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E2-E3

Finance

Asset Accounting

WELCOME

• This is a presentation for the E2-E3 (Finance)

• Module for the Topic: Asset Accounting

• Eligibility: Those who have got the Upgradation from E2

to E3.

• This presentation is last updated on 15-3-2011.

• You can also visit the Digital library of BSNL to see this

topic.



ASSET MANAGEMENT

• This is a presentation for the E2-E3 Management

Module for the Topic:. ASSET MANAGEMENT

• Eligibility: Those who have got the Upgradation from E2

to E3

• This presentation is last updated on 19-3-2011.

• You can also visit the Digital library of BSNL to see this

topic.


ASSET MANAGEMENT

AN ASSET IS A RESOURCE CONTROLLED BY THE ENTERPRISE AS THE

RESULT OF PAST EVENTS FROM WHICH FURTHER ECONOMIC

BENEFITS ARE EXPECTED TO FLOW FOR THE ENTERPRISE.

IN BSNL ASSETS ARE GROUPED UNDER TWO BROAD HEADINGS.

THEY ARE (1) FIXED ASSETS (2) CURRENT ASSETS

FIXED ASSETS

Fixed asset is an asset held with the intention of being used for the

purpose of producing goods or services and is not held for sale in the

normal course of business


CURRENT ASSETS :

Current asset is an operating asset used in

business which can be converted into cash during the

short time operation of a business. In other words,

assets acquired during normal course of business are

current assets.

Ex : 1.Cash & Bank balance 2. Stock

3.Bills receivable etc.


FIXED ASSETS (AS 10)

• Gross book value : This is the historical cost of the

fixed asset in the books of accounts or financial

statements.

• Net book value : When the value of fixed assets is

shown net of accumulated depreciation, it is termed

as net book value.

• Capital expenditure is to be classified as General

Area, Rural Area and Tribal Area separately as per

census classification.


IMPROVEMENTS &REPAIRS

Expenditure on improvements & repairs that ENHANCES

the future benefits from the existing asset beyond its

previously assessed standard of PERFORMANCE is

included in the gross block value; ex: an increase in

capacity.


Addition or Extension

The cost of an addition or extension to an existing asset

which is of a capital nature and which becomes an

integral part of the existing asset is added to its gross

value.

Ex: additional floors to the existing building etc.


THE BASIC CRITERIA FOR DECIDING

WHETHER THE EXPENDITURE CAN BE CAPITALIZED

OR NOT IS THAT THE EXPENDITURE INCURRED IS

LIKELY TO ENHANCE THE REVENUE EARNING

CAPACITY.

MAIN CRITERIA FOR CAPITALIZATION IN BSNL


CAPITALIZATION

• Expenditure on purchase,construction,addition,installation of capital nature in respect of the following is initially classified as Works-in-Progress. (under Schedules 114/115/116 in the concerned component applicable to the office/exchange/system.)

• Land • Building • Electrical fittings • A&P• Cables• L&WOn completion of the work and on receipt of management

certificate the expenditure under WIP is transferred to Fixed Asset.


Purchase of inventory

1. Material directly

received at site and

issued to installation

works.

2. Materials issued to

maintenance works.

3. Material received and

kept in store.

• Treated as Works –in-

progress.

• Treated as working

expenses.

• Treated as inventory.


TREATMENT OF FIXED ASSETS

LAND

BUILDINGS

(i) PURCHASED

(II) CONSTRUCTED

(III) LEASE HOLD

WHEN IS IT CAPITALIZEDWHENPOSSESION IS

TAKENWHEN POSSESSION IS

HANDED OVER.WHEN READY FOR USE.WHENPOSSESSION IS

TAKEN


CAPITALIZATION

APPARATUS & PLANT

these consist of

Telephone exchanges,

Transmission

equipments, a/c plants

and subscriber

instruments. etc.

CAPITALIZED ON COMMISSIONING OF EXCHANGE/ROUTE OR LINK.Capitalization is done partly if commissioning is done partly, the balance as and when completed.


Capitalization of fixed assets

LINES & WIRES

CABLES

• Capitalized when erected or lines laid and a completion certificate is issued to the extent of completion.

• Same as above as and when cables are laid and jointed and ready for connection to the main system.



VEHICLES

OTHER ASSETS

SMALL TOOLS

As and When

Purchased.

As and When

Purchased.

Charged to P&L

account.



PARTITION WORKS

Replacement or repair

New partitions

Up to Rs. 2 Lakhs.

More than Rs.2 lakhs.

Temporary sheds

Booked under Furniture

&Fixtures.

P&L Account

Capitalized

P&L Account


CLARIFICATIONS

LIQUIDATED

DAMAGE CHARGES

RECOVERED

TREATED AS OTHER

INCOME.

NOT TO BE

DEDUCTED FROM

THE COST OF

PURCHASE.


PURCHASE FOR REPLACEMENT

• IF THE OLD ASSETS ARE

REPLACED AND

COMPLETELY DISCARDED

AND DECLARED OBSOLETE

• IF OLD ASSETS ARE USED

ELSEWHERE

• IF OLD ASSETS ARE

DECOMMISSIONED

BUT TO BE UTILIZED ELSE

WHERE

• TO BE CAPITALIZED.• & COST OF OLD ASSET

TO BE TRANSFERRED TO DECOMMISSIONED ASSET.

• NEW PURCHASE TO BE CAPITALIZED. OLD ASSET TO CONTINUE IN FIXED ASSET REGISTER.


PURCHASE FOR REPLACEMENT

• IF THE STORES ARE UTILIZED IN REPAIRS & IMPROVEMENTS IN EXISTING ASSETS.

• USED IN CONSTRUCTION OF NEW ASSETS.

• CAPITALIZED IF THEY INCREASE THE REVENUE EARNING CAPACITY. OTHERWISE TO P&L ACCOUNT.

• CAPITALIZED.


L&W and Subs. Installations

1.Assets whose lives have expired but still being used.

2. Stand by Assets3. Assets not in use but not

life expired nor declared obsolete.

1.Since depreciation must have been completed, no further depreciation. But continued to be shown in GA register.

2.Capitalized.3.Depreciation to continue if

not fully charged/amortized.


DEPRECIATION

Depreciation is a measure of wearing out,

consumption or other loss of a

depreciable asset arising from:

(a) Use.

(b) PASSAGE of time.

(c) Obsolescence through technology.

(d) Market changes.


TREATMENT OF OVERHEADS

• Overheads should be charged on actual basis.• With regard to a proposal from some of the circles

whether the same can be at % to be arrived on the basis of actual of previous three years, it has been clarified such circles who desire to adopt % should fix in consultation with their branch auditor and local P&T Audit and the same should be equal to or near to the equal to actuals.


TREATMENT OF FALSE CEILING

Flooring, false ceiling and other petty works

which are part of a capital work shall be

capitalized.

If these do not form part of a capital work,

the expenditure can be capitalized if it is

going to enhance the revenue earning capacity

of the asset in question. Otherwise it shall be

considered as revenue expenditure.


CAPITALIZATION OF CWIP

All should ensure that • CWIP is capitalized from the date of its

commissioning/put to use.• In case of non-receipt of claim bills from the

contractors/suppliers in respect of completed CWIP, necessary liability/provision is created and CWIP is capitalized.

• Project circles to ensure that ATD are supported by completed documents of completed works are raised and accounted immediately.


CAPITALIZATION OF CWIP

• Executing authorities of project issues commissioning

certificate without delay.

• To ensure that capitalization is done within 1st half of the

financial year so that 100 depreciation can be availed.

• Depreciation in respect of assets added during the

current financial year from the date of its commissioning/

put to use.


DECOMMISSIONING OF ASSETS

• All the analogue exchanges like MILT- 64, ESAX- 200,

ILT-512, ILT-2048 and NEAX -61 S etc should be

discarded/declared obsolete and disposed off.

Depreciation should be charged up to the date of

decommissioning/declaring the same obsolete.

• The gross block value & accumulated depreciation of

such assets are neutralized.

• Net depreciated value of such assets is transferred to

decommissioned assets.


DECOMMISSIONED & OBSOLETE

• Provision is made for difference for value between the

NRV and net depreciated value of obsolete asset

provided the NRV is less than the net depreciated value.

• Such obsolete is disposed off promptly. The provisions

made earlier are to be utilized and excess provision is to

be written back.


SCRAPPING & REPLACEMENTS

• Replacements can fall under two(2) categories.1. Existing exchange (electro mechanical) replaced and

replaced exchange is recommended for scrapping. 2. Existing exchange (256 RAXs,512 SBMs, E10 B RLUs

etc) is replaced by a higher capacity exchange system and the existing exchange is diverted to needy place. –Proper accounting adjustments is to be ensured.


SCRAPPING & REPLACEMENTS

• In respect of replacement with scrapping of old exchange, the following action would be taken:

(a) The scrapping committee would segregate and indicate separately items that are unserviceable and obsolete for disposal by auction. These should be entered in the register of unserviceable or obsolete stores (Form ACE 73 A) for further disposal after obtaining sanction on ACE 9 from competent authority.

(b) Parts that are serviceable on cannibalization should be brought on ACE 8 (numerical account)


SCRAPPING -SWITCHING SYSTEMS

• Heads of Circles are now empowered to scrap Electro mechanical exchanges even if they have not outlived their lives.

• In such cases the scrapping should be on the basis of recommendations of a scrapping committee consisting of IFA based on economic criteria.

• For scrapping of exchanges which have outlived their lives, Scrapping committee is not required. A committee experts will their report based on which the scrapping can be approved by HOC under delegated financial powers. It will also examine the possibilities of utilizing any portion of the exchange and offer recommendations accordingly.


SCRAPPING

TRANSMISSION EQUIPMENTS

• The financial powers of scrapping the transmission equipment will be the same as prescribed for disposal of unserviceable and obsolete stores.

• Such scrapping has to be done on the basis of recommendations of the scrapping committee which should bring out the financial implications.

• The case of scrapping where the equipment has outlived their prescribed life can be considered by HOC

• Cases of scrapping which have not outlived their lives shall be remitted to Corporate office. The standing committee report in such cases should be countersigned by HOC


OBSOLETE/SURPLUS UNSERVICEABLE STORES

• Obsolete: Stores that are going to be declared as non-standard shortly. New orders should not be placed for these items.

• Surplus: Excess in requirement for a specified period and cannot be used else where. (Does not include serviceable stores found excess to requirement for a particular work owing to excess indenting etc)

• Unserviceable stores fall into two categories:(i) Materials recovered from dismantlement and are found

to be unserviceable.(ii) Materials which become unserviceable through lying in

stores.


DISPOSAL OF OBSOLETE/SURPLUS UNSERVICEABLE

STORES

• Should be entered in the register of unserviceable stores in form ACE-73-A

• Report submitted to DE inform ACE-9

• Report should indicate

(i) Condition of stores

(ii) Period during which the articles have been in stock or in use.

(iii) The cause of deterioration.

(iv) This procedure should be followed in case of normal wear and tear and also in case abnormal wear and tear.


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