Section2_Group22_NHPC

8/10/2019 Section2_Group22_NHPC

http://slidepdf.com/reader/full/section2group22nhpc 1/4

National Hydro PowerCorporation Ltd.Section -2Group 22Varuna Mittal DM15263Vidhit Bhatia DM15264Vivek VY DM15266Keerthi Purushothaman DM15267Lakshmikshatriya DM15268

21/09/2013



NATIONAL HYDRO POWER CORPORATION LTD.2

Accounting Principles AnalysisCOMPARATIVE ANALYSIS OF ACCOUNTING POLICIES 2012-2013

ACCOUNTING

POLICY

NHPC NTPC TATA POWER ANALYSIS

DEPRECIATION Depreciation ontangible assets ischarged on straight-linemethod following therates and methodologyas notified by theCentral ElectricityRegulatory Commission(CERC) for the fixationof tariff

Depreciation on the assetsof the generation ofelectricity business ischarged on straight linemethod following the ratesand methodology notifiedby the CERC TariffRegulations, 2009 inaccordance with Section616(c) of the Companies

Act, 1956.

Depreciation in respect of itselectricity business isprovided at the rates as wellas methodology notified bythe Central ElectricityRegulatory Commission(Terms and Conditions ofTariff) Regulations, 2009(CERC) w.e.f. 1st April, 2009and at the rates as per the

Power Purchase Agreements(PPA) for capacities coveredunder PPAs, wherever higherthan those notified by CERC

Advantages of following straight depreciation method is that thedepreciation cost is distributed ovthe useful life of the asset uniformSince under this method sameamount is charged as depreciationmakes the comparison of profits fseveral years easy.

INTANGIBLEASSETSAMMORTISATION

Cost of software isrecognized as''Intangible Assets'' andis amortized on straightline method over aperiod of legal right touse or three financialyears, whichever isearlier. Other intangibleassets are amortized on

straight line methodover the period of legalright to use.

Cost of software recognizedas intangible asset, isamortised on straight linemethod over a period oflegal right to use or 3 years,whichever is less. Otherintangible assets areamortized on straight linemethod over the period oflegal right to use or life of

the related plant,whichever is less.

Intangible assets areamortised over the usefuleconomic life of the assets or5 years, whichever is lower

The companies follow differentpolicies for ammortization - NHPand NTPC considers useful life oyears whereas, Tata Power takes itill 5 years

INVENTORY Stores & Spares arevalued at cost,determined onweighted average basis,or net realizable valuewhichever is lower.

Inventories are valued atthe lower of, costdetermined on weightedaverage basis, and netrealizable value.

Inventories of stores, spareparts, fuel and loose tools arevalued at lower of cost (onweighted average basis) andnet realisable value. Work-in-progress and property underdevelopment are valued atlower of cost and netrealisable value.

All 3 companies follow the samepolicies

BORROWINGCOST

Borrowing costsattributable to the

qualifying tangibleassets duringconstruction/renovation & modernisation arecapitalised. Otherborrowing costs arerecognised as anexpense in the period inwhich they areincurred.

Borrowing costsattributable to the fixed

assets duringconstruction/exploration,renovation andmodernisation arecapitalised. Otherborrowing costs arerecognised as an expense inthe period in which theyare incurred.

Borrowing costs includeinterest, amortisation of

ancillary costs incurred. Costsin connection with theborrowing of funds to theextent not directly related tothe acquisition of qualifyingassets are charged to theStatement of Profit and Lossover the tenure of the loan.

The accounting policy for borrowcosts is the same across competit

Borrowing costs that are directlyattributable to the acquisition,construction or production of aqualifying asset form part of the cof that asset. Other borrowing coare recognised as an expense.




IMPAIRMENT OFASSETS

An impairment loss isrecognized in thestatement of profit andloss where the carryingamount exceeds therecoverable amount ofthe cash generatingunits. An impairmentloss is reversed if thereis a change in therecoverable amountand such loss either nolonger exists or hasdecreased.

An impairment loss isrecognised in thestatement of profit and losswhere the carrying amountexceeds the recoverableamount ofthe cashgenerating units. Animpairment loss is reversedif there is change in therecoverable amount andsuch loss either no longerexists or has decreased.

The carrying values ofassets/cash generating unitsat each Balance Sheet dateare reviewed for impairment.If any indication ofimpairment exists, therecoverable amount of suchassets is estimated andimpairment is recognised, ifthe carrying amount of theseassets exceeds theirrecoverable amount.

The policy is the same acrosscompetitors. The power industry distinguished by the significantcapital investment required,exposure to commodity prices anheavy regulation. The requiredinvestment in fixed assets leaves industry exposed to adverseeconomic conditions and thereforimpairment charges. Assets shoulbe tested for impairment wheneveindicators of impairment exist.

FIXED ASSETS Fixed assets are statedat cost of

acquisition/construction. In cases where finalsettlement of bills withcontractors is pending,but the asset iscomplete and ready foruse, capitalisation isdone on estimatedbasis subject tonecessary adjustment

Tangible assets are carriedat historical cost less

accumulateddepreciation/amortisation.

Fixed assets are carried atcost less accumulated

depreciation/amortisationand impairment losses, if any.The cost of fixed assetscomprises its purchase pricenet of any trade discountsand rebates, any importduties and other taxes

The main advantage of usinghistorical cost method is that it ca

be verified and used to determinethe amount of depreciation expenreported on the income statement




Major Developments that will boost cash flow:Power Generation:Chutak power station and Chamera-III Power station were declared open during the year 2012-13. Three unitsof TLDP-III each 33 MW have been commissioned during the year. Further two units of Nimma Bazgo HE projecthave been commissioned at partial load. Being a hydro player, NHPC is protected from the demand-supply riskof fuels such as coal or gas. The biggest concern in the hydropower business is the risk involved in execution ofprojects. However, once operational, these projects have the lowest risks such as fuel availability. Also, thelife of hydropower plants is 35 years, more than that of thermal plants, which have the life of around 25 years,thus its annual depreciation charge is less. Also, the fuel cost for a hydropower is almost zero. Both thesefactors make it one of the lowest-cost producers of power in the country. These new projects will generatecashflows in the futureNHPC are currently implementing a growth plan to enhance its power generation capacity and a lot of projectsare in the clearance/ approval stage.

Rural Electrification:NHPC is implementing rural electrification projects under the Rajiv Gandhi Gramin Vidyutikaran Yojana(RGGVY) in twenty-seven districts of five states. Under this scheme, NHPC will undertake electrification of9,310 Un-electrified and De-electrified (UE/DE) villages, 19,939 Partially Electrified (PE) villages along withproviding service connections to 20.74 lac Below Poverty Line (BPL) households. These projects result inincrease in revenue and thereby boost cashflows. In the year 2013, there was actually a fall in revenue fromsuch projects due to less number of assignments.

Financing of new projects:As per the Central Electricity Regulatory Commission''s guidelines, for the purposes of tariff fixation, thefinancing of the project is to be considered of in 70:30 Debt Equity Ratio. In the opinion of the Directors,available internal accruals will be sufficient to finance the equity component for new projects. The Company iswell positioned to raise the required borrowings with its low gearing and strong credit ratings, which are at parwith sovereign ratings. The Company is exploring domestic as well as international borrowing options includingoverseas development assistance provided by bilateral agencies to mobilize the debt required for the plannedcapacity expansion programme. These borrowings for new projects will result in cash inflows.

Power purchase agreements with customers :Earlier, there was always an uncertainty in receiving payments from state electricity boards. Now with thetripartite agreement, not only the payment is secured with the letter of credit, the dates of payments are alsofixed. This will ensure proper planning in the cash flow.

Revenue from contracts and project managements:This revenue will increase significantly. Pradan Mantri Gram Sadak Yojna and RGGVY schemes turnovers werepoor last year. But due to the elections, the government’s focus will be on the rural areas and the revenuefrom these schemes will improve.

Section2_Group22_NHPC

Documents

Transcript of Section2_Group22_NHPC