conventional energy resources.

CAPITAL STRUCTURE

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FINANCIAL PROFILE
1 An authorized share capital of Rs.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, GeoPhysics 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 & geothermal 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 of India. * Name of the Company has been changed from National Hydroelectric Power Corporation Ltd. to NHPC Limited. * Crossed profit figure of Rs. 1000 crore and installed capacity of 5000 MW. Registered a net Profit of Rs. 1,002 crore against Rs. 925 crore during the previous financial year. * Poised to pay highest ever dividend. * Achieved an all time high sales turnover of Rs. 2,311 crore as against Rs. 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 and rating equivalent to Sovereign rating for external borrowings from reputed International rating agencies. * Memorandum of Association of the Company has been amended to include trading, power development including forward, backward or horizontal integration ancillary and other allied industries.

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* Generated 14811.35 Million Units electricity against 13048.74 Million Units generated during previous corresponding year, thereby registering an increase of 13.5 %. * The Power Stations achieved a Capacity Index of 96.13 % against the MoU target of 94.50 %. * Implementing Indias largest hydroelectric project, the 2000 MW Subansiri Lower Project in Arunachal Pradesh. * Plans to become 10000 MW plus company by 11th Plan. * Recommendation of PIB (Public Investment Board) for Govt. sanction and TEC (Techno Economic Clearance) of CEA obtained for the 3000 MW Dibang Multipurpose Project. Dr. Manmohan Singh, Honble Prime Minister of India laid the foundation stone of the Project on 31.1.2008. * MoU signed with Govt. of Manipur for implementation of 66 MW Loktak Downstream Project by NHPC in Joint Venture with Govt. of Manipur. Ministry of Environment and Forest has accorded preconstruction activities on the project. * Environment clearance has been accorded by Ministry of Environment and Forest for 195 MW Kotli Bhel-1A, 320 MW Kotli Bhel-1B, 120 MW Vyasi Projects, all in Uttarakhand and 1000 MW Pakal Dul Project in Jammu & Kashmir. * Implementing Enterprise Resource Planning (ERP) of IFS AB, Sweden across the organization.

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The Bulk Power Consumers of NHPC Limited in North India are the power utilities belonging to the states of Haryana, Punjab, Himachal Pradesh, Uttar Pradesh, Uttarkhand, Rajasthan, Delhi and J&K and Union Territory of Chandigarh. These states are being supplied power from Baira Siul, Salal-I & II, Tanakpur, Chamera-I, Chamera-II,Uri, Dhauliganga & Dulhasti Power Stations. In the Eastern Region, Rangit Power Station is supplying energy to the states of West Bengal, Sikkim, Bihar, Jharkhand and Damodar Valley Corporation. In the North-Eastern Region, Loktak Power Station is supplying energy to the states of Assam, Manipur, Meghalaya, Tripura, Nagaland, Arunachal Pradesh and Mizoram.

Since commencing of commercial generation in 1982, the Energy sales and revenues of 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 Million in 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 :Year 1990-1991 1991-1992 1992-1993 1993-1994 1994-1995 1995-1996 1996-1997 1997-1998 1998-1999 1999-2000 2000-2001 Sale & Revenue (Million Rs.) 1581 1556 1552 2087 4805 5091 5344 9930 11944
17 10757

11799

FINANCIAL REVIEW(2007-08)
* Registered a net profit (after tax) of Rs. 1,002.06 crore against the net profit (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 against Rs.1,962.76 crore achieved during the year 2006-07 * Poised to declare an all time high dividend for the year 2007-08. An interim dividend of Rs.100 crore for the year 2007-08 has already been paid to Government of India. * Better business management coupled with prudent financial policies like efficient sales realization, better grid management, efficient treasury management systems etc. have resulted in sound financial position which made the Company self reliant for the resources generation for ambitious capacity 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 1 2 3 4 5 6 7 8 9 10 11 Parbati - II Sewa - II Subansiri (Lower) Uri-II Chamera-III Teesta Low Dam - III Kishenganga Teesta Low Dam - IV Parbati - III Nimmo-Bazgo Chutak

State Himachal Pradesh Jammu & Kashmir Assam Jammu & Kashmir Himachal Pradesh West Bengal Jammu & Kashmir West Bengal Himachal Pradesh Jammu & Kashmir Jammu & Kashmir

Installed Capacity(MW) 4 * 200 3 * 40 8 * 250 4 * 60 3 * 77 4 * 33 3 * 110 4 * 40 4 * 130 3 * 15 4 * 11 Total

Total Capacity (MW) 800 120 2000 240 231 132 330 160 520 45 44 4622

S No. Project 1 2 3 4 5 6 7 8 9 10 11 12 Teesta - V Omkareshwar * Parbati - II Sewa - II Subansiri (Lower) Uri-II Chamera-III Teesta Low Dam - III Teesta Low Dam - IV Parbati - III Nimmo-Bazgo Chutak

Country/State Sikkim Madhya Pradesh Himachal Pradesh Jammu & Kashmir Assam Jammu & Kashmir Himachal Pradesh West Bengal West Bengal Himachal Pradesh Jammu & Kashmir Jammu & Kashmir

Capacity Total Capacity 3 * 170 8 * 65 4 * 200 3 * 40 8 * 250 4 * 60 3 * 77 4 * 33 4 * 40 4 * 130 3 * 15 4 * 11 Total

Status

510 Commissioned 520 Commissioned 800 Under Construction 120 Under Construction 2000 Under Construction 240 Under Construction 231 Under Construction 132 Under Construction 160 Under Construction 520 Under Construction 45 Under Construction 44 Under Construction 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 to harness hydro potential of lower reaches of the river Parbati. The Parbati river along with Tosh Nallah will be diverted by way of constructing a Concrete Gravity Dam at village Pulga.

Location
NAME PARBATI HYDROELECTRIC PROJECT (STAGE -II)

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DISTRICT STATE NEAREST RAIL HEAD NEAREST AIRPORT RIVER LOCATION OF DAM & POWERHOUSE INSTALLED CAPACITY ANNUAL GENERATION DATE OF CCEA APPROVAL LATEST ESTIMATED COST BENEFICIARY STATES

KULLU HIMACHAL PRADESH KIRATPUR (190 KM FROM SAINJ, POWER HOUSE SITE) BHUNTER (35 KM FROM SAINJ, POWER HOUSE SITE) PARBATI (A TRIBUTARY OF RIVER BEAS) DIVERSION DAM ON RIVER PARBATI AT PUGLA VILLAGE AND POWREHOUSE ON RIVER SAINJ RIGHT BANK OF SUIND VILLAGE. 4 X 200 (800 MW) 3076.95GWh SEPTEMBER 2002 RS.4120.25CRORES 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 Snow Catchment Maximum observed discharge 2. Jigrai Nallah Catchment Area at Diversion site Snow Catchment 3. Hurla Nallah Catchment Area at Diversion site Snow Catchment 4. Jiwa Nallah Catchment Area at Diversion site 180Sq.km. 34Sq.km. 9.5Sq.km. 42Sq.km. 21Sq.km. 1155Sq.km. 971Sq.km. 369.10Cumecs

Package: Lot PB-I

Description Work Description Agency / Name of Contractor Details Civil and Hydromechanical works for Diversion Dam and Part Head Race tunnel. 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 Total of the above two works Percentage of Foreign currency payments Date of Award Original Schedule of completion (date as per contract) 29929 322,90.09 23.82% in US $ 2.19% in Euro 11.09.2002 60 months (10.09.2007) from the date of issue of Notification of Award . Contract Price for Hydro Mechanical Works 2361.09

Package: Lot PB-II

Description Work Description Agency / Name of Contractor Details Civil and Hydromechanical works for Head Race tunnel and Associated works. Joint Venture comprising of M/s Maytas Infra Ltd, M/s Sri Shankarnarayana Construction Co. and M/s Nagarjuna Const. Co. Ltd. (Collectively Know as Himachal Joint Venture) 41623.41 lacs. 41988.71 lacs. 23.82% in US $ 2.19% in Euro 11.09.2002 60 months (10.09.2007) from the date of issue of Notification of Award .

Value of Award Contract Price for Civil Works Total of the above two works Percentage of Foreign currency payments Date of Award Original Schedule of completion (date as per contract) Contract Price for Hydro Mechanical Works 365.30 lacs.

Package:

I Package: Lot PB-III

Description Work Description Agency / Name of Contractor Value of Award Contract Price for Civil Works Total of the above two works Percentage of Foreign currency payments Date of Award 46241.96 lacs. 603,69.26 lacs. 11.50% in US $ 8.00% in Euro 13.09.2002 Contract Price for Hydro Mechanical Works 14127.3 lacs. Details Civil and Hydromechanical works for Power House, Pressure shaft, Surge shaft and Part Head Race tunnel. M/s Gammon India Ltd.

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Original Schedule of completion (date as per contract)

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

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

Description Work Description Agency / Name of Contractor Details Civil and Hydromechanical works for Jiwa Nallah & Associated works. Joint Venture comprising of M/s Bholasingh Jaiprakash Construction Ltd, M/s Techno Trade and M/s Harbhajan Sarabjeet & Associates. (BJ-Techno-HSA JV) 5522.00 lacs. 56,46.99 lacs. Nil 11.09.2002 60 months(10.09.2007)from the date of issue of Notification of Award.

Value of Award Contract Price for Civil Works Total of the above two works Percentage of Foreign currency payments Date of Award Original Schedule of completion (date as per contract) Contract Price for Hydro Mechanical Works 124.93 lacs.

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

Description Work Description Details Ex-works Supply and CIF / CIP Supply of all equipments and materials including Mandatory Spares Electrical and Machanical Works. M/s Bharat Heavy Electricals Ltd

Agency / Name of Contractor Value of Award

CIF / CIP Supply of all Off-shore equipments US $ 11,228,000.00 and materials including Mandatory Spares Ex-works Supply and CIF / CIP Supply of all equipments and materials including US $ 54,516,000.00 Mandatory Spares Total of the above two works Date of Award US $ 65,744,000 24.12.2002

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Original Schedule of completion (date as per contract)

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

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

Description Work Description Details Providing all services i.e. inland transportation for deliveryu at site, unloading, storage, handling at site, insatallation, Testing and Commissioning including Performance Testing in respect of all the equipmnets supplied under the 'First Contract' and any other services specifie in the Contract documents for Electrical and Machanical Works. M/s Bharat Heavy Electricals Ltd

Agency / Name of Contractor Value of Award

Local transportation including Port clearance 670.00 lacs. and Port Charges and Inland Insurance Installation and other services Total of the above two works Date of Award Original Schedule of completion (date as per contract) 3420.00 lacs. US $ 65,744,000 24.12.2002 52 months (23.04.2007) from the date of issue of Notification of Award.

Revenue to HP Government due to construction of project up to October 2004

Sales Tax Royalty Total Rs. 589.75 lakhs. Rs. 49.17 lakhs. 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 major contactors. Hired By NHPC HJV Gammon BJ Techno Total Inspection Vehicle 35 Nos. 4 Nos. 7 Nos. 5 Nos. 51 Nos. 18 Nos. 7 Nos. 1 Nos. 37 Nos. Tractor/Truck 11 Nos. (HRTC Buses)

Contract Given to Local Contractors

Details of work contract/work order given to various contractors of H.P. by Parbati HE Project Area DAM Complex HRT Complex Township Complex Power House Complex JNW Complex Total Total No. of works awarded 219 142 160 180 4 705 Total Amount Rs.9,05,67,980 Rs.3,51,43,429 Rs.9,85,33,931 Rs.9,64,18,802 Rs.1,53,48,264 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 water from 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 of economics concerned with resource allocation as well as resource management, acquisition and investment. Simply, finance deals with matters related to money 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 the Corporation 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 accordance with the generally accepted ACOUNTING STANDARDS and in conformity 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 the accuracy 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 Auditor General of India).There is also the requirement of preparing 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 information and 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 as for 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 in case of his own business To follow instructions regarding EPF and other Employees Trusts and Family Pension Scheme

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FINANCIAL MANAGEMENT
The F&A department is to assist the management in exercising adequate 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 in preparations of long term and annual capital budget and 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 ensuring compliance 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 to customers. Examples are building, machinery, auto, and land. Fixed assets with the exception of land are subject to Depreciation. Fixed assets are usually referred to as property, plant, and equipment. Fixed asset, also known as property, plant, and equipment (PP&E), is a term used in accountancy for assets and property which cannot easily be converted into cash. This can be compared with current assets such as cash 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, motor vehicles, 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 depreciate over time. Current assets are those that form part of the circulating capital of a business. 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 a business intended for continuing use, rather than a short-term, temporary asset 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 IT equipment.

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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 several years. For example, a company may use the same piece of production machinery for many years, whereas a company-owned motor car used by a salesman probably has a shorter useful life. By accepting that the life of a fixed asset is limited, the accounts of a business 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 asset and any amounts that can be directly attributable to bringing the asset into working condition. Directly attributable costs may include: - Delivery costs - Costs associated with acquiring the asset such as stamp duty and import duties - 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 not be included as part of the total costs of a fixed asset (e.g. the costs of the factory building in which the asset is kept, or the cost of the maintenance team who keep the asset in good working condition)

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The cost of subsequent expenditure on a fixed asset will be added 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 may be capitalised and included as part of the cost of the asset in the accounts. However, the costs of repairs or overhauls that are carried out simply to maintain existing performance will be treated as expenses of the accounting period in which the work is done, and charged in full as an expense 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 and the passage of time. Although care and maintenance may succeed in extending the physical life of an asset, typically it will, eventually, reach a condition 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 to continue to use the asset even though there is still some physical life left. The economic life of the asset will be determined by such factors as technological progress and changes in demand. For purposes of calculating 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 it and any amounts received from the disposal will represent its residual value. This, again, may be difficult to estimate in practice. However, an estimate has to be made. If it is unlikely to be a significant amount, a residual value of zero will be assumed. The cost of a fixed asset less its estimated residual value represents the total amount 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 directly or 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 control of the benefit has already occurred.

37

FIXED ASSET ACCOUNTING

Fixed Asset Accounting uses a highly flexible approach to revaluation, ensuring that your capital, financial, and strategic plans are based on the most current information. You can elect constant currency or current cost accounting as the basis for asset revaluation and leverage government indices to quickly revalue a large number of assets. Fixed Asset Accounting automatically creates the necessary journal entries, so business decisions can be based on timely, accurate fixedasset records. Fixed Asset Accounting allows you to ethods. With Fixed Asset Accounting, you can easily make comprehensive changes across your accounting structureand maintain the integrity of the systemby leveraging global updates to revise account numbers, business units, or companies.

38

TERMS USED IN FIXED ASSET ACCOUNTING

Accounting The collecting, recording, compiling and forecasting of
financial information.

Auditing

A check by an independent company that accounts are being kept 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 an organisation at a particular date - usually the last date of an accounting period. The balance sheet is split into two parts: (1) A statement of fixed assets, current assets and the liabilities (sometimes referred to as "Net Assets") (2) A statement showing how the Net Assets have been financed, for example through share capital and retained profits. The Companies Act requires the balance sheet to be included in the published financial accounts of all limited companies. In reality, all other organisations that need to prepare accounting information for external users (e.g. charities, clubs, partnerships) will also product a balance sheet since it is an important statement of the financial affairs of the organisation. A balance sheet does not necessary "value" a company, since assets and liabilities are shown at "historical cost" and some intangible assets (e.g. brands, quality of management, market leadership) are not included.

39

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 shown in ' millions) FIXED ASSETS Current Assets Short-term creditors NET CURRENT LIABILITIES Total Assets less Current Liabilities Long-term creditors Provisions TOTAL NET ASSETS Equity shareholders funds Minority interests Total Capital Employed 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. The various amounts of money owed by a business are called its liabilities. 24 February 2001 10,038 1,694 (4,389) (2,695) 7,343 (1,927) (24) 5,392 5,356 36 5,392 26 February 2000 8,527 1,342 (3,487) (2,145) 6,382 (1,565) (19) 4,798 4,769 29 4,798

40

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 goods and services produced by the asset.' A portion of the benefits of the fixed asset will be used up or consumed 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 the revenues they help earn. In determining the expenses for a period, it is therefore important to 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 fixed asset (less any residual value) over its useful life. To calculate the depreciation charge for an accounting period, the following factors 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:

41

ACCOUNTING STANDARDS

The ACCOUNTING STANDARDS given by ICAI have been followed by every organization in India. These are some fixed rules which are being used in accounts. There are 29 Accounting Standards out of which following are related 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

42

AS -1 Disclosure of Accounting Policies

INTRODUCTION
1. This statement deals with the disclosure of significant accounting policies followed in preparing and presenting financial statements. 2. The view presented in the financial statements of an enterprise of its state of affairs and of the profit or loss can be significantly affected by the accounting policies followed in the preparation and presentation of the financial 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

43

AS-6 (Depreciation Accounting)

Depreciation has a significant effect in determining and presenting the financial position and results of operations of an enterprise. * Depreciation is charged in each accounting period by reference to the extent of the depreciable amount, irrespective of an increase in the market value of the assets. * Assessment of depreciation and amount to be charged in respect of in an accounting period are usually are based on the following three factors: - Historical cost or other amount substituted for the historical cost of 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 life and is: - Pre-determined by legal limits, such as the expiry dates of related 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 end of an accounting period showing additions, disposals, acquisitions and other movements; * Expenditure incurred on account of fixed assets in the course of construction or acquisition.

44

AS-10 (Accounting for Fixed Assets)

Financial statements disclose certain information relating to fixed assets. In many 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 following items to which special considerations apply: -forests, plantations and similar regenerative natural resources; - Wasting assets including mineral rights, expenditure on the exploration for and extraction of minerals, oil, natural gas; - Livestock. * This statement does not cover the allocation of the depreciable amount of fixed assets to future periods since this subject is dealt with in Accounting Standard 6 on Depreciable Accounting. * This statement does not deal with the treatment of government grants and subsidies, and assets under leasing rights. It makes only a brief reference to the capitalization of the borrowing costs and to assets acquired in an amalgamation or merger.

45

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. The historical cost shall be determined in accordance with the accounting guidelines as described in this manual.

Components of cost of a fixed asset

The cost of an item of fixed asset shall comprise of its purchase contract price, including import duties and other non-refundable taxes or levies and any directly attributable costs of bringing the asset to its working condition or for its intended use. Trade discounts and rebates, if any, 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 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.

46

The assets shall be capitalized as and when they are ready for use. The capitalization of assets should not be deferred till the asset is put to actual use. The cost of a fixed asset may undergo changes subsequent to its acquisition or construction on account of final settlement of bills, changes in duties, settlement of arbitration / legal cases in respect of works completed and capitalized in earlier years etc. Subsequent adjustments shall be made to the cost of the assets as and when it is incurred with prospective effect 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 rentals payable on leasehold assets shall be charged to revenue in the year in which the rental accrue.

Survey and Investigation expenses

The expenses incurred on survey and investigation for new projects 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 be written off in the year in which the project is abandoned.

Incidental expenses during construction period

In respect of projects under construction the incidental expenses during construction period of a project shall be capitalized and in the manner given below.

47

Borrowing costs
The borrowing costs comprise of interest and commitment 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 fixed assets for the period up to the completion of construction or acquisition of fixed assets are to be capitalized. The capitalization of borrowing costs as part of the cost of an asset should commence when all the following conditions are satisfied: i. ii. iii. expenditure for the acquisition or construction of the asset is being incurred; borrowing costs are being incurred; and activities that are necessary to prepare the asset for its intended use are in progress.

Capitalization of borrowing costs should cease when substantially all the activities necessary to prepare the asset are complete. When the construction of a qualifying asset is completed in parts and completed part is capable of being used while construction continues for the other parts, capitalization of borrowing costs in relation to a part should cease when substantially all the activities necessary to prepare that part are complete.

Exchange rate variation

Exchange rate variation (ERV) may arise in respect settlement 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 be capitalized along with the asset to which they relate. This may arise during construction period as well as after the construction period i.e. till loan is fully repaid / settled.

48

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

Administration and other general overhead expenses during construction phase

The following expenditure incurred as an incidental to construction of a project shall also be included in the IEDC: Expenditures on upgradation, widening of roads, culverts, etc. not belonging to NHPC Share of maintenance expenditure of common public facilities used during construction of project

Depreciation
In case of assets which are purchased / constructed for use in the construction 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 asset has been retired from active use/ declared surplus and is held for disposal at the date of commercial operation, based on the Net Realisable Value(NRV). The NRV shall be determined based on Engineering estimates or through approved valuers.

49

LOSSES DURING CONSTRUCTION

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

UNAVOIDABLE LOSSES: * Losses which takes place during construction period like crakes in civil structure, collapses of loose strata, cavity formation in tunnel, etc. other than natural calamities are part of normal construction activity in Hydro Projects. Expenditure incurred on encountering such problems after adjusting actual insurance shall form part of relevant Capital Work In Progress. * Losses due to natural calamities e.g. floods, earthquakes, accidents like fire, etc. which do not form part of relevant Capital Work In Progress are due to unavoidable reasons. AVOIDABLE LOSSES: Avoidable losses are attributable to the negligence of the personal engaged in 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 the expenditure during construction period, before the allocation of the IEDC is carried out. In such case income is taxable as per the provisions of the Income Tax Act, then tax liability in respect of these items shall be considered as IEDC.

50

ALLOCATION OF IEDC ( INCIDENTAL EXPENDITURE DURING CONSTRUCTION) TO ASSETS:

IEDC is allocated at the time of capitalization of the project. IEDC shall be allocated on the major immovable assets (other than land and infrastructural facilities) on commissioning of the project. The incidental expenditure should be allocated to various CWIP (Capital Work In Progress) assets heads in the ratio of the yearly capital expenditure incurred on the CWIP asset heads and yearly IEDC incurred which is to be identified and allocated 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 the construction 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 other assets/ completion of the project shall not be capitalized even if they are fully constructed. Such assets shall be capitalized only when they be used on completion 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 Asset Commissioning Certificate from the relevant technical authority of the Corporation. All capital expenditure (in respect of assets constructed) should be accounted for through CWIP accounts. On capitalization of the assets the expenditure should be transferred to the appropriate fixed assets account. However, bought out assets should be capitalized directly i.e. without routing through the CWIP account.
51

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 and when completed and ready to use. The capitalization should not be withheld till construction period is over. Depreciation in respect of assets used during the construction period (including construction equipment) should be charged at the prescribed rates/ based on the balance useful life.

Construction stores
The cost incurred for materials procured for construction should be treated as Construction stores and disclosed as part of the Construction Stores and Advances Schedule under the head Fixed Capital Expenditure in the Balance sheet. After commissioning of the concerned asset the material in hand, which is required for operation of project should be transferred from the 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 and disclosed as part of the Construction Stores and Advances Schedule under the head Fixed Capital Expenditure in the Balance sheet.

52

Construction of several assets for a lump sum consideration

The fixed assets should be capitalized as per the account heads given in the Chart of Accounts (COA). The total contract value should be broken up into the various assets that are being constructed under the contract.

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

DEPRECIATION
* Depreciation shall be provided in the books of account at the prescribed rates. As per the existing policy of NHPC the rates are as follows: Straight Line Method at rates prescribed by Central Electricity Regulatory 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 every year shall be such an amount as is required to write off 100% of the cost of the leased asset on the straight line method:

53

 Over the estimated useful life of the asset, or Over the period of lease * Depreciation on the assets purchased during the year costing less than or equal to Rs.5000/- (but more than Rs.750/-) or assets with an opening written down value less than or equal to Rs.5000/- shall be fully depreciated 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 at corporate office. * 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 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 Opg blnc

GROSS BLOCK

DEPRECIATION

NET VALUE

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 Control Authorities)

For exercising control over the assets an asset control authority is to be established 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&A department should maintain the list for same. The suggestive ACA for the various categories of assets can be as follows : * Land- Township department * Roads, bridges, culverts, aerodromes, buildings( township, hospital etc.) Township department * Railway siding, hydrolic works, generating plant and machinery, plant and machinery substation and transmission lines Conserned technical department * Construction equipment Stores and Mechanical Division * Furniture and fixtures Personnel department * Communication equipment IT and Communication department * Hospital equipment Chief Medical Officer

56

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 on the basis of duly approved orders * The movement, damage, sale or disposal of an asset is intimated to the F&A Department to update the Fixed Asset Register(FAR)

DEPARTMENTAL FIXED ASSET REGISTER: Each department having the custody of the assets, shall also maintain a Departmental FAR. Such register should be prepared to record the quantitative detail of all the assets held by the department. The register should 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. and date Date of receipt in the departmen t Asset identification no. Received quantity Location Transfer details Balance quantity Remarks

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 Transfer in Year of Serial number Acquisition./ Custodial department/section

XX
(Numeric)

XX
*(alpha)

XX
(numeric)

XXX
(numeric)

XX
(numeric)**

- * Asset subcategory may need to be defined for the following assets category, 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

58

On receipt of fixed assets through stores the ACA should ensure that AIN 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 updated for 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 of asset 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 involves consideration of various factors such as trial, testing etc. Capitalisation of asset shall be done o issue of Asset Commissioning Certificate. The cut off date for the project being declared ready for use shall be the date notified by Director (Technical) of NHPC by issue of the completion certificate. On this date the plant shall be capitalized and shall enter the Operation and Maintenance period.

Completion of all records till the date of capitalization

All records pertaining to the project/ unit to be capitalized should be completed and finalized before the process of determination of costs and allocation of expenses are undertaken. The finalizing of records/ accounts shall include the following: * Passing of all bills pertaining to contractors, supplier, others till the date of capitalization * Identification of surplus fixed assets used during construction period and bringing the WDV (Written Down Value) of these surplus items down to their 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 fixed assets account head, the chart of accounts provides capital work in progress heads which are parallel to the relevant fixed assets heads.

61

The CWIP register shall be maintained contact wise to record the total expenditure incurred on a particular work. The amount to be booked to CWIP 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 linked to 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 the available 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 the projects as well as allocated by the Corporate Office and Regional Office. Regional Office Expenses

62

Regional office shall allocate their expenses to the projects under them on annual basis, as per the procedure given in the Final Accounts manual. Corporate Office Expenditure The expenditure/ income of liaison offices shall be absorbed and merged in Corporate Centre Expenses

Expenditure By Projects
IEDC expenditure should be debited to the natural heads of accounts provided in the chart of accounts. The portion of expenditure identified for capitalization should be transferred to IEDC heads under the CWIP category in the chart of accounts, by credit/ debit to account codes for expenditure/ income during construction.

Allocation of IEDC
As per Accounting Policy the IEDC and other indirect costs are to be allocated only on major components of the project. The major components of 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 Mechanical Gates) 2. Dams and Barrages 3. Canals and Channels 4. Desilting basins 5. Tunnels and pipe lines 6. Penstocks
63

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

64

ALLOCATION OF IEDC FOR THE YEAR

S.No. Asset Head** Opng blnc in CWIP (as per last years annual a/c Clsng blnc in CWIP (as per current years annual a/c Difference IEDC for IEDC (i.e. the year allocated annual allocated on these accretion assets till to CWIP the for the previous year) year***** Total IEDC allocated till date

H=G-F
a b c d e f g h

I***
(a/i)*C (b/i)*C (c/i)*C (d/i)*C (e/i)*C (f/i)*C (g/i)*C (h/i)*C J= Sum of all the above*** *

L=I+K

Total IEDC allocated

* Cross checked from the previous folio ** To include only those assets identified by NHPC as major components of Fixed Assets *** Total IEDC of the year i.e. C to be allocated in the ratio of annual accretion 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 specific project/ 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. Such borrowing cost should be reduced by any income on temporary investment of such borrowing during the period.

Exchange Rate Variation

ERV arises as a result of settlement during the tear/ translation at the end of the year at closing rates of the receivable/ payables in the foreign currencies. The balance ERV should be allocated to various CWIP asset heads.

Determination of Total Cost to be Capitalised

Necessary accounting entry shall be passed through Journal Voucher, for creation of asset records. The exercise should be reviewed and cross checked by another senior officer and approved by Head of Finance 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 in some cases there would be a stage treating them as Capital Work In Progress.

CONTRACT
* The process of procurement of assets purchased through contracts is prescribed in the Manual on works contract accounting. The capitalization of the assets shall take place as and when the completion certificate is issued by the engineer in charge (IEC), to the effect that the asset is ready for use. The capitalization shall be carried out by the works account group. * In case the work is finished and the completion certificate is awaited / final bill is pending, the capitalization should not be stopped. Thus the EIC shall inform 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 work record and accounts for the capitalization. * The compilation section shall generate the Fixed Asset ledgers on a monthly basis and update the FAR for the additions.

67

PURCHASE ORDERS
* In case the procurement is made through purchase orders then the receipt of 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 to Compilation section every month end and the compilation section shall pass the necessary accounting entries for capitalization. * In case the assets are ready for use items the capitalization shall immediately 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
Land acquired by NHPC Land given by Govt. at no cost- where title is transferred to NHPC Right to use land given by govt. at no costwhere title is not transferred to NHPC Right to use land given by govt. at cost-where title is not transferred to NHPC Expenditures incurred on land Amortization of lease hold land: - periodic payments JV - lumpsum payments

Voucher
BPV JV JV

Accounting Entry Debit Credit

Land a/c Land a/c Land rights Land rights Bank a/c Capital reserve Capital reserve Bank a/c

Subsidiary Record/ Register FAR FAR

BPV

BPV BPV

Land a/c

Bank Bank a/c

FAR FAR

Lease rental written off Lease written off

Leasehold land
Relevant sundry creditors a/c

Capitalization of fixed assets

JV

Relevant fixed asset head

FAR

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PROCESS 5: (Depreciation Accounting)

* Depreciation is a measure of the wearing out, consumption or other loss of value of a depreciable asset arising from use, effluxion of time or obsolescence through technology and market changes. Depreciation includes amortization of assets whose useful life is predetermined. * Depreciation shall be charged in the books of accounts at the rates prescribed. As per the existing depreciation policy of NHPC the depreciation rates are as follows: Straight Line Method (SLM) a rates prescribed by Central Electricity Regulatory Commission (CERM)

Straight-Line Method:

In respect of assets where rates have not been prescribed by CERM, SLM at rates prescribed in the Income Tax Act, 1961 * In respect of leasehold assets the depreciation to be charged every year shall be such an amount as is required to write off 100% of the cost of the leased 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 a proportionate basis from the month the asset was ready for use. In case the asset was ready for use for less than 15 days in the month, the depreciation shall be charged from the following month.
69

* Depreciation on assets purchased during the year costing less than Rs. 5000/- (but more than Rs. 750/-) or assets with a opening written down value less than Rs. 5000/- (excluding immovable assets) shall be fully depreciated during the year, with Re. 1/- as a balance value. * Any addition or extension which retains a separate identity and is capable of being used after the existing asset is disposed off, should be depreciated independently on the basis of an estimated of its own useful life.

CHANGE IN DEPRECIATION RATES

Where the historical cost of a depreciable asset undergoes subsequent changes arising as a result of increase or decrease in long term liability on account of exchange fluctuations, price adjustments, change in duties, etc. depreciation on the revised unamortized depreciable amount is provided prospectively over the residual useful life of the asset.

CHANGE IN DEPRECIATION METHOD

* In case of change in method of depreciation, depreciation is recalculated in accordance with the new method from the date of the asset coming 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 its effect is quantified and disclosed.

ACCOUNTING ENTRIES
Event Voucher Accounting entry Debit Credit Depreciation Accumulated (relevant asset depreciation category) Subsidiary Record/ Register FAR

Depreciation provision

JV

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PROCESS 6: (Transfer of Assets)

This process lays down the procedure to be followed for transfer of assets. 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 by the competent authority and after intimating the concerned ACA. * The ACA shall forward a copy of the above approval to the compilation section for updation of FAR. The ACA shall update the Asset Control Register with the details of change in location/ person to whom the asset is issued.

INTER UNIT TRANSFERS:

* Inter unit transfers of assets take place on receipt of the requisition i.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 of the concerned department at corporate office. The requisition shall be sent to the head of the transferor unit. * The head of the transferor unit shall approve the transfer. A copy such 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 erection charge for the initial erection on the asset transferred should be written off to the Profit & Loss A/C by the transferor unit.

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Depreciation:
Depreciation on the transferred asset should be provided for the whole year by the transferee unit irrespective of the period for which such asset was actually used by it.

ACCOUNTING ENTRIES
Event Transfer of assets by transferor unit Voucher JV Accounting Entry Debit Accumulated depreciation of the related asset Gross block of the asset transferred Credit Gross block of the asset transferred Accumulated depreciation of the related asset Subsidiary Record/ Register FAR

Receipt of the IUA (Inter Unit Advice) from the transferor unit

JV

FAR

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PROCESS 7: (Maintenance of Fixed Asset Register)

* The FAR is to be maintained and updated by the compilation section, 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 item wise.

The FAR should have the following details:

Category/sub-category Account Code

Shift:Single/Double/Tripleshift Depreciation Rate.. CERC notification Companies Act Tax Act. Life. S. AIN Voucher No Reference . No D asset t. desc

Asset Details supplier / source of receipt yr. of com miss ioni ng Loca tion qt y opng blnc

Gross Block add duri ng year adj during year clsn g blnc

Depreciation CERC/IT/Cos Act opng blnc add during year adj during year cl sng blnc

W D V

Rem arks

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 printed and a summary prepared of the balances appearing in the FAR. Such summary and complete set of FAR should be installed by the Head of Finance. SUMMARY OF FIXED ASSET REGISTER: Location Name: Location Code: (Amount in Rs.)
S.No. Asset Category opg blnc Gross Block add adj closg during during blnc the the year year Depreciation opg add adj blnc during during the the year year closg blnc Net value

Prepared By: Authorised By:

* The summary of balances (gross block and depreciation) as per FAR should be reconciled on a quarterly bases with the balances in the general ledger. * The FAR should also be reconciled with the ACA register and the departmental register on a quarterly basis.

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Process 8: ( Physical Verification of Assets)

The fixed asset should be physically verified periodically. It should be ensured that the fixed assets at all the locations are verified at least once every year. * The physical verification team shall comprise of four members. Such members shall be the representatives of following departments: - Finance Department - Internal Audit Wing - Concerned Department - Asset Control Authority

* The physical verification shall be carried based on the departmental FAR maintained by all the departments. It should be ensured that the departmental register has been reconciled with the FAR and the ACA register before the physical verification. * The compilation section shall compile all the reports received and prepared a consolidated report on the physical verification and a report on discrepancies with reference to FAR. Such reports shall be submitted to the concerned ACA and Head of Project. ACCOUNTING ENTERIES:
EVENT shortage in fixed assets pending investigation VOUCHER JV ACCOUNTING ENTRY DEBIT accumulated depreciation CREDIT gross block SUBSIDIARY RECORD/ REGISTER FAR

JV

losses pending investigation recoverable from losses employee/ claims pending recoverable from insurance investigation company/ asset written off

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PHYSICAL VERIFICATION REPORT: Name of Division/ Department: Financial year: Date of verification: Report reference no.:
s.no. Register folio number# Nomenclature of the asset A No. of I items N as per registe r

Officer: concerned division Officer: internal audit wing Officer: P&A division Officer: ACA
No. of Discrepency items as per physical verificatio n 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. Report reference number AIN Location Quantity as per FAR Departmental Physical register verificatio n Remarks 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 circumstances: - Surplus construction plant and equipment - Other fixed assets Surplus Construction Plant and Equipment: * As per the NHPC manual for disposal of construction plant, equipment and spares, the status of surplus plant and equipment shall be reviewed once a year by a committee approved by the unit head. The committee shall be formed as under: - Manager/ Sr. manager of mechanical complex - Manager/ Sr. manager (stores/ disposal) - Manager/ Sr. manager (finance) - An executive of construction plant and equipment (CEP) division of corporate office.

* The review shall take place in the first weak of February so that the final report can be submitted to the Head of the CEP division at the corporate office by March 31st. * The equipment reports in the report should be classified in the following three categories: Category A: equipment which are in working condition Category B: equipment which can be economically repaired and put into working condition

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Category C: equipment which can not be repaired economically or is unfit for further use due to obsolescence or other such reasons. * The custody of such assets should be transferred from the mechanical division to the disposal section in the stores department.

Sales of Fixed Assets: * A committee is formed by Head Of Project (HOP), as per DOP, to initiate the procedure for sale of fixed assets. The committee surveys the fixed assets held for disposal in the disposal section of stores and ascertains the reserve price of the fixed asset. The committee shall be constituted as follows: - Manager/ Sr. manager of mechanical complex - Manager/ Sr. manager (stores/ disposal) - Manager/ Sr. manager (finance) * In case the fixed asset is to be sold to Government departments (central or state) or to the PSUs, the disposal shall take place at a mutually negotiated price and NHPC shall not resort to tendering in this case. * The committee fixes the Reserve price of the assets to be sold. Notice inviting tenders are floated in the newspapers informing prospective buyers of the sale of fixed assets. * Tender documents are sold to willing buyers and a Tender Opening Committee is formed for opening the tenders received. A comparative statement is drawn and negotiations are held with the highest bidder. * A sale order is released, duly authorized by the HOP/ Head of the CEP division at the corporate office.

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ACCOUNTING ENTERIES:
Event Voucher Accounting Entry Debit Declaration of the surplus construction plant and equipment Charging depreciation till the previous month ( previous to the month when asset was declared surplus) Transfer of surplus asset to another head JV Credit Subsidiary Record/ Register NO ENTRY. UPDATE THE FAR Depreciation A/c Accumulated (relevant asset depreciation category) (relevant asset category)

FAR

JV

Accumulated Gross depreciation (relevant (relevant asset category) category) Loss on assets retired from active use/surplus assets Obsolete/ surplus asset Bank A/c Sales tax payable A/c

block asset

FAR

For sale of surplus fixed asset For payment of sales tax to the Government

BRV

BPV

Assets held for disposal A/c Bank A/c

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BIBLIOGRAPHY
BOOKS
FINANCE ANDACCOUNTS MANUAL OF NHPC MAGAZINES OF NHPC NHPC NEWS

WEBSITE

www.nhpcindia.com www.google.com www.icai.com Website of PHEP-II

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