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Accounting norms applicabilityhit power companies' profitsPTI Aug 31, 2014, 12.46PM IST

NEW DELHI: In a move that could impact profitability of

power companies, the government has said that costs

incurred on account of extended delay in starting a project

should be shown in the profit and loss statement.

The clarification, pertaining to applicability of accounting

standards, comes at a time when many power projects are

grappling with multiple woes including acute coal scarcity

and delay in getting requisite clearances.

At present, many power companies capitalise direct and ind

borrowing costs, even in case of extended delay in capitalis

of these companies.

Generally, capitalising cost refers to the expense being sho

The Corporate Affairs Ministry has clarified that Accounting

irrespective of whether the power projects are 'cost plus' or

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Page 1 of 3Accounting norms applicability may hit power companies' profits - Economic Times

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AS 10 and AS 16 prescribe principles of capitalisation of va

only such expenditure that is part of the cost of fixed assets

be capitalised.

Referring to AS 10, the Ministry through a circular has clarifi

commercial production, after the plant is otherwise ready fo

worth of the fixed assets and therefore, such costs cannot b

It means that all such expenses have to be charged to the

Sai Venkateshwaran, Partner and Head of Accounting Advi

clarification is to address the divergence in accounting prac

projects.

"The clarification is expected to have a significant impact o

since costs which were being capitalised pending commen

beyond the companies' control like sorting out the issues o

required to be charged to the statement of profit and loss,"

The circular, dated August 27, has been issued following recosts in cases of competitively bid power projects.

With regard to AS 16, pertaining to borrowing costs, the Mi

project is ready for commercial production and is capable o

construction, the unit ready for commercial production shou

"The clarifications sought were with regard to capitalisation

in commercial production for reasons beyond the developer

plant should be unit-wise or project-wise," the circular said.

Before taking a final view, the Ministry consulted the Accou

Accountants of India (ICAI).

According to Venkateshwaran, the Ministry's clarification is

standards.

The clarification is expected to ensure consistency in the appractices with those followed internationally, he said.

"Considering India's efforts towards convergence with glob

welcome step and also quite timely," Venkateshwaran adde

The country's power sector is facing tough times mainly on

electricity generation at various plants.

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