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GMP 2014-15 Section B

MANAC Accounting
Principles of Assets &
Liabilities in Power Industry

Ambuj Tripathi (G14065)


Mahendra Nutakki (G14085)
Mayank sood (G14087)
Rajat Mittal (G14099)
Rohit Bhargava (G14103)
Sriram B (G14112)

1. Introduction:
Power or Electricity is the most critical component of infrastructure which affects the economic growth
and well-being of a nation. Coal based power generation accounts for 65% of power generation,
hydroelectric power plants accounts for 22%, nuclear power plants accounts for 3% and other alternate
sources accounts for 10% of the power generation in the country.
The Top 10 companies in India as per market as per total assets:
S. No

Company Name

1.
2.

Total Assets

Net Sales
(2012-13)

Net Profit
(2012-13)

Other
Income
(2012-13)
2688.89
570.89

NTPC
137,222.35
72,018.93
10,974.74
Power Grid
92,460.31
12,757.85
4,234.50
Corporation
3.
Adani Power
27343.14
10,714.43
595.26
4.
Reliance Infra
24,329.93
14,322.03
1999.52
1082.82
5.
Jaiprakash Power
22,401.61
2,252.58
329.15
38.22
Ventures
6.
Tata Power
20,450.52
8627.04
954.08
655.76
7.
JSW Energy
11,556.11
6396.45
993.03
304.78
8.
Torrent Power
10,356.04
8129.87
384.96
140.10
9.
SJVN
9,849.12
1,682.10
1,052.34
234.52
10.
Gujarat Industries
2,354.25
1,416.03
218.88
14.27
Power Co. Ltd.
Source www.MoneyControl.com We have omitted few companies from the original list since their
latest annual reports were either not available or carried negligible information on Revenue Recognition
principles
The accounting principles applied for assets & liabilities for each company are as listed below.
1. NTPC:
Asset
Fixed Assets: Represented as
Gross Block (Depreciation +
Impairment) = Net block

Capital Work-in-Progress is
represented separately.

Depreciation + Impairment

Principles
Fixed Assets:
Fixed Assets are stated at historical cost.
Repair work carried out to increase life or efficiency of a fixed assets is
added to the cost of asset
Cost of software / right to use assets is recognized as intangible asset.
Assets common to more than one business unit are capitalised based on
engineering estimates.
Capital work in progress:
Capital expenditure on assets not owned by the Company is reflected as
part of capital work-in-progress till completion and thereafter in the
tangible assets
Depreciation:
Depreciation is done on a straight line basis
Assets costing up to 5000/- are fully depreciated in the year of acquisition
Leasehold land and buildings relating to generation of electricity business

Asset

Investments: Include the long


term trade investments at the
original cost

Current Assets include


Inventories, Cash and Bank
balances, Other current assets

Liability
Loan funds

Principles
are fully amortized over lease period or life of the related plant whichever
is lower. Leasehold land acquired on perpetual lease is not amortized
Land acquired for mining is amortized on the basis of balance useful life of
the project. Other leasehold land acquired for mining business is amortized
over the lease period or balance life of the project whichever is less
Impairment:
The carrying values of assets / cash generating units are reviewed for
impairment at each balance sheet date.
An impairment loss is recognized in the statement of profit and loss where
the carrying amount exceeds the recoverable amount of the cash
generating units.
The impairment loss is reversed if there is change in the recoverable
amount and such loss either no longer exists or has decreased.
Long term investments are stated at cost
Current Investments are carried at lower of cost or fair value
Premium paid on long term investments is amortized over the period
remaining to maturity
CURRENT ASSETS, LOANS AND ADVANCES
Inventories: Valued at lower of cost and NRV
Costs include all nonrefundable duties and all charges incurred in bringing
the goods to the present location and condition.
Cash & Bank balances:
Cash comprises cash on hand and demand deposits with banks
Cash equivalents are highly liquid investments that are readily convertible
into known amounts of cash and which are subject to insignificant risk of
changes in value
Other current assets:
Consists of interest receivables & unbilled revenue
Principles
LOAN FUNDS - Secured Loans; Unsecured Loans

Current Liabilities

Liabilities which have to be fulfilled in the next one year such as borrowings, trade
payables, provisions & other liabilities.

Contingent Liabilities

Contingent liabilities are disclosed on the basis of judgment of the


management/independent experts. These are reviewed at each balance sheet date
and are adjusted to reflect the current management estimate

Provisions

Provisions are recognized when the company has a present obligation as a


result of a past event and it is probable that an outflow of resources will be
required to settle the obligation and in respect of which a reliable estimate
can be made.
Provisions are determined based on management estimate required to
settle the obligation at the balance sheet date and are not discounted to
present value.

2. Power grid Corporation:


Asset
Fixed Assets: Represented as
Gross Block (Depreciation +
Impairment) = Net block

Capital Work-in-Progress is
represented separately.

Depreciation + Impairment

Investments: Include the long


term trade investments at the
original cost

Current Assets includes


Inventory
Liability
Loan funds

Principles
Fixed Assets:
Fixed Assets are shown at Historical. Repair work carried out to increase
life or efficiency of a fixed assets is added to the cost of asset
Cost of software (which is not an integral part of the related hardware)
intended for internal use and which is expected to bring significant future
economic benefit to the company is recognized as Intangible Asset.
.
Capital work in progress:
Expenditure incurred on
survey/Studies/Investigations/Consultancy/Administration are capitalized
and treated as Capital Work in Progress
Depreciation:
Fixed assets are depreciated under the straight line method.
Fixed assets costing up to Rs 5000/ are fully depreciated in year of
acquisition.
Impairment:
Impairment loss if any is recognized in profit & loss.
Impairment loss, if need to reversed subsequently, is accounted for in the
year of reversal.
N/A

CURRENT ASSETS, LOANS AND ADVANCES


Inventories: Valued at lower of cost and NRV
Inventories are valued at lower of cost, evaluated on a weighted average
basis, and net realizable value.
Principles
LOAN FUNDS - Secured Loans; Unsecured Loans

Current Liabilities

Expenditure Incurred by the company is financed by the Holding Company (Power


Grid Corporation of India) and is considered Current Liabilities.

Contingent Liabilities

No provision is made for contingent liabilities whose outcomes cannot be


ascertained with reasonable certainty. Such liabilities are not recognized, but
disclosed on the basis of judgment of the management/independent expert.

Provisions

Provisions are recognized when the Group has a present obligation, as a


result of past events, for which it is probable that an outflow of economic
benefits will be required to settle the obligation and a reliable estimate
can be made for the amount of the obligation.
Provisions are not discounted to its present value and are valuated based
on technical valuation and past experience.

3. Adani Power
Asset
Fixed Assets: Represented as
Gross Block (Depreciation +
Impairment) = Net block

Capital Work-in-Progress is
represented separately.

Depreciation + Impairment

Investments: Include the long


term trade investments at the
original cost

Principles
Fixed Assets:
Fixed assets are stated at cost less accumulated depreciation and
impairment losses, if any. The cost of fixed assets comprises of its purchase
price, any non-refundable duties and taxes and any directly attributable
cost for bringing the assets ready for their intended use.
Borrowing costs directly attributable to qualifying assets / capital projects
are capitalized and included in the cost of fixed assets to the extent they
relate to the period till such assets are ready for their intended use.
Intangible assets are stated at cost, less any accumulated amortization and
impairment losses.
Depreciation:
Depreciation is done on a straight line basis
Cost of Leasehold land is amortized over a period of lease.
Intangible assets are amortized over the useful economic life of the assets.
Assets costing less than 5,000 are written off in the year of purchase.
Impairment:
The carrying values of assets / cash generating units are reviewed for
impairment at each balance sheet date.
If impairment exists, the recoverable amount is estimated. An asset is
treated as impaired when the carrying cost of assets exceeds its
recoverable value.
The recoverable amount is the greater of the net selling price and their
value in use. Value in use is arrived at by discounting the future cash flows
to their present value based on an appropriate discount factor.
An impairment loss is charged to the Statement of Profit and Loss in the
period in which an asset is identified as impaired. The impairment loss, if
any, recognized in prior accounting periods is reversed if there has been a
change in the estimate of recoverable amount.
Long term investments are stated at cost.
Current Investments are carried at lower of cost or fair value.

CURRENT ASSETS, LOANS AND ADVANCES


Current Assets includes
Inventory

Inventories: Valued at lower of cost and NRV


Costs includes all nonrefundable duties and all charges incurred in bringing
the goods to the present location and condition.

Liability
Current Liabilities

Principles
Liabilities which have to be fulfilled in the next one year such as borrowings, trade
payables, provisions & other liabilities.

Contingent Liabilities

Contingent liabilities are not recognized but are disclosed in the notes. Contingent
assets are neither recognized nor disclosed in the consolidated financial
statements.

Provisions

Provisions involving substantial degree of estimation in measurement are


recognized when there is a present obligation as a result of past events and it is
probable that there will be an outflow of resources.

4. Reliance Infra
Asset
Fixed Assets: Represented as
Gross Block (Depreciation +
Impairment) = Net block

Capital Work-in-Progress is
represented separately.

Depreciation + Impairment

Investments: Include the long


term trade investments at the
original cost

Current Assets includes


Inventory
Liability

Principles
Fixed Assets:
The financial statements are prepared under historical cost convention, on
accrual basis of accounting.
Cost comprises cost of acquisition or construction of assets (excluding
revalued assets) including borrowing costs attributable to bringing the
assets to their intended use.
Intangible Assets are stated at cost of acquisition. Acquisition cost of
residual interest in the monthly cash flow of the toll road businesses have
been accounted as intangible assets.
Cost incurred on the project which is incomplete as on balance sheet date
has been shown as Intangible Assets under Development.
Depreciation:
Fixed assets are depreciated under the straight line method.
Software pertaining to the electricity business are amortized over a period
of 3 years.
Depreciation on revalued assets is charged over the balance residual life of
the assets considering the life prescribed as per the Electricity regulations.
EPC and Contracts Business: Fixed assets of EPC Business have been
depreciated under the reducing balance method.
Intangible Assets representing acquisition of Residual Interest in Toll
Businesses are amortized over a contract period ranging from 9 to 17
years, on the basis of projected revenue

On initial recognition, all investments are recognized at cost. The cost


comprises purchase price and directly attributable acquisition charges such
as brokerage, fees and duties.
Long-term investments are carried at cost.
Current investments are carried in the financial statements at lower of cost
and fair value determined on an individual investment basis.
CURRENT ASSETS, LOANS AND ADVANCES
Inventories: Valued at lower of cost and NRV
Inventories are valued at lower of cost, evaluated on a weighted average
basis, and net realizable value.
Principles

Current Liabilities

Expenditure Incurred by the company is financed by the Holding Company (Power


Grid Corporation of India) and is considered Current Liabilities.

Contingent Liabilities

The Company does not recognize a contingent liability but discloses its existence in
the notes to financial statements. Contingent assets are neither recognized nor
disclosed in the financial statements.

Provisions

Provisions are recognized when the Group has a present obligation, as a result of
past events, for which it is probable that an outflow of economic benefits will be
required to settle the obligation and a reliable estimate can be made for the
amount of the obligation.

5. Jaiprakash Power Ventures


Asset
Fixed Assets: Represented as
Gross Block (Depreciation +
Impairment) = Net block

Capital Work-in-Progress is
represented separately.
Depreciation + Impairment

Investments: Include the long


term trade investments at the
original cost

Current Assets includes


Inventory

Principles
Fixed Assets:
Fixed Assets are stated at Cost of acquisition or construction inclusive of
freight, erection & commissioning charges, duties and taxes, expenditure
during construction period, Interest on borrowings, financing cost, foreign
exchange loss/gain, up to the date of commissioning.
Intangible assets are stated at cost of acquisition less accumulated
amortisation on straight line basis from the date the assets are put for
commercial use.
Depreciation:
Depreciation is done on a straight line basis
Intangible assets are amortized over the useful economic life of the assets.
Assets costing less than 5,000 are written off in the year of purchase.
Impairment:
Assets included in each cash generating unit is determined for any
indication of impairment.
If any such indication exists, the recoverable amount of the asset is
estimated in order to determine the extent of impairment loss.
Recoverable amount is the higher of an assets net selling price and value
in use. In assessing value in use, the estimated future cash flows expected
from the continuing use of the asset and from its disposal are discounted
to their present value.
Reversal of impairment loss is recognized immediately as income in the
profit and loss account.
Investments are stated at Cost and where there is permanent diminution
in the value of Investments a provision is made wherever applicable.
Dividend will be accounted for as and when the Company has a right to
receive the same on or before the Balance Sheet date.
CURRENT ASSETS, LOANS AND ADVANCES
Inventories of Stores & Spares are valued on the basis of Weighted
Average Cost Method.
Material in Transit is valued at cost.

Liability
Contingent Liabilities

Principles
Contingent liabilities are not recognized but are disclosed in the notes. Contingent
assets are neither recognized nor disclosed in the consolidated financial
statements.

Provisions

Provisions involving substantial degree of estimation in measurement are


recognized when there is a present obligation as a result of past events and it is
probable that there will be an outflow of resources.

6. Tata Power
Asset
Fixed Assets: Represented as
Gross Block (Depreciation +
Impairment) = Net block

Capital Work-in-Progress is
represented separately.

Depreciation + Impairment

Principles
Fixed Assets:
Fixed assets, except Tangible Assets at its Strategic Engineering Division
are carried at cost.
Fixed assets of Strategic Engineering Division are recorded at revalued
amount done on 1st April 2013.The revalued assets are carried at the
revalued amounts less any accumulated depreciation and impairment
losses.
Subsequent expenditure relating to fixed assets is capitalised only if such
expenditure results in an increase in the future benefits from such asset
beyond its previously assessed standard of performance
Capital Work-in-Progress:
Projects under which tangible fixed assets are not ready for their intended
use and other capital work-in-progress are carried at cost, comprising
direct cost, related incidental expenses and attributable borrowing costs.
Intangible Assets under Development:
Expenditure on research and development eligible for capitalization are
carried as Intangible assets under development where such assets are not
yet ready for their intended use.
Depreciation:
Depreciation is done on a straight line basis.
Intangible assets are amortized over the useful economic life of the assets.
Leasehold Land is amortized on straight line basis over the period of the
lease.
Intangible assets are amortized over the useful economic life of the assets
or 5 years, whichever is lower. Computer software has been amortized
rate of 16.21% for TPDDL.
Impairment of Asset:
If any indication of impairment exists for the asset/cash generating unit,
the recoverable amount of such assets is estimated and impairment is
recognized.
If the carrying amount of these assets exceeds their recoverable amount,
the recoverable amount is the greater of the net selling price and their
value in use. Value in use is arrived at by discounting the future cash flows
to their present value based on an appropriate discount factor.
Reversal of impairment loss is recognized in the Statement of Profit and

Asset
Investments: Include the long
term trade investments at the
original cost

Current Assets include


Inventories, Cash and Bank
balances, Other current assets

Liability
Current Liabilities
Contingent Liabilities
Provisions

Principles
Loss, except in case of revalued assets.
Long-term investments are carried individually at cost less provision for
diminution.
Current investments are carried individually, at the lower of cost and fair
value.
CURRENT ASSETS, LOANS AND ADVANCES
Inventories:
Inventories are valued at lower of cost (on weighted average basis) and
net realizable value after providing for obsolescence and other losses.
Work-in-progress and property under development are valued at lower of
cost and net realizable value. Cost includes cost of land, material, labor
and other appropriate overheads.
Cash and Equivalents:
Cash comprises cash on hand and demand deposits with banks.
Cash equivalents are highly liquid investments that are readily convertible
into known amounts of cash and which are subject to insignificant risk of
changes in value.
Other current assets:
Consists of interest receivables & unbilled revenue
Principles
Liabilities which have to be fulfilled in the next one year such as borrowings, trade
payables, provisions & other liabilities.
Contingent liabilities are not recognized in the financial statements and are
disclosed in the notes.
A provision is recognized when the Company has a present obligation as a result of
past events and it is probable that an outflow of resources will be required to
settle the obligation in respect of which a reliable estimate can be made.

7. JSW Energy:
Asset
Fixed Assets: Represented as
Gross Block (Depreciation +
Impairment) = Net block

Capital Work-in-Progress is
represented separately.

Principles
Fixed Assets:
Fixed assets are stated at cost which includes all direct and indirect
expenses up to the date of acquisition, installation and / or
commencement of commercial generation of power
Intangible assets are recognized only when it is probable that the future
income benefits that are attributable to the assets will flow to the
company and that the costs can be measured reliably. Intangible assets are
stated at cost less accumulated amortization and impairment loss, if any
Capital Work in Progress (CWIP)
Cost of material consumed, erection charges thereon along with other
related expenses incurred for the projects are shown as CWIP for
capitalization

Asset

Depreciation + Impairment

Investments: Include the long


term trade investments at the
original cost

Current Assets include


Inventories, Cash and Bank
balances, Other current assets

Liability
Current Liabilities

Principles
Expenditure attributable to construction of fixed assets are identified and
allocated on a systematic basis to the cost of the related asset
Interest during construction and expenditure (net) allocated to
construction are apportioned to CWIP on the basis of the closing balance
of specific asset or part of asset being capitalized. The balance, if any, left
after such capitalization is kept as a separate item under the CWIP
Schedule
Depreciation:
Depreciation is done on a straight line basis.
Leasehold Land acquired by the Company, with an option in the lease
deed, entitling the Company to purchase on outright basis after a certain
period at no additional cost is not amortized
Software is depreciated over an estimated useful life of 3 years
Depreciation on impaired assets related to a cash generating unit is
provided by adjusting the depreciation charge in the remaining periods so
as to allocate the revised carrying amount of the asset over its remaining
useful life
Impairment of Asset:
If any indication of impairment exists for the asset/cash generating unit,
the recoverable amount of such assets is estimated as the higher of its net
selling price and its value in use
An impairment loss is recognized in the profit and loss statement
whenever the carrying amounts of such assets exceed its recoverable
amount
Long-term investments are stated at cost
Current investments are carried at the lower of cost and fair value.

CURRENT ASSETS, LOANS AND ADVANCES


Inventories:
Inventories are valued at lower of cost (on weighted average basis) and
net realizable value after providing for obsolescence and other losses.
Work-in-progress and property under development are valued at lower of
cost and net realizable value. Cost includes cost of land, material, labor
and other appropriate overheads.
Cash and Equivalents:
Cash comprises cash on hand and demand deposits with banks.
Cash equivalents are highly liquid investments that are readily convertible
into known amounts of cash and which are subject to insignificant risk of
changes in value.
Other current assets:
Consists of interest receivables & unbilled revenue
Principles
Liabilities which have to be fulfilled in the next one year such as borrowings, trade
payables, provisions & other liabilities.

Asset
Contingent Liabilities

Provisions

Principles
A present obligation arising from a past event, when it is not probable that
an outflow of resources will be required to settle the obligation or a
reliable estimate of the amount of obligation cannot be made
a possible obligation arising from past events, the existence of which will
be confirmed only by the occurrence or non-occurrence of one or more
uncertain future events not within the control of the enterprise.
A provision is recognized when the Company has a present obligation as a result of
past events and it is probable that an outflow of resources will be required to
settle the obligation in respect of which a reliable estimate can be made.

8. Torrent Power
Asset
Fixed Assets: Represented as
Gross Block (Depreciation +
Impairment) = Net block

Capital Work-in-Progress is
represented separately.

Depreciation + Impairment

Investments: Include the long


term trade investments at the
original cost

Principles
Fixed Assets:
Fixed assets are stated at cost of acquisition or construction less
accumulated depreciation. Cost includes purchase price, taxes and duties,
labor cost and other direct costs incurred up to the date the asset is ready
for its intended use.
Allocation of indirect expenses to capital account is done on the basis of
technical evaluation by the Management.
Certain computer software costs are capitalized and recognized as
Intangible assets based on materiality, accounting prudence and significant
benefits expected to flow therefrom for a period longer than one year.
Depreciation:
Depreciation is done on a straight line basis.
Leasehold Land acquired by the Company, with an option in the lease
deed, entitling the Company to purchase on outright basis after a certain
period at no additional cost is not amortized
Software is depreciated over an estimated useful life of 3 years
Depreciation on impaired assets related to a cash generating unit is
provided by adjusting the depreciation charge in the remaining periods so
as to allocate the revised carrying amount of the asset over its remaining
useful life
Impairment of Asset:
If any indication of impairment exists for the asset/cash generating unit,
the recoverable amount of such assets is estimated as the higher of its net
selling price and its value in use
An impairment loss is recognized in the profit and loss statement
whenever the carrying amounts of such assets exceed its recoverable
amount
Long-term investments are stated at cost
Current investments are carried at the lower of cost and fair value.

Current Assets include


Inventories, Cash and Bank
balances, Other current assets

Liability
Current Liabilities
Contingent Liabilities

Provisions

CURRENT ASSETS, LOANS AND ADVANCES


Inventories:
Inventories of stores, spare parts, coal, fuel and loose tools are valued at weighted
average cost and net realizable value whichever is lower
Cash and Equivalents:
Cash comprises cash on hand and demand deposits with banks.
Cash equivalents are highly liquid investments that are readily convertible
into known amounts of cash and which are subject to insignificant risk of
changes in value.
Other current assets:
Consists of interest receivables & unbilled revenue
Principles
Liabilities which have to be fulfilled in the next one year such as borrowings, trade
payables, provisions & other liabilities.
A present obligation arising from a past event, when it is not probable that
an outflow of resources will be required to settle the obligation or a
reliable estimate of the amount of obligation cannot be made
a possible obligation arising from past events, the existence of which will
be confirmed only by the occurrence or non-occurrence of one or more
uncertain future events not within the control of the enterprise.
A provision is recognized when the Company has a present obligation as a result of
past events and it is probable that an outflow of resources will be required to
settle the obligation in respect of which a reliable estimate can be made.

9. SJVN:
Asset
Fixed Assets: Represented as
Gross Block (Depreciation +
Impairment) = Net block

Capital Work-in-Progress is
represented separately.

Principles
Fixed Assets:
Fixed Assets are stated at historical cost reduced by accumulated
depreciation/ amortization and impairment in value, if any.
Cost of software and expenditure incurred on compensatory afforestation,
soil conversation are reflected as intangible assets. This amount is
amortized on a pro-rata basis based on estimated life.
Construction equipment declared surplus are shown at lower ofbook value
and net realizable value
Assets common to more than one business unit are capitalised based on
engineering estimates.
Capital Work in Progress:

Capital expenditure on assets not owned by the Company is reflected as


part of capital work-in-progress / fixed assets.
Assets and systems common to more than one generating unitare

Asset

Depreciation + Impairment

Investments: Include the long


term trade investments at the
original cost

Principles
capitalized on the basis of engineering estimates/assessment.
Depreciation:
Depreciation is charged on straight line method
Expenditure on software is recognized as Intangible Asset and amortized
fully over four years
Leasehold land is amortized pro-rata through depreciation overthe period
of lease or 35 years
Long-term investments are stated at cost
Current investments are carried at the lower of cost and fair value.

CURRENT ASSETS, LOANS AND ADVANCES


Current Assets includes
Inventory

Inventories:
Valued at the lower of cost arrived at on weighted average basis and net
realizable value
Loose tools issued during the year are charged to consumption

Liability
Current Liabilities

Principles
Liabilities which have to be fulfilled in the next one year such as borrowings, trade
payables, provisions & other liabilities.
N/A

Contingent Liabilities
Provisions

Provisions created for leave encashment, medical and other retirement benefits
payable to employees, proposed dividend, interest on arbitration award, etc.

10. Gujarat Industries Power Company


Asset
Fixed Assets: Represented as
Gross Block (Depreciation +
Impairment) = Net block

Capital Work-in-Progress is
represented separately.

Principles
Fixed Assets:
Cost of fixed includes all expenses incurred to bring the assets to its
present location and condition.
Intangible Assets are recognized only if it is probable that the future
economic benefits that are attributable to the assets will flow to the
enterprise and cost can be measured reliably.
Mines Development Expenditure under Fixed Assets comprises of initial
expenditure for lignite mines and expenditure for removal of overburden.
Such expenditure is amortized over quantities of lignite actually extracted.
Relevant stripping ratio is also considered while determining amortization
of expenditure for removal of overburden.
Works under erection/installation /execution (including such work
pertaining to a new project) are shown as Capital Work in Progress.

Asset

Depreciation + Impairment

Investments: Include the long


term trade investments at the
original cost

Current Assets include


Inventories, Sundry Debtors &
Other current assets

Principles
In the case assets put to use, where final settlement of bills with
contractors is yet to be effected, capitalization is done on provisional basis
subject to necessary adjustment in the year of final settlement.
Depreciation:
Depreciation on all fixed assets (except those listed below) is provided on
straight line method
Leasehold land is amortized over the period of lease on straight-line basis.
Capital Spares are depreciated over the useful life of such spares.
Amortisation:
Computer software is amortized on straight-line basis over a period of five
years.
Impairment of Asset:
The carrying values of assets / cash generating units are reviewed for
impairment at each balance sheet date.
If impairment exists, the recoverable amount is estimated. An asset is
treated as impaired when the carrying cost of assets exceeds its
recoverable value.
The recoverable amount is the greater of the net selling price and their
value in use. Value in use is arrived at by discounting the future cash flows
to their present value based on an appropriate discount factor.
An impairment loss is charged to the Statement of Profit and Loss in the
period in which an asset is identified as impaired. The impairment loss, if
any, recognized in prior accounting periods is reversed if there has been a
change in the estimate of recoverable amount.

Long term Investments are shown at cost. However, when there is


decline, other than temporary in the value of a long term investment, the
carrying amount is reduced to recognize the decline.
Current Investments are stated at lower of cost and net realizable value
CURRENT ASSETS, LOANS AND ADVANCES
Inventories:
Inventories are valued at lower of cost or net realizable value as under:
a. Raw Materials - Fuel (other than Lignite) Weighted Average Cost
b. Lignite Absorption costing. Cost Includes Extraction Cost, Mining
overheads
c. Stores and Spares s Weighted Average Cost
Sundry Debtors:
Confirmations of balances called from sundry debtors are to the extent
received have been reconciled.
Other current assets:
The value of realizations of Current Assets, Loans and Advances in the
ordinary course of business will not be less than the value at which they
are stated in the Balance Sheet.

Asset
Liability
Contingent Liabilities

Principles
Principles
Contingent liabilities are not recognized but are disclosed in the notes.

Provisions

Provisions involving substantial degree of estimation in measurement are


recognized when there is a present obligation as a result of past events and it is
probable that there will be an outflow of resources.

2. Comparative Analysis: The following table provides a comparative analysis of the accounting
principles with respect to assets and liabilities of the ten chemical companies listed in the report.

Revenue
Recognition
Category
Fixed Assets

Depreciation

Investment

Principe followed

Impact on Balance Sheet

Company Name

Use of historical cost


concept for Fixed Asset

The Gross Block of the fixed


assets at its recognized at its
historical cost.

All Companies except Tata Power


Strategic Engineering Division

Use of fair value for


Fixed Asset

The Gross Block of the fixed


assets at its recognized at its fair
value.
The depreciation is calculated
based on the expected life of the
asset and is constant for every
year.

Tata Power Strategic Engineering


Division

Depreciation follows
Reducing Written down
Value (Reducing
Balance) Method
Amortisation

The depreciation is calculated


based on the life of asset and
charges at a higher rate in the
earlier years.
The value of the intangible assets
is depreciated over the period of
its useful life. The amortization is
done on a fixed time interval
based on the product.

Reliance Infra. for EPC & contract


business

Impairment

The value of the asset is reduced


if the book value of the asset is
less than the market value.

All Companies

Current Investments
are stated at lower of
cost or market value.

Helps in taking into account the


current market value into
consideration

NTPC, Adani Power, Reliance Infra.,


Tata Power, JSW Energy, Torrent
Power, SJVN, Gujarat Power Industry
Corporation

Depreciation follows
straight line method

All companies.

All Companies

Revenue
Recognition
Category

Inventories

Principe followed

Impact on Balance Sheet

Company Name

Long term investments


are stated at of cost
less provision for
permanent diminution

Helps in taking into account the


damages to investments into
consideration

Tata Power, Gujarat Power Industry


Corporation

Long Term investments


are stated at cost

This method does not take


current market condition and
damages under consideration

NTPC, Adani Power, Reliance Infra.,


Jaiprakash Power Ventures , JSW
Energy, Torrent Power, SJVN

booked at lower of
weighted average cost
and NRV

This method takes the current


market price of raw materials
into consideration and helps in
giving the correct value
Finished Goods at lower Helps in determining the true
of cost plus overheads
value of the finished inventories.
or NRV

booked at Weighted
Average cost

This method takes into account


the variation of raw materials
prices over a period of time

Provisions

Provisions are
recognized as per
accounting principles

Provisions help in offsetting


extreme variations in profit and
loss of different years.

Contingent
Liabilities

Contingent Liabilities
are recognized as per
the accounting
principles

These help in preparing the


financial accounts of a company
to the negative effects of an
event that is less likely to occur.

Power Grid, Reliance Infra., JSW


Energy, Tata Power, Torrent Power,
SJVN, Gujarat Power Industry
Corporation
NTPC, Adani Power, Tata Power for
work-in-progress and property under
development, JSW energy for workin-progress & property under
development
Jaiprakash Power Ventures

NTPC, Power Grid Corporation,


Adani Power, Reliance Infra.,
Jaiprakash Power ventures, Tata
Power, JSW Energy, Torrent Power,
SJVN, Gujarat Industries Power
Corporation
NTPC, Power Grid Corporation,
Adani Power, Reliance Infra.,
Jaiprakash power ventures, Tata
Power, JSW Energy, Torrent Power,
Gujarat Industries Power
Corporation