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Planing on AS-15

Sandip Kumar Sen (Sr.Manager(F&A)) (114 Points)

15 January 2009

1.Our company is a Power Distribution Comany formed after restructuring.Company is now abide by the AS-15.Company planed to enhancement of pay. There will be heavy impact on profitibility after considering Terminal liability provision in the accounts.How to plan in accounts for reduction of heavy burden.

2.If we charge burden of Terminal benefit to accounts as per As-15,then the same will be pass on to the consumer,resulting high Tariff. Consedering this Regulatory authority may agree to pass on the same to consemer in several years.If the same will agree that whether we recognish as revenue as per AS-9.

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2 Replies

Ritesh Sharma (CA) (58 Points)
Replied 17 January 2009

It seems that the company will be applying AS 15 for the first time. As per AS 15, on first appication of the standard, the liability needs to be calculated as at the starting of the financial year and at the closing of the financial year. The liability as at the opening of the year needs to be adjusted aginast the opening revenue reserves. If there are no revenue reserves then it needs to be charged to profit and loss account. Hence the impact on profit and loss account will depend on the availaibility of revenue reserves.

As regards the passing on of liability to consumer. The liabiity needs to be recognized on actuarial basis. Hence this is more of an estimate of liability. You are not required to pay out or account the whole of laibility in one go. Hence, the actual outgo will not be material as compared to the liabiilty need to be recorded. hence it need not be passed on to the consumer.

It is advisable to form a separate fund for the payment of these terminal benefits and have LIC to administer it. This way the IT Deductibiliy will also be guarantee and the burden on the cash ougo be limited.

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Sandip Kumar Sen (Sr.Manager(F&A)) (114 Points)
Replied 18 January 2009

No my company had alrady implemented AS-15.But due to enhancement of Pay & pension w.e.f from 01.01.2006,terminal claims liability will increase as per valuation of AS-15.How do we plan for avoid the huge liability inpact on Profit & Loss account of 2008-2009.
As we are in power distribution business,Regulatory authority will admit the expenditure but allow to enhance the tariff (inpact of Terminal liability) in deferred mode called as 'Regulatory Assets'.Whether we can recognish deferred income as 'Income Accrued but not Realized' based on the Tariff order in the Profit & Loss account of 2008-2009 as per AS-9.