Corporate Accounting

1
Corporate Accounting

• A.K.Sharma, DGM(FA)
• Advanced Level Telecom Training Centre
• Ghaziabad

2
BSNL AS A CORPORATION

• Bharat Sanchar Nigam Ltd. (BSNL) as a Govt. of
  India Enterprise had started its Commercial
  Operations from 1st Oct.2000.
• Under Companies Act, BSNL switched over
  completely to the commercial practices and
  accounting as enjoined in Sections 209 to 223 of
  Companies Act 1956

3
Accounting procedure in BSNL

• BSNL had disclosed its accounting procedures for
  adoption wherever the existing system of
  Accounting of DOT requires a change. In other
  cases, the Procedures, Rules and maintenance of
  other records as was being followed in erstwhile
  DOT would continue until otherwise prescribed by
  BSNL Head quarters.

4
Annual Financial Statements - Responsibilities

• In accordance with section 210 of Companies Act
  1956, BSNL as a Company has to lay before the
  Government , a Balance Sheet as at the end of the
  period as specified in subsection (3) ibid along
  with Profit Loss Account for that period.
• Circles are required to prepare its own PL
  Account and Balance Sheet.

5
Mandatory Accounting Standards

• Primarily every Profit loss Account and
  Balance Sheet of the Company has to Comply with
  the Accounting Standards as recommended by ICAI

6
Mandatory Accounting Standards (Contd.)

• Out of 29 Accounting Standards as at present,
  the standards mostly relevant to BSNL unit
  offices(Circles) would be
• Disclosure of Accounting Policies AS 1
• Valuation of Inventories -- AS2
• Cash flow Statements -- AS3
• Contingencies Events occurringAfter the
  balance sheet date --AS4

7
Mandatory Accounting Standards (Contd.)

• Net Profit or Loss Prior period items change
  in the Accounting policies -- AS5
• Depreciation Accounting -- AS6
• Revenue Recognition -- AS9
• Accounting of Assets -- AS10
• Accounting for Retirement Benefitsin financial
  statements -- AS15
• Segment Reporting -- AS17
• Accounting of leases -- AS19
• Impairment of Asset -- AS28

8
Fundamental Accounting Assumption

• The financial statements of Bharat Sanchar
  Nigam Limited are prepared under the historical
  cost convention adopting the accrual method of
  accounting in accordance with Indian Generally
  Accepted Accounting Principles and in accordance
  with the provisions of the Companies Act 1956.

9
Generally Accepted Accounting Principles

• Accounting Principles
• Business Entity Concept
• Money Measurement Concept
• Cost Concept
• Going Concern Concept
• Dual Aspect Concept.
• Realization Concept
• Accrual Concept
• Concept of conservatism
• Consistency Concept
• Materiality Concept

10
Significant Accounting Policies

• Accounting Policies stated as significant
  accounting policies contains information about
  methods that are being adopted for preparation of
  financial statements.
• These significant Accounting Policies becomes
  part of financial statements.
• Disclosure of significant Accounting Policies
  that are being followed by Co. during the
  Accounting period is pre-requisite in preparation
  of financial statements as required by AS-l.

11
Significant Accounting Policies

• Accounting Policies broadly cover items such as
  
• Basis of accounting its conventions.
• Treatment of Fixed Assets Current Assets
• Depreciation
• Treatment of Inventories, verification
  valuation
• Treatment of Dividends Reserves
• Revenue/Income Recognition, Deferred Revenue
  Expenditure cases.
• Retirement benefits
• Treatment of contingent liabilities

12
Changes in Accounting Policies

• Changes in Accounting policies generally arise
  in cases as follows
• Methods of depreciation
• Treatment of Expenditure during construction
• Conversion or translation of foreign currency
  item.
• Valuation of inventories
• Valuation of Fixed Asset
• Treatment of retirement benefits
• Treatment of contingent liability.

13
Changes in Accounting Policies

• Changes in Accounting Policies will be made in
  the following conditions-
• Where adoption of different accounting policies
  is required by statute or for compliance with
  certain Accounting Standard.
• Where it is considered that change would result
  in more appropriate presentation of financial
  statement of the company.

14
Income Expenditure

• The accounts are prepared under the historical
  cost convention adopting the accrual method of
  accounting except for the following
• Annual recurring charges for overlapping
  financial years.
• Interest on loans and advances to employees .
• Interest Income
• Income from prepaid calling cards and internet
  connection
• Claims from/on local authorities and other bodies
  on account of Civil and Electrical works.
• Medical reimbursements to employees.

15
Revenue Recognition

• Revenue for all services is recognized when
  earned. Unbilled revenues from the billing date
  to the end of the year is recorded as accrued
  revenue.
• Provision is made against the amount of disputed
  billings to the extent considered necessary by
  the management.
• Provision is made for bad and doubtful debts in
  regard to debts outstanding for more than two
  years.

16
Revenue Recognition(Contd.)

• Installation Charges recovered from subscribers
  at the time of new telephone connections are
  recognized as income in the first year of the
  billing.
• Sale process of scrap arising from maintenance
  and project work are taken into miscellaneous
  income in the year of sale.

17
Revenue Recognition(Contd.)

• Income from SIMs, recharge coupons of Mobile,
  Prepaid Calling Cards, and Prepaid internet
  connection cards are treated as income of the
  year in which the payment is received since the
  extent of use of these cards within the financial
  year could not be ascertained.

18
Revenue Recognition(Contd.)

• Where ever there is uncertainty in realization
  of income, such as liquidated damages, claims on
  Government Departments local authorities etc.,
  these are recognized on collection basis.

19
Revenue Recognition(Contd.)

• Other income by way of interest on loans to
  employees, security deposit with Government
  Departments and local authorities, being not
  material, are accounted for on collection.

20
Employees Benefits

• In respect of employees of DoT who have opted for
  absorption in the Company and employees on deemed
  deputation from Government, pension contribution
  is provided at the applicable rates as per
  Government Pension Rules, 1972.
• Companys contributions towards Provident Fund
  are accounted for an accrual basis.
• For employees on deemed deputation from
  Government, leave salary contribution is provided
  _at_ 11 of the basic pay to DoT.
• Leave encashment for other employees is provided
  on accrual basis.

21
License Fees

• The one time license fee paid by the company for
  acquiring new licenses has been capitalized and
  is being amortized over the license period.
• The variable license fees computed at prescribed
  rates of revenues is being charged to profit and
  loss in the year in which revenue arises.

22
Fixed Assets

• Fixed assets are carried at cost less
  depreciation. Cost includes directly related
  establishment and other expenses including
  employee remuneration and benefits on actual
  basis directly identifiable to the construction
  of the asset.
• Assets are capitalized to the extent management
  certificates have been issued, wherever
  applicable.
• Land is capitalized when possession of the land
  is taken.
• Building is capitalized to the extent is is ready
  for use based on completion certificate. In case
  of building purchased capitalization is done
  after possession is taken over.

23
Fixed Assets (Contd.)

• Apparatus and Plants principally consisting of
  Telephone Exchanges, Transmission Equipments and
  air-conditioning Plant are capitalized as and
  when an Exchange is commissioned and put to use
  either in full or in part.
• Lines and Wires are capitalized as and when
  erected or laid to the extent completion
  certificates have been issued thereof.
• Cables are capitalized as and when ready for
  connection to the main system.
• Vehicles and other assets are capitalized as and
  when possessed.

24
Fixed Assets (Contd.)

• Expenditure on replacement of assets, equipment,
  instruments and rehabilitation work is
  capitalized, if , in the opinion of the
  management, it results in enhancement of revenue
  generating capacity.
• The cost of stores and materials is charged to
  project at the time of issue.

25
Fixed Assets (Contd.)

• IMPAIRMENT OF ASSETS
• Assets, which are impaired by disuse or
  obsolescence, are segregated from the concerned
  assets category and shown as Decommissioned
  Assets and provision made for the difference
  between their net carrying cost and the net
  realizable value.

26
Inventories

• Inventories other than Exchange Equipment are
  valued at cost generally on weighted average
  method.
• Exchange equipment is valued at acquisition cost.
  
• Obsolete/non moving inventories are valued at net
  realizable value.

27
Foreign Currency Transaction

• Transaction in foreign currency are recorded at
  the exchange rate prevailing on the date of the
  transaction.
• Monetary assets and liabilities denominated in
  foreign currencies at the year-end are translated
  into rupees at the rates of exchange prevailing
  at the year end. All non-monetary assets and
  liabilities are stated at the rates prevailing on
  the date of the transaction.
• Gains / (losses) arising out of fluctuations in
  the exchange rates are recognized in income in
  the year in which they arise.

28
Contingent Liabilities

• Contingent Liabilities, barring frivolous
  claims, are disclosed and those liabilities,
  which are possible of maturing are provided for .

29
Segment Reporting

• Information about multiple products/services and
  its operation in different geographical areas is
  called Segment Information.
• The disclosure of above informations is termed
  as Segment Reporting, covered by Accounting
  Standard 17.

30
Objective of Segment Reporting

• For better understanding the performance of
  Enterprise.
• For better assessment of risks and returns of
  enterprise.
• For establishing the system for cost based
  tariff.
• For assessment of risks and returns of Multiple
  products/services and its operation in different
  geographical areas.

31
Segment Information of BSNL

• For the time being, Basic and Cellular
  services have been considered as primary Business
  segments for reporting under AS-17 Segment
  Reporting issued by ICAI. The manufacturing
  activities have not been treated as a separate
  segment since such activities are essentially
  carried on as support service to other segments.

32
Significant Accounting Policy of BSNL Relating to
Segment Reporting

• Segment Revenue includes service income and other
  income directly identifiable with/allocable to
  the segment.
• Income which relates to the Company as a whole
  and not allocable to individual business segment
  is included in Unallocable Corporate Income.
• Expenses that are directly Identifiable with/
  allocable to segments are considered for
  determining segment Results. The expenses, which
  relates to the Company as a whole and not
  allocable to individual business segment is
  included under Other Unallocable Expenditure
• Segment Assets and Liabilities include those
  directly identifiable with the respective
  segments.

33
Accounting of some other Items

• Small Tools - These are to be charge to PL
  Account. The Expenditure involved may be for the
  activities of Installation, maintenance or for
  operation. The expenditure may be changed
  according to its nature.
• Depreciation is provided based on the WDV method
  at the rates prescribed in Schedule XIV to the
  Companies Act. 1956. Full depreciation is charged
  on capital expenditure up to Rs. 5000/- in the
  year of purchase.

34
Accounting of some other Items(Contd.)

• Partitions Partitions are a common expenditure
  which either occur due to new construction or
  replacement or repair. All expenditure which is
  in the nature of replacement or repair is to be
  charged to PL A/C. New construction of
  partitions should be debited to Furniture and
  Fixture. However, partitions valued up to Rs. 2
  lakhs should be charged to the PL Account and a
  separate register for such assets it to be
  maintained.

35
Accounting of some other Items(Contd.)

• Temporary Sheds Expenditure incurred for the
  construction of Ty. Sheds is purely wasteful
  asset. Therefore such assets may be depreciated
  100.

36
Prior Period Items

• Prior Period items are income or expenses which
  arise in current period as a result of error or
  omission in the preparation of financial
  statement of one or more prior periods.
• Any adjustment on account of settlement of
  disputes regarding wrong billing is not treated
  as prior period item.
• Items of income/expenditure exceeding Rs.5,00,000
  only are considered for disclosure as prior
  period items.
• Prior Period Items are dealt in Accounting
  Standard 5.

37
Books of Accounts Companies Act

• Every Company is required to keep proper books
  of accounts in respect of
• a) all sums of money received and expended by
  the Company and matters in respect of which the
  receipt and expenditure has taken place.
• b) all sale and purchase of goods by the
  company.
• c) all the Assets and liabilities of the
  company

38
Books of Accounts of BSNL

• Cash Books (for cash transactions)
• Bank Books (for Operational for Collection
• Journals (for recording non cash adjustment
  items) and
• General Ledger

39
Subsidiary Records

• Purchase Register
• Salary payable Register
• Wages payable Register
• Bills payable Register
• Liability Register
• Imprest/Advance Register
• Register of Bills issued (TRA other Bills)
• Contractors Ledger.

40
Subsidiary Records(Contd.)

• Registers of Fixed Assets related schedules.
• Registers of Works-in-Progress
• Price Stores ledgers etc.
• Inventory Records.

41
Perseverance of Books of Accounts

• Section 209(4A) provides that the books of
  account of every company relating to period of
  not less than eight years shall be preserved in
  good order.

42
Bank Reconciliation

• At the end of each month the balances in each
  Bank book will be reconciled with the balances in
  the Bank.
• Bank reconciliation statement should be
  submitted by each SSA every month to Corporate
  Accounts Section of the Circle.

43
Bank Reconciliation(Year end Actions)

• Bank reconciliation up to 31.03.20xx should be
  completed invariably. Any cheque(s) remaining
  un-cleared but which have become time-barred on
  due date will be written back in the bank book.
  This will apply both to cheques received and also
  to cheques issued.

44
Reconciliation of Balances,Provisions
Liabilities

• All the balances appearing in the Balance Sheet
  needs to be reconciled. These are
• Cash bank balance
• Sundry debtors
• All receivables
• Loans Advances
• Inventories
• WIP
• Fixed Assets
• Sundry Creditors including EMD and SD
• All payables (Salary, bills, wages, bonus)

45
Cash bank balance

• These are reconciled by drawing bank
  reconciliation statement

46
Sundry debtors

• The balance under this head should be reconciled
  with respect to the details of sundry debtors as
  per the sub ledger.

47
Receivables

• Subsidiary records for receivables should be
  available with each SSA and the amt. booked in
  trial balance should agree with the details
  available in the subsidiary records.This include
  receivables from DOT.

48
Loans Advances

• Loans Advances include amount advanced or
  value of materials supplied as loan to
  contractors, suppliers, employees, recoverable in
  cash or in kind or for value to be received at a
  later date. Such as
• a) Loans Advances to Staff (Interest bearing
  Non-interest bearing)
• b) Loans given to Contractors which also include
  loans to Co-op Societies Dept. canteens,
• c) Advances to Staff in connection with works
  expenditure etc. ,
• d) Purchase Advances,
• e) Capital advance

49
Loans Advances(Contd.)

• All such loans and advances should agree with the
  details available in the subsidiary registers.
• Details of outstanding loans advances to
  employees will be available in RR. A broad sheet
  must be prepared for each type of loans and
  advances. Balance appearing in the Trial balance
  against any type of loans and advance must agree
  with the balance as shown in the broad sheet.

50
Inventories

• The materials received by C.S.D will be accounted
  under inventory. The numerical Account is
  maintained in Bin Card and Value account for the
  same is maintained in priced Store Ledger.
  Periodical reconciliation between figures of Bin
  Cards and PSL is to be done. The balance under
  inventory as shown in the trial balance should
  agree with the balance as shown in PSL.

51
WIP

• Amt. appearing in trial balance under this head
  should be supported by detailed schedule.

52
Sundry Creditors

• Amt. appearing under sundry creditor must be
  reconciled with the unpaid bills as shown by the
  purchase journal. EMD and SD should be reconciled
  with the detailed registers maintained.

53
All payables

• This include
• Salary payable
• Bills payable
• Payable to DOT
• Payable to others

54
Reconciliation of Revenue bookings

• The bookings in the trial balance under various
  revenue heads should be reviewed and reconciled
  with the figures of sub ledger in respect of
  following items
• Service wise amt. billed for and amt. collected.
• All types of deposits,
• Value of various cards sold.
• Service Tax
• Surcharge

55
Overall reconciliation of bookings

• After incorporating all journal voucher for
  booking in trial balance the trial balance will
  be prepared after ensuring that all types of
  entries in respect of bank books and cash books
  for debits and credits during the month are also
  incorporated in the trial balance. One copy of
  printout of TB will be obtained for reviewing
  progressive balances and for any
  misclassification. Same should be rectified by
  passing JEs

56
Overall reconciliation of bookings(Contd.)

• While reconciling the figures it may be noted
  that some accounts head carry only debit balances
  and some only credit balance. It may be ensured
  that trial balance should exhibit progressive
  debit or credit balances against these heads
  correctly.

57
Provisions Liability

• What is Provision ?
• Provision means an amount retained by way of
  providing for known liability the amount of which
  cannot be determined with substantial accuracy.

58
Provisions Liability(Contd.)

• Liabilities comprise all short term obligations
  admitted in the normal course of business for
  purchase of stores spares etc. , contractors
  bills received towards provision of Telecom
  services, payments to be made to the employees
  and others for the services already received but
  not paid for, as at the date of accounts.

59
Creation of Liabilities

• Full liability would be created by debiting the
  relevant expenditure heads and crediting Current
  Liabilities under schedule , in respect of
  following items-
• Claims payable to DOT, VSNL, CMTS
• Claims payable towards Rents on Buildings
• Claims payable on Retirement Benefits
• Claims payable to other operators on account of
  IUC.
• Claims payable to Service Taxes, Sale Taxes
• Lease charges
• Refunds due to Telephone subscribers.

60
Thanks