undefined | unit 1 final account for electricity company

FA7

Unit – 1Final Account for Electricity Company Q1) Portray the principle features and exemptions of the Double Account System according to electricity rules.A1) The main highlights of the Double Account System are as per the following: a) 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. b) 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.c) 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. Receipts and Expenditure on Capital AccountFor the year ending 31st March, 20………….Dr. Cr.

Expenditure up to end of previous year

Expended during the year

Total

Expenditure

Receipts

Receipts up to end of

Receipts

Total

To Preliminary Expenses to specified)
To Land including law charges incidental to acquisition.
To Buildings
To Plant
To Mains
To Service connections
To Transformer, etc.
To Meters and fees for certifying under Act
To General Stores
To Special items(to be specified)

By Equity Share of…..

By Preference share of……..

By Debentures stock

B Mortgages and Bonds

By Amount received in anticipation of calls

By Other receipts (to be specified)

General Balance Sheet

Liabilities	Rs	Assets	Rs
Capital account: amount received as per Account No. II Sundry Creditors due on construction of plant and machinery, fuel, stores, etc. Sundry Creditors on open accounts Net Revenue Account: Balance at credit thereof Reserve Fund Account: Balance at credit thereof Depreciation Fund Account Special Items (to be specified)		Capital Account: expended for works as per Account No. III. Stores on hand Sundry Debtors Preliminary Expenses awaiting adjustment. Securities as held (cost price) Special Items (to be specified) Cash at bankers Cash on hand.
Total		Total

Q2) What fundamental components utilized in the creation of final accounts according to power rules?A2) 1. Deterioration/Depreciation: Each fixed resource should be deteriorated; and with the end goal of devaluation, the existence of every resource is to be taken as expressed in the table given in the Seventh Schedule. As respects the devaluation technique that can be applied, the Act makes arrangement for just two, viz., (a) Compound Interest or Sinking Fund Method, and (b) Straight Line Method. 2. Possibility Reserve:Each power organization is needed to keep a possibilities save. Save is made by moving from the Revenue Account each year a sum comparable to at least 1/4 percent and not mutiple/2 percent of the first expense of the fixed resources until it rises to 5 percent of the first expense of the fixed resources. The sum is to be put resources into trust protections. It very well may be used with the endorsement of the State Government for the accompanying purposes: (I) Meeting costs or loss of benefits emerging out of mishaps, strikes or conditions outside the ability to control of the administration. (ii) Meeting costs of substitution or expulsion of plant or works other than the costs needed for ordinary support or restoration. (iii) Paying pay payable under law for which no other arrangement has been made. 3. Advancement Reserve: The hold is made by move of a sum identical to personal assessment and super-charge (determined at current rates) saved money by virtue of improvement discount permitted by the annual duty specialists. On the off chance that in any bookkeeping year the unmistakable benefit barring the exceptional allotments along with the gatherings, assuming any, in the Tariffs and Development Control Reserve miss the mark concerning sensible return, the allocations to this save can be diminished by the measure of setback. The measure of such save is to be put resources into a similar power undertaking and is to be given over to buyer of the business in the event that the business is sold away. 4. General Reserve: Segment 67 of the Act accommodates the production of a General Reserve. A yearly commitment at a rate not surpassing ½% of the first expense of the fixed resource can be made in the wake of accommodating revenue and devaluation. This Reserve can be made until the all out of such Reserve surpasses 8 percent of the first expense of the resources. 5. Taxes and Dividend Control Reserve: The save is made out of benefits in abundance of the sensible return procured by a power undertaking. This can be used at whatever point the unmistakable benefit is not exactly the sensible return. The equilibrium in the hold ought to be given over to the buyer in the event that the business is sold away. 6. Compensation:The compensation given to Managing Agents is, in any case, a level of net benefits. This rate can't surpass 10% of the principal Rs 5 lacs of such net benefits and 7% of all net benefits in abundance of Rs 5 lacs. In the subsequent spot, the sum paid to Managing Agents is dependent upon a base installment which ought not surpass Rs 2 p.a. for every Rs 1,000 of settled up offer and debenture capital. The workplace recompense which Managing Agents can attract is to incorporate the compensations and wages of all people utilized in the workplace yet not the pay rates of the designing staff utilized for reasons for the endeavor. 7. Sensible Return: The Electricity (Supply) Act, 1948, forces limitations on power endeavors on procuring too high a benefit, by methods for the idea of sensible return, which specifies the accompanying:

A yield at the standard rate which is the Bank Rate specified by the Reserve Bank of India every once in a while, in addition to 2% on the Capital Base.

Pay got from speculations barring ventures made against the Contingencies Reserve.

A sum equivalent to ½% on any advances progressed by the Board.

A sum equivalent to ½% on the sums acquired from associations or organizations affirmed by the State Government.

A sum equivalent to ½% on the sums acknowledged by the issue of debentures.

A sum equivalent to ½% on the collections in the Development Reserve.

Some other sum as might be permitted by the Central Government, having respect to the overarching charge structure in the country.

Q3) Explain the Replacement of an asset under double entry system.A3) Replacement of an asset under double entry system. Under Single Account System, when another resource is supplanted instead of an old one, the old resource is discounted and the upgraded one is promoted. Yet, under Double Account System, the technique is very unique. Under this strategy, there is no compelling reason to discount misfortune when a resource is deserted, i.e., devaluation isn't charged to the resource account. All things considered, the sum is credited to Depreciation Reserve Account. At the end of the day, the resource will proceed in the books at its book esteem (unique expense). The estimation of the resource will increment when augmentation or increases to the resources are made. Along these lines, allotment to the sum Spent is to be made between: (I) Capital—the estimation of expansion, and (ii) Revenue — the genuine current expense of substitution of the first resource. The methodology is counted: (I) The first expense of the resource will stay flawless. (ii) The assessed cost of substitution of the old resource is found out. Simultaneously, the assessed cost is decreased by the deal continues of old materials, assuming any, or by the estimation of materials reused in the new development. The equilibrium is charged to Revenue Account. (iii) The contrast between the complete expense of the whole work and the assessed substitution cost of the old resource in unique way is charged to Capital Account, i.e., promoted. Notwithstanding over, the increases and enhancements are promoted. Also, the helper mains, auxiliary, auxiliary perpetual ways, and so on are likewise to be capitalised. Improvement is the overabundance sum spent over the expense of supplanting with resource of equivalent effectiveness. It could be referenced, notwithstanding, in this regard that current expense of the old resources might be resolved either from the market or from the value file. That is, value file which is appropriate to the kind of resource with same proficiency following 20-30 years might be basically out of date now. It could be applied basically to get the assessed current expense. On the off chance that the resource is in the idea of Construction Works, separate files must be applied to various components of cost. However, on the off chance that the gauge contrasts (between designing information and value records) the lesser sum might be promoted simply based on traditionalism. Q4) Clarify Double Accounting framework according to electricity rules.A4) The Double Account System is a strategy for introducing the yearly last records/yearly fiscal reports of public utility endeavors, similar to Railways, Electricity, Gas, Water Supply, Tramways and so on These endeavors are typically consolidated under Special Acts and, accordingly, the type of records is recommended by, unique resolution. These public utility endeavors are for the most part run by Government or by neighborhood specialists (aside from Electric Supply Companies and Tramways). It ought to be recalled that records of Industrial endeavors, other than Railways and Electric Supply, are set up according to Indian Companies Act, 1956. The object of this framework isn't to show the monetary situation at a specific date however to unveil how the capital is being raised and the utilization of the equivalent, in the securing of various fixed resources. For this reason two-chamber Balance Sheet is readied—the initial segment being Receipts and Expenditure on Capital Account and the subsequent part being the General Balance Sheet. Principle Features of Double Account System: The principle highlights of Double Account System are: (a) Generally, a public utility endeavor needs a lot of capital which is put resources into the procurement of fixed resources. Thusly, fixed resources, fixed liabilities and current resources, current liabilities are to be independently managed. Fixed Assets and fixed or long haul liabilities are recorded in Receipts and Expenditure on Capital Account. Essentially, current resources and current liabilities are recorded in the General Balance Sheet. (b) Revenue Account and Net Revenue Account are set up rather than Profit and Loss Account and Profit and Loss Appropriation Account. (c) Normally, no change of resource is made in the Capital Account. (d)Depreciation isn't deducted from the resource concerned yet the equivalent is appeared as a risk via an asset. What's more, in that capacity, fixed resources are recorded at book esteem. (e) Any sort of assets and hold — e.g., Sinking Fund, Depreciation Fund, General Reserve, Capital Reserve, the Balance of Revenue/Net Revenue Account — are appeared in the liabilities side of the General Balance Sheet. (f) Discount and Premiums are for all time treated as capital things. (g) Loan capital (debentures) Shares and Stocks are treated as capital things. (h) Interest on Loan and Debentures (i.e., every single fixed interest) are to be charged against Net Revenue Account. Q5) Explain Briefly

Receipt & Expenditure on Capital Account

General Balance Sheet

A5) Receipt & Expenditure on Capital Account It is otherwise called Receipts and Expenditure on Capital Account. The motivation behind this record is to show the wellsprings of all out capital and the utilization of the equivalent in various fixed resources. It contains consumption of a capital in the left hand side (or charge side) including augmentations to fixed resources. Three segments are for the most part utilized for the reason—the primary section shows the use on every thing toward the finish of the most recent year, the subsequent one shows the increases which are made for the current year, and the third segment addresses the absolute capital use to date. Then again, the correct hand side (or credit side) uncovers the receipts on capital record including sum got from public for offers and debentures including the measure of fixed advances, assuming any. Premium got on offers and debentures or any calls paid ahead of time are likewise to be added and Calls-in-arrear is to be deducted. Three sections are additionally utilized the principal segment shows the receipts on every thing toward the finish of a year ago, the subsequent segment shows the receipts for the current year, and the third segment addresses the complete capital receipts to date. The equilibrium of Receipts and Expenditure on Capital Account is conveyed down and appeared in the separate side of the General Balance Sheet, or, the absolute of different sides of this record are indicated ort the two sides of the General Balance Sheet. However, if there should be an occurrence of Electricity Supply Companies, just the last one is contemplated. N.B. Fundamental costs spent on the arrangement of an endeavor, and Premium got on issue of offers and Debentures are treated as capital consumption and, henceforth, will show up in the charge side and credit side, individually, of capital record. Capital Account

Expenditure up to the end of previous year

Expenditure during the year

Total Expenditure

Expenditure up to the end of previous year

Expenditure during the year

Total Expenditure

To Preliminary

Expenses

“ Land, including

Additions

“ Law Charges

“ Buildings

“ Plant

“ Mains

“ Transformers,

Motors, etc.

“ Meters

“ General Stores

“ Special Items

By Equity Shares

“ Preference Shares

“ Securities Premium

“ Debentures

“ Loans

“ Calls in Advance

“ Other Receipts

Total Expenditure

To Balance of Capital A/c

Total Receipts

By Balance of Capital A/c

for the year ended…………….. General Balance Sheet: This is really the second piece of the Balance Sheet which contains current resources and current liabilities, along with the equilibrium or aggregates of each side (by and large) of capital record. Certain different things, for example any sort of hold, say, General Reserve, Capital Reserve and so on, or any sort of assets, for example Deterioration Fund, and so forth, likewise will show up yet to be determined Sheet. The resources are recorded in the correct hand side (resource side) and liabilities are recorded in the left hand side (liabilities side), for example it is set up in its typical structure. Form of General Balance SheetGeneral Balance Sheetas at………….

Total amount received as per

Capital A/c

Sundry Creditors for Capital Expen.

Sundry Creditors on Open A/c

Net Revenue Account

Reserve Fund

Depreciation Fund

Special Items

Total Capital Expenditure as per

Capital A/c

Stores in hand

Sundry Debtors
Securities

Special items

Cash at Bank

Cash in hand

Q6) D Electricity Co. procured a benefit of Rs 26,98,500 subsequent to paying Rs 1,40,000 @ 14% as debenture premium for the year finished March 31,2012. The accompanying additional data is provided to you:

Fixed Assets

Depreciation written off

Loan from Electricity Board

Reserve Fund Investment. At par. @ 10%

Contingencies Reserve Investments, at par, @ 10%

Tariff and Dividends Control Reserve

Security deposits of customers

Customer’s contribution to assets

Preliminary Expenses

Monthly average of current assets, including amount due to from customers, Rs 5,00,000

Development Reserve

3,60,00,000

1,00,00,000

8000,000

20,00,000

15,00,000

2,000,000

3,00,000

1,00,000

80,0000

15,20,000

5,00,000

Show the disposal of profits mentioned above:Assume bank rate to be 10% A6)

Reasonable Return

12% on Capital Base, Rs 1,85,00,000

½ % on Loan from Electricity Board

½ % on Development Reserve

½ % qn Debentures

Income from Reserved Fund Investments

Clear Profit:

Surplus:

Rs 26,98,500 less Rs 24,67,500

Disposal:

½ % for the company being less than 5% of Reasonable Return

½ % of the balance to be credited to Tariffs and Dividends Control Reserve

½ % of the balance to be credited to customers

Total

22,20,000

40,000

2,500

5,000

2,00,000

24,67,500

26,98,500

2,31,000

77,000

2,31,000

The journal entry will be:	Rs	Rs
Profit and Loss Account Dr. To Tariffs and Dividends Control Reserve To Benefits to Customers Account (Amount to be credited to the Tariffs and Dividends Control Reserve and to be refunded to consumers because of the excess of the clear profit over reasonable return) Capital Base: Fixed Assets less Depreciation Preliminary Expenses Average Current Assets (other than customer’s debts) Contingencies Reserve Investments Less: Rs Loan from Electricity Board Debentures Tariffs and Dividends Control Reserve Security Deposits Customer’s Contribution Development Reserve	1,54,000 10,20,000 80,00,000 10,00,000 2,00,000 3,00,000 1,00,000 5,00,000	77,000 77,000 2,60,00,000 80,000 15,00,000
		2,86,00,000
		1,01,00,000
		1,85,00,000

Q7) Accommodate the undermentioned 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 unfulfilled obligations 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

Amount on March 31st 2011

20,00,000

15,00,000

6,00,000

9,30,000

4,00,000

6,00,000

5,00,000

1,00,000

50,000

30,000

1,60,000

25,000

Capital, Nominal, 50,000 share of Rs 100 each

Subscribed, 25000 share of Rs 100 each

14% Debentures

Provision for Depreciation

Calls in arrear

Freehold Land

Buildings

Machinery at Station

Mains

Transformers etc.

Meters

Electrical Instruments

General Stores (Cables, Mains, Meters etc.)

Office Furniture

Coal and Fuel

Oil, Waste, Engine-room Stores

Coal, Oil, Waste, etc. in Stock

Wages at Station

Repairs and Replacement

Rates and Taxes

Salaries of Secretary, Manager etc.

Director’s Fees

Stationery, Printing and Advertising

Law and Incidental Expenses

Sales by Meter

Sale by contract

Meters Rents

Sundry Creditors

Sundry Debtors

Cash in hand and Bank

Contingencies Reserve

1,00,000

9,30,000

5,00,000

10,00,000

8,00,000

2,00,000

1,50,000

40,000

2,35,000

25,000

1,90,000

75,000

10,000

3,00,000

50,000

30,000

1,50,000

1,00,000

60,000

30,000

5,50,000

8,30,000

25,00,000

15,00,000

6,00,000

9,75,000

5,00,000

30,000

1,00,000

1,50,000

63,55,000

A7)Receipts and Expensiture on Capital Accoutn for the year ended March 31,2012

Expenditure	Expenditure upto March 31.2011	Expenditure during the year	Total	Receipts upto March 31.2011	Receipts during the year	Receipts	Total
To Freehold Land To Buildings To Machinery at astation To Mains To Transformers To Meters To General Stores To Electrical Instruments To OFFice Furniture	RS 9,30,000 400,000 6,00,000 5,00,000 1,00,000 50,000 1,60,000 30,000 25,000	Rs - 1,00,000 4,00,000 3,00,000 1,00,000 1,00,000 75,000 10,000 -	Rs 9,30,000 5,00,000 10,00,000 8,00,000 2,00,000 1,50,000 2,35,000 40,000 25,000	By Share Capital By 14% Debentures	Rs 20,00,000 15,00,000	Rs 4,00,000 -	RS 24,00,000 15,00,000
Total Expenditure To Balance of Capital Account	27,95,000 -	10,85,000 -	38,80,000 20,000		Rs 20,00,000 15,00,000	Rs 4,00,000 -	RS 24,00,000 15,00,000
Total Expenditure To Balance of Capital Account	27,95,000	10,85,000	39,00,000		35,00,000	4,00,000	39,00,000

*Calls in arrear has been deducted.Revenue Account for the year ended March 31,2012

Generation Rs

To Coal and Fuel 1,90,000

To Oil, Waste and

Engine-Room Stores 75,000

To Wages at Station 3,00,000

To Repairs and

Replacement 50,000

B. Distribution

C. Public Lamps

D. Rent, Rates and Taxes:

To Rates and Taxes

E. Management Expenses:

To Director’s Fees 1,00,000

To Secretary’s and

Manager’s Salaries 1,50,000

To Stationery, Printing

and Advertising 60,000

To Law and Incidental Charges 30,000

F. Depreciation:

Depreciation on:

Buildings 22,500

Machinery 1,20,000

Mains 65,000

Transformers 30,000

Meters 15,000

Electrical Instruments 5,250

To Balancecarried to

Net Revenue Account

6,15,000

30,000

3,40,000

2,57,750

2,62,250

By Sale of energy for

lighting purpose

By Sale of energy for power purpose

By Sale of enrgy by contract

By Meter Rent

9,75,000

5,00,000

30,000

15,05,000

**Depreciation on addition charged for 6 months.Q8) The Hindustan Gas Company remade and re-prepared piece of their works at an expense of Rs 5,00,000. The piece of the old works hence 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 assembled. Journalize the passages. A8)Journal Dr. Cr. Rs Rs

Replacement Account Dr.

New Works Account Dr.

To Bank

Being the amount written off (Rs 3,00,000 + 25%) and the amount capitalised out of the Rs 4,90,000, spent on reconstruction in cash, i.e., Rs 5,00,000 = Rs 10,000.

3,75,000

1,15,000

4,90,000

New Works Account Dr.

To Replacement Account

Being the materials used in the new works.

10,000

Bank Dr.

To Replacement Account

Being the amount realised by the sale of old materials.

20,000

Revenue Account Dr.

To Replacement Account

Being the transfer of balance of Replacement Account to Revenue Account

3,45,000

Working Notes: Rs Cost of old works 3,00,000Add: Increase in cost Rs 3,00,000 × 25 / 100 75,000Current cost of old works 3,75,000 Cash cost of new works = Rs 5,00,000 - Rs 10,000 = Rs 4,90,000Account to be capitalised = Rs 4,90,000 – Rs 3,75,000 = Rs 1,15,000. Q9) The Gurgaon Electricity Company Limited chooses to supplant one of its old plants with an advanced one with a bigger limit. The plant when introduced in 1985 expense the organization Rs 24 lakhs, the segments of materials, work and overheads being in the proportion of 5:3:2. It is learned that the expenses of materials and work have gone up by 40% and 80% individually. 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 also, 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. The records of the organization are kept up under Double Account framework. Show what amount would be promoted and the sum that would be charged to income. Show the record accounts.A9)Dr. Gurgaon Electricity Company Limited Plant Account Cr.

To Balance b/fd

To Bank Account

(cost of new plant-capitalised)

To Replacement Account (old parts)

To Balance b/d

24,00,000

22,80,000

2,40,000

By Balance c/d

49,20,000

Dr. Replacement Account Cr.

To Bank Account

(current cost of replacement)

37,20,000

By Bank Account

(sale of scrap)

By Plant Account (old material used)

By Revenue Account (transfer)

7,50,000

2,40,000

27,30,000

37,20,000

Working Notes:(1) Cost to be incurred for placement of present plant: Cost of Existing Plant Increase Current Cost Rs Rs RsMaterials 12,00,000 40% 16,80,000Labour 7,20,000 80% 12,96,000 29,76,000 Overhead (1/4 of above or 1/5 of total) 7,44,000Current Replacement Cost 37,20,000 Current Replacement Cost 37,20,000Total Cash Cost 60,00,000 Amount capitalised, excluding old materials used 22,80,000 Q10) The following balance have been extracted from the books of an electricity company at the end of an accounting year:

Share Capital

Reserve Fund invested in 8% Government securities acquires at par

Contingencies reserve invested in 7% State Loan, at par

Loans from State Electricity Board

12%Debentures

Development reserve

Fixed Assets

Depreciation reserve on fixed assets

Consumer’s deposits

Amount contributed by consumers towards cost of fixed assets

Intangible assets

Tariffs and dividend control reserve

Current assets (monthly average)

1,00,00,000

60,00,000

12,00,000

25,00,000

20,00,000

8,00,000

2,50,000

30,00,000

40,00,000

2,00,0000

8,00,000

10,00,000

15,00,000

In the accounting year, the company earned a profit of Rs 28,00,000 after tax.Assuming that the bank rate is 10%, show how you will deal with the profits of the company. [Adapted C.A. (PEC), May, 2010A10)

Calculation of Capital Base:

Original cost of fixed assets

Less: Amount contributed by the customers

Add: Cost of intangible assets

Investments against contingency reserve

Monthly average of current assets

Total (i)

Less: Amount written off on account of depreciation

Loan from State Electricity Board

12% Debentures

Consumer’s deposit

Balance of development reserve

Balance of tariffs and dividend control reserve

Total(ii)

Capital Base (i) – (ii)

Calculation of Reasonable Return:

Yield at standard rate i.e., 10% + 2% on capital base, 12% of Rs 1,50,000

Add: Income from reserve fund investments, 8% of Rs 60,00,000

½ of loans from State Electricity Board, ½ of Rs 25,00,000

1/2 % of debentures, ½ of Rs 20,00,000

½% of development reserve, ½ of Rs 20,00,000

Total

2,50,00,000

2,00,000

2,48,00,000

8,00,000

12,00,000

15,00,000

30,00,000

25,00,00

20,00,000

40,00,000

8,00,000

10,00,000

2,83,00,000

1,33,00,000

1,50,00,000

18,00,000

4,80,000

12,500

10,000

4,000

23,06,500

Disposal of Surplus:

Profit after, tax, given

Less: Reasonable return, as calculated above

Surplus

Less: 20% of reasonable return, 20% of Rs 23,06,500

Amount to be credited to customer rebate reserve

28,00,000

23,06,500

4,93,500

4,61.300

32,200

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