Unit – 1

Final Account for Electricity Company

The Electricity (Supply) Act, 1948, came into power on tenth September 1948 and was adjusted by the Electricity Supply Amendment Act, 1956. The monetary arrangements contained in the sixth and seventh Schedules to the above Act are pertinent to all Electricity Supply Companies in India.

In this we will examine about the records of power organizations, clarified with the assistance of a reasonable delineation.

1.1 Final Accounts as per Double Account System

Double Account System Maintained by Electricity Companies

Public utility worries in England were recently needed to set up their records under the Double Account System. The Double Account System is just a method of introduction of conclusive records. It ought not to be mistaken for the Double Entry System which is the premise of keeping up books of record.

Up to the planning of the preliminary equilibrium, there is no contrast between the Double Account System and the common framework. Just with regards to planning of the Balance Sheet and the Revenue Account that there is a distinction.

The main highlights of the Double Account System are as per the following:

1. The common asset report is separated in two sections. One section contains fixed resources and fixed liabilities. It is designated "Receipt and Expenditure on Capital Account." On each side there are three segments for sum—one segment to show figures up to the start of the year, the subsequent section to show use (resources) or receipts (liabilities) during the year and the third segment to show all out.

The other part (called General Balance Sheet) contains different resources and liabilities and the equilibrium of the Receipts and Expenditure on Capital Account. If there should arise an occurrence of power organizations, be that as it may, the complete of the use according to Capital Account is appeared on the resources side and the all out of receipts is appeared on the liabilities side.

Receipts and Expenditure on Capital Account

For the year ending 31st March, 20………….

Dr.                                                                                                                                                                        Cr.

General Balance Sheet

2. A Revenue Account is readied which resembles the conventional' Profit and Loss Account. Likewise, a Net Revenue Account is readied which resembles the normal Profit and Loss Appropriation Account.

The exemptions are as per the following:—

(a)Interest in all cases is charged or credited to Net Revenue Account and not to Revenue Account. In instances of Railways, lease on rented land, and so forth, is additionally charged to Net Revenue Account.

(b)Depreciation is charged to Revenue Account and credited to Depreciation Reserve. Deterioration Reserve shows up on the risk side of the General Balance Sheet.

Outline 1:

Accommodate the under-referenced devaluation, and set up a Receipts and Expenditure on Capital Account, Revenue Account, Net Revenue Account and Balance Sheet from the accompanying Trial Balance. A call of Rs 20 for each offer was payable on 30th September, 2011 and back payments are liable to premium @ 15% p.a.

Devaluation to be accommodated on: Building @ 5%, Machinery @ 15%, Mains @ 20%, Transformers and so on, @ 10%, Meters and Electrical Instrument @ 15%.

THE DYANMO ELECTRIC LIGHTING CO. LTD.

Trial Balance as on March 31st March, 2012

Solution:

Receipts and Expensiture on Capital Accoutn for the year ended March 31,2012

*Calls in arrear has been deducted.

Revenue Account for the year ended March 31,2012

**Depreciation on addition charged for 6 months.

Net Revenue Account

General Balance Sheet

1.2 Replacement of an Asset:

Normally, the sum remaining in books against a resource is discounted when the resource is supplanted by another. The sum spent on the new resource is promoted. Under the Double Account System, in any case, the training is extraordinary.

Right off the bat, the record of the resource which is supplanted isn't influenced in any way. A fitting sum out of the new consumption is charged to income or discounted and the equilibrium is promoted. Besides, the add up to be discounted is the sum which would have been spent had the resource been procured now.

Assume, a rail line station worked in 1980 at an expense of Rs 15, 00,000 is supplanted, in 2012, by another station costing Rs 80, 00,000. Assume further that somewhere in the range of 1980 and 2012, costs of materials have ascended to 700%, that work rates have trebled and that the extent of materials and work in the old station is 4: 6.

The amount to be written off will be arrived at as under:

Out of Rs 80,00,000 spent in 2012, Rs 69,00,000 would be written off and Rs 11,00,000 i.e., 80,00,000—69,00,000 would be capitalized. The total amount capitalized would be Rs 26, 00,000, i.e., Rs 15, 00,000 + Rs 11, 00,000.

The sections to be made are as per the following:—

1. Charge Replacement Account with the add up to be discounted; Debit Works Account (new) with the add up to be promoted; and Credit Bank with the sum really spent.

2. In the event that any old materials have been utilized in the new development:

• Charge Works Account
• Credit Replacement Account.

3. In the event that any old materials have been sold:

• Charge Bank
• Credit Replacement Account.

The rationale behind the treatment laid out above is first and foremost, that extra sum ought to be promoted just if there is extra limit and, also, that when an old resource is supplanted, the sum lost is the resource's current worth as opposed to its recorded expense.

Outline 2:

The Hindustan Gas Company modified and re-prepared piece of their works at an expense of Rs 5,00,000. The piece of the old works consequently supplanted cost Rs 3,00,000. The limit of the new works is twofold the limit of the old works.

Rs 20,000 is acknowledged by the offer of old materials, and old materials worth Rs 10,000 are utilized in the development of the new works and remembered for the complete expense of Rs 5,00,000 referenced previously. The expenses of work and materials are 25% higher than when the old works were constructed.

Journalise the passages.

Solution:

Journal

Cr.

                                                                                                                                                                                                                                                                                                            Dr. (Rs)          Cr.(Rs)

Working Notes:                                                                                                                                              Rs

                            Cost of old works                                                                                                            3,00,000

Add: Increase in cost  Rs 3,00,000 ×  25 / 100                                                                                        75,000

Current cost of old works                                                                                                                          3,75,000

Cash cost of new works = Rs  5,00,000 - Rs 10,000 = Rs 4,90,000

Account to be capitalised = Rs 4,90,000 – Rs 3,75,000 = Rs 1,15,000.                                                     

Outline 3:

The Gurgaon Electricity Company Limited chooses to supplant one of its old plants with a modem one with a bigger limit. The plant when introduced in 1985 expense the organization Rs 24 lakhs, the parts of materials, work and overheads being in the proportion of 5: 3: 2. It is determined that the expenses of materials and work have gone up by 40% and 80% separately.

The extent of overheads to add up to costs is relied upon to continue as before as in the past.

The expense of the new plant according to improved plan is Rs 60 lakhs and what's more, material recuperated from the old plant of an estimation of Rs 2,40,000 has been utilized in the development of the new plant. The old plant was rejected and sold for Rs 7,50,000.

Solution:

Dr.                        Gurgaon Electricity Company Limited Plant Account                                     Cr.

Dr.                                                         Replacement Account                                                                 Cr.

Working Notes:

(1)  Cost to be incurred for placement of present plant:

                                                             Cost of Existing Plant        Increase               Current Cost

                                                                                Rs                             Rs                               Rs

Materials                                                             12,00,000                 40%                       16,80,000

Labour                                                                 7,20,000                     80%                       12,96,000        

                                                                                                                                                  29,76,000                                 

Overhead (1/4 of above or 1/5 of total)                                                                          7,44,000

Current Replacement Cost                                                                                                   37,20,000

  Current Replacement Cost                                                                                                37,20,000

Total Cash Cost                                                                                                                       60,00,000  

              Amount capitalised, excluding old materials used       22,80,000                                                      

1.3 Disposal of Surplus:

Should the unmistakable benefit surpass the sensible return, the excess must be discarded as under—

(a) 33% of the excess not surpassing 5% of the sensible return will be at the removal of the endeavor;

(b) Of the equilibrium, one-half will be moved to "Taxes and Dividends Control Reserve"; and

(c) The equilibrium will be disseminated among buyers via decrease of rates or via uncommon refund.

A power undertaking must so change rates that the measure of clear benefit at whatever year doesn't surpass the sensible return by over 20% of the sensible return.

General Reserve:

Segment 67 sets out that after revenue and devaluation have been given, a commitment to general hold will be made at the pace of not surpassing 1/2% of the first expense of the fixed resources until the all out of such save comes to 8% of the first expense of the resources. This applies just to the Electricity Boards however there isn't anything to prevent power organizations from developing stores.

Key Takeaway:

1. Electricity accounting is the accounting treatment of company who supplies the electricity.
2. Electricity accounting is important to CA-PE - II. Before learning electricity accounting or accounts of electricity companies, you should learn Indian Electricity Act 1910, Indian Electricity Supply Act 1948, Indian Electricity Rule 1956 and Electricity Act 2003 because financial provisions are given in these laws.

References

1. Financial Accounting by B.B Dam

2. Financial Accounting by K.R Das