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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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Page 3 of 3Accounting norms applicability may hit power companies' profits - Economic Times
9/2/2014http://articles economictimes indiatimes com/2014-08-31/news/53413254 1 commercial-pr