Electricity Accounting

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. Now, on its financial provision, we are explaining electricity accounting.

" Electricity accounting is the accounting treatment of company who supplies the electricity."

We have to show following things in electricity accounting :

  1. Clear Profit in Profit and Loss Account of Electricity Company

Clear profit means the difference between the total income and total expenditure plus specific appropriations. The above two laws define the income, expenditure and appropriations of electricity company. The provisions are set out below for ready understanding in the form of an account :

Expenditures		Incomes
1. Cost of generation and purchase of energy		1. Gross receipts from sale of energy less discounts applicable to sale
2. Cost of distribution and sale of energy		2. Rental of meters and other apparatus hired to consumers
3. Rent, rates and taxes  ( Excluding taxes on income or profits)		3. Sale and repair of lamps and apparatus
4. Interest on loans advanced by the board		4. Rents less outgoings not otherwise provided for
5. Interest on security deposits		5. Transfer fees
6. Bad Debts		6. Interest from investments, fixed and call deposits and bank balances
7. Auditor's fees		7. Other receipts liable for Indian income tax and arising from ancillary or incidental to the business of electricity supply.
8. Management expenses including remuneration to managing agents
9. Depreciation
10. Other expenses
11. Contribution to provident fund, staff pension, gratuity, apprentice and other training schemes
12. Bonus paid to the employees of the undertaking in accordance with the decision of labor tribunal of state govt.
13. Balance Profit C/d
Appropriations		1. Balance Profit b/d
1. All taxes on income
2. Balance being Clear Profit

2. Adjustment of Dividend and Dividend Tax 

After calculating net profit from profit and loss account, dividend and dividend tax is adjusted from it.

3. Balance Sheet of Electricity Company


To make balance sheet of electricity company is the important part of electricity accounting. Here we are given the example of TATA Power's past 5 years balance sheet.

Important Points If you are maintaining the Accounts of Electricity Company

1. # Depreciation should be lower than depreciation charge as per Income Tax Law. Excess of depreciation charge as per income tax law and you calculate under electricity law will be deferred taxation reserve which will be show in reserves and surplus.

2. #  The law seeks to prevent an electricity undertaking from earning too high a profit. For this purpose, reasonable return has been defined as consisting of an yield at the standard rate which is reserve bank rate plus 2 percent on the capital base. Following example will explain this.