Transcript Overview of Corporate Accounting & Accounting Policy of BSNL

Corporate Accounting
A.K.Sharma, DGM(F&A)
Advanced Level Telecom
Training Centre
Ghaziabad
A.K.Sharma
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
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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.
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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
P&L Account and Balance Sheet.
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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
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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
• Valuation of Inventories
• Cash flow Statements
– AS 1
-- AS2
-- AS3
• Contingencies & Events occurring
After the balance sheet date
--AS4
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Mandatory Accounting
Standards (Contd.)
• Net Profit or Loss; Prior period items
& change in the Accounting policies
• Depreciation Accounting
• Revenue Recognition
• Accounting of Assets
• Accounting for Retirement Benefits
in financial statements
• Segment Reporting
• Accounting of leases
• Impairment of AssetA.K.Sharma
-- AS5
-- AS6
-- AS9
-- AS10
-- AS15
-- AS17
-- AS19
-- AS28
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.
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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 ConceptA.K.Sharma
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.
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Significant Accounting Policies
Accounting Policies broadly cover items such as
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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
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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.
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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.
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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.
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• Medical reimbursements
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.
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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.
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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.
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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.
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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.
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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.
 Company’s contributions towards Provident Fund
are accounted for an accrual basis.
 For employees on deemed deputation from
Government, leave salary contribution is provided
@ 11 % of the basic pay to DoT.
 Leave encashment for other employees is provided
on accrual basis.
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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.
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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.
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Fixed Assets (Contd.)
 Apparatus and Plants principally consisting of Telephone
Exchanges, Transmission Equipments and airconditioning 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.
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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.
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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.
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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.
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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.
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Contingent Liabilities
Contingent Liabilities, barring frivolous
claims, are disclosed and those liabilities,
which are possible of maturing are
provided for .
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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.
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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.
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Segment Information of BSNL
For the time being, ‘Basic’ and ‘Cellular’
services have been considered as primary
Business segments for reporting under AS17 “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.
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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.
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Accounting of some other Items
 Small Tools - These are to be charge to P&L
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.
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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 P&L 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 P&L Account and
a separate register for such assets it to be
maintained.
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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%.
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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.
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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
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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
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Subsidiary Records
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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.
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Subsidiary Records(Contd.)
 Registers of Fixed Assets & related
schedules.
 Registers of Works-in-Progress
 Price Stores ledgers etc.
 Inventory Records.
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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.
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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.
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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.
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Reconciliation of Balances,
Provisions & Liabilities
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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)
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Cash & bank balance
 These are reconciled by drawing bank
reconciliation statement
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Sundry debtors
 The balance under this head should be
reconciled with respect to the details of
sundry debtors as per the sub ledger.
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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.
A.K.Sharma
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 Coop Societies & Dept. canteens,
c) Advances to Staff in connection with works expenditure etc. ,
d) Purchase Advances,
e) Capital advance
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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.
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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.
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WIP
 Amt. appearing in trial balance under this
head should be supported by detailed
schedule.
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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.
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All payables
This include –
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Salary payable
Bills payable
Payable to DOT
Payable to others
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Reconciliation of Revenue
bookings
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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
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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
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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.
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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.
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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.
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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
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– Refunds due to Telephone
subscribers.
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