Accounting for Electricity Company




Electricity Company accounts are prepared by following the double accounting system. Accounts are made on Double Accounting System because a Public Utility company cannot invest in fixed Assets until & unless it arranges for some long-term liabilities. In other words such companies cannot use its short-term fund for financing fixed assets. Thus in this system of accounting the: -

Balance sheet is prepared in two parts i.e.

  • Capital account: -
    • It is a receipt & expenditure on capital account.
    • Shown in three columns i.e. Opening, During the year, Closing.
    • Preliminary expenses on formation are treated as capital expenditure.
    • Premium received on issue of shares or debentures is deducted from the proceeds of the issue and the proceeds are shown net.
  • General Balance-sheet

  Profit and loss account in two parts i.e.

  • Revenue Account: - Similar to P&L a/c. But it should be noted that depreciation is debited to this account and credited to Depreciation Reserve and not to asset account.
  • Net Revenue Account: - Similar to P&L Appropriation a/c. But it should be noted that interest on loans & debentures are treated as an appropriation and therefore debited to this account. This is done because debentures and loans are considered as part of the capital of the concern.




  1. Replacement of New Asset

New Asset Account                            DR  (Cash capitalization or Balancing Figure)

Replacement Account                         DR  (Present Value of Old Asset)

         To Bank Account                               (Cash Cost of New Asset or Net Payment)

  1. Cost of Auxiliary Assets

      Auxiliary Assets account                 DR

               To Bank Account

  1. Use of Old Material in Auxiliary Assets

       Auxiliary Assets account                DR

                To Replacement account

  1. Combined entry for Use of Old material in new asset; Sale of old material; Any balance in Replacement account transferred to Revenue account

New Asset Account                          DR (Amount of old Material used in New Asset)

Bank Account                                   DR (Sale of old material)

Revenue Account                              DR (Balancing figure of Replacement account)

                To Replacement Account

Note : - Auxiliary Assets are any abnormal expenditure for repairing any existing Assets. For Example on a total track of 80 KM, 50 KM is totally replaced but 30 KM is repaired. Thus the track of 30 KM is called Auxiliary Asset and the track of 50 KM is called New Asset.






Step 1            Computation of Reasonable Return (R.R.)



(RBI rate + 2%) of Capital Base



Income from investment (Excluding income from



investment against contingency Reserve)



.05% Of: -






Development reserve balance



Approved institution borrowings



Electricity Board loans



Reasonable Return



Less: Clear Profit (i.e. Actual profit after interest & tax)



Gross Surplus



Less: Return to customer by rebate in rate



(Gross surplus – 20% of R.R.)



Gross Adjusted Surplus



Step 2               Disposal of gross Adjusted Surplus (G.A.S.)



At company disposal



(1/3 of GAS or 5% of RR whichever is less)



Transfer to Tariff & Dividend Control Reserve



(1/2 of the Balance)



Transfer to Consumer Benefit Reserve



(1/2 of the Balance)









Notes: -

  1. Calculation of Capital Base
    • Original cost of fixed assets available for use                                                                xxxx
    • Cost of intangible assets                                                                                                    xxxx
    • Original cost of WIP                                                                                                                           xxxx
    • Compulsory investments (contingency reserve)                                                            xxxx
    • Working capital equal to 1/12th of: -
      • Book cost of stores, material & supplies at end of each month                         xxxx
      • Cash, bank balance, call & short deposits at end of each month                       xxxx

      (Not exceeding in aggregate 1/4th of the expenditure)


  • Depreciation w/o                                                                                                                 xxxx
  • Intangible assets w/o                                                                                                                           xxxx
  • Loans advanced by Board                                                                                                 xxxx
  • Loans borrowed institutions approved by SG.                                                                xxxx
  • Debentures issued by the licensee                                                                                    xxxx
  • Security deposits held in cash                                                                                                           xxxx
  • Tariffs & Dividends Control Reserve                                                                                                  xxxx
  • Development reserve                                                                                                                          xxxx
  • Amount c/f for distribution to consumers                                                                       xxxx


General conclusion above calculation of Capital Base is that in calculation of Capital Base we take every item except share capital and Investment (other than contingency Reserve investment)

  1. Compulsory transfer to Contingency Reserve

Minimum .25% and maximum .50% of original cost of fixed assets must be transferred to contingency reserve until it equals 5% of the original cost of fixed assets.

  1. 4% of the opening balance of depreciation fund is charged from revenue account and added to depreciation fund in the balance sheet.
  2. If nothing is given about Bank Rate than it is taken as 10%




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