GMP 2014-15 Section B

MANAC Revenue
Recognition Principles in
Power Industry

Ambuj Tripathi (G14065)

Mahendra Nutakki (G14085)
Mayank sood (G14087)
Rajat Mittal (G14099)
Rohit Bhargava (G14103)
Sriram B (G14112)

1. Introduction:
Power or Electricity is the most critical component of infrastructure which affects the economic growth
and well-being of a nation. Coal based power generation accounts for 65% of power generation,
hydroelectric power plants account for 22%, nuclear power plants accounts for 3% and other alternate
sources account for 10% of the power generation in the country.
The Top 10 companies in India as per market as per total assets:
S. No

Company Name

Total Assets

Net
(2012-13)

Sales Net

Profit Other

(2012-13)

Income
(2012-13)

1.

NTPC

137,222.35

72,018.93

10,974.74

2688.89

2.

Power Grid Corp.

92,460.31

12,757.85

4,234.50

570.89

3.

Adani Power

27343.14

10,714.43

595.26

4.

Reliance Infrastructure

24,329.93

14,322.03

1999.52

1082.82

5.

Jaiprakash

Power 22,401.61

2,252.58

329.15

38.22

Ventures
6.

Tata Power

20,450.52

8627.04

954.08

655.76

7.

JSW Energy

11,556.11

6396.45

993.03

304.78

8.

Torrent Power

10,356.04

8129.87

384.96

140.10

9.

SJVN

9,849.12

1,682.10

1,052.34

234.52

10.

Gujarat

Industries 2,354.25

1,416.03

218.88

14.27

Power Co. Ltd.

Source www.MoneyControl.com We have omitted few companies from the original list since their
latest annual reports were either not available or carried negligible information on Revenue Recognition
principles.

2. Revenue Recognition Policies:

The Revenue Recognition principles with respect sale of goods, sale of services, interest income,
dividend income and other income sources for each company are as listed below.

1. NTPC:
a. Revenue Recognition:
1. Sale of Energy: This is accounted based on tariff rates (provisional or final) approved by the
concerned regulatory authority.
2. Income from Consultancy Services: Accounted for based on actual progress and work executed
per the respective contracted agreement.
3. Dividend Income: Dividend is accounted for when the right to receive income is established.
4. Interest Income/Warranty Claims: Wherever there is uncertainty of realization claims are not
treated as accrued and only accounted for on acceptance.
5. Scrap sales other than steel - Accounted for as and when sold. Scrap sales adjusted while
arriving at capital work in progress.
6. Reimbursement of expenditure - Recognized as other income based on the nature of
contractual agreement.
b. Other Observations:
1. Surcharge/ Interest on late payment/overdue sundry debtors and liquidated damages are
recognized when no significant uncertainty as to measurability or collectability exists.
2. Foreign currency transactions are recorded initially at the rate prevailing on the date of
transaction.
3. Advance against depreciation recoverable from customer - Advance against depreciation
considered as deferred revenue in prior years (to the extent of depreciation charged in accounts
was higher than depreciation recoverable in future years) included in sales.
4. Electricity Duty on Energy Sales -Reduced from sales.
5. Insurance claims - On year of acceptance or based on certainty of acceptance.

2. Power Grid Corporation:

a. Revenue Recognition:
1. Sale of Energy: Transmission income is recorded on basis of tariff orders notified by the CERC.
In case of transmission projects, where final tariff orders are yet to be notified, transmission
income is recorded as per tariff norms and other amendments notified by the CERC in similar
cases.
2. Income from short term open access is recognized on basis of regulations notified by the CERC.

3. Dividend: Income from dividends is recognized when the right to receive payment is
established.
4. Sale of Goods: Income from Sale of Goods is recognized upon the transfer of significant risk or
reward of ownership to the buyer.
b. Other Observations:
1. Transactions in foreign currencies are recorded at exchange rates prevailing on the date of
transaction.
2. The transmission system incentive/disincentive is accounted for based on certification of
availability by the respective regional power committees and in accordance with the norms
notified/approved by the CERC.

3. Adani Power:
a. Revenue Recognition:
1. Sale of Energy: Revenue from Power Supply is accounted for on the basis of sales to State
Distribution Companies in terms of the Power Purchase Agreements (PPA) or on the basis of
sales under merchant trading based on the contracted rates, as the case may be.
2. Interest income: Interest Income is accounted for on an accrual basis.
3. Dividend: Dividend is accounted for when the right to receive income is established.
b. Other Observations:
1. Delayed payment charges and interest on delayed payment for power supply are recognized, on
grounds of prudence, as and when recovered.
2. Non-monetary foreign currency items are recorded at cost price.
3. recognition of transaction in foreign currencies is done at exchange rates prevailing at the date
of transaction or at rates that closely approximate the rate at the date of transaction

4. Reliance Infrastructure:
a. Revenue Recognition:
1. Sale of Energy:
1. Revenue from sale of electrical energy is accounted for on the basis of billing to consumers
inclusive of fuel adjustment charges (FAC) and includes unbilled revenue accrued up to end
of accounting year.

2. Where meters have stopped or are faulty, the billing is done based on the past consumption
for such period.
2. Sale of Services: Revenue from Construction Contract is recognized using the Percentage
Completion Method. Profit is recognized only when the outcome of the contract can be
estimated reliably.
3. Interest Income: Interest income is recognized on a time proportion basis after taking into
account the principal amount outstanding and the rate applicable. Income from mutual fund
scheme having fixed maturity plans is accounted on declaration of dividend or on maturity of
such investments.
4. Dividend: Dividend on investment is recognized when the right to receive the payment is
established.
b. Other Observations:
1. Insurance and other claims are recognized as revenue on certainty of receipt on prudent basis.
2. Transactions denominated in foreign currencies are recorded in the reporting currency, by
applying to the foreign currency amount the exchange rate between the reporting currency and
the foreign currency at the date of the transaction.
3. Revenue from Transmission Charges are accounted on the basis of periodic billing to consumers
/ state transmission utility.

5. Jai Prakash Power Ventures:

a. Revenue Recognition:
1. Sale of Energy: Revenue from sale of electrical energy is accounted for on the basis of billing in
accordance with the provisions of Power Purchase Agreement.
2. Sale of VER: Revenue from sale of Verified Emission Reductions (VERs), is accounted for, on
receipt basis.
b. Other Observations:
1. Insurance claims are accounted for on receipt basis or as acknowledged by the Insurance
Company.
2. Other income/cost expenditure are accounted for on accrual basis, as they are earned or
incurred.

3. Advance given against depreciation during loans to facilitate repayment, instalments is treated
as Deferred Revenue. Such deferred revenue shall be included in Sales in subsequent years.

6. Tata Power:
a. Revenue Recognition:
1. Sale of Energy: Revenue from Power Supply and Transmission Charges are accounted for on the
basis of billings to consumers/state transmission utility and includes unbilled revenues accrued
up to the end of the accounting year.
2. Income from Services:
1. Income on contracts in respect of Strategic Engineering Business and Project Management
Services are accounted on Percentage of Completion
2. Revenue from infrastructure management services is recognized as income as and when
services are rendered and no significant uncertainty to the collectability exists.
3. Revenue from Carbon Credit & Renewable energy certificate: Revenue from Sale of Carbon
Credit and Renewable Energy Certificate is recognized at the time of delivery.
4. Interest income: Interest income and guarantee commission is accounted on an accrual basis.
5. Dividend income: Dividend Income is accounted for when the right to receive income is
established.
b. Other Observations:
1. Delayed payment charges and interest on delayed payments are recognized, on grounds of
prudence, as and when recovered/confirmed by consumers.
2.

Amounts received from consumers towards capital/service line contributions are accounted as
a liability and are subsequently recognized as income over the life of the fixed assets.

3.

All exchange differences arising are recognized as income/expense in the same period in which
the gain or loss on disposal is recognized.

4.

Recognition of transaction in foreign currencies is done at exchange rates prevailing at the date
of transaction or at rates that closely approximate the rate at the date of transaction.

5. Non-monetary foreign currency items are carried at cost price.

7. JSW Energy:
a. Revenue Recognition:
1. Revenue from Sale of Energy: Revenue from sale of power is recognized when substantial risks
and rewards of ownership is transferred to the buyer under the terms of the contract.
Power supplied under banking arrangements is accounted as per terms of agreements.
Quantity of power banked is recorded as a loan transaction valued at cost or net realizable value
whichever is lower and recognized as revenue when the same is returned and sold to an
ultimate customer
2. Revenue from Services: Revenue from construction contract is recognized by reference to the
overall estimated profitability of the contract under the percentage of completion method.
b. Other Observations:
1. Operator fees and other income are accounted on accrual basis as and when the right to receive
arises.

8. Torrent Power:
a. Revenue Recognition:
1. Sale of Energy: Revenue (income) is recognized when no significant uncertainty as to the
measurability or collectability exists.
2. Sale of CER: Gross proceeds from CERs is recognized when all the significant risks and rewards of
ownership of CERs have been passed to the buyer, usually on delivery of the CERs.
3. Dividend Income: Dividend is accounted when the right to receive payment is established.
4. Interest: Interest on overdue receivables of energy bills, insurance, coal and other claims, casual
income etc. are accounted on grounds of prudence, as and when recovered.
b. Other Observations:
1. Revenue recognized in excess of billing has been reflected under Other Current Assets as
unbilled revenue.
2. In view of the uncertainties involved in the recoverability, the Company accounts for the
quarterly fuel and power purchase price adjustment claims as and when allowed by the
regulatory authorities and truing-up adjustment claims as and when realized.

9. SJVN:
a. Revenue Recognition:
1. Sale of Energy: Sale revenues are provisionally recognized based upon principles outlined in
applicable tariff regulations
2. Income from Services: Accounted for based on actual progress / technical assessment of work
executed based on contractual agreement
3. Interest Income: Interest recoverable or claims from suppliers/contractors under dispute
recognized only when realized/upon receipt
b. Other Observations:
1. Advance against depreciation - Is reduced from sales and considered as deferred revenue to be
considered as sales in future years
2. Surcharge on late payment/overdue sundry debtors - Recognized on receipt or when there is
reasonable certainty of realization.
3. Energy sales is less of permitted power adjustment, user charges and taxes recoverable from
beneficiaries.
4. Consultancy income is part from revenue from operations (other operating revenues)
5. Other income comprises of interest income, surcharge on late payment / liquidated damages
recovered, sale of scrap, profit on sale of fixed assets, recoveries, rental charges, forex
fluctuation adjustments, prior period income.

10. Gujarat Industries Power Company Ltd.:

a. Revenue Recognition:
1. Sale of Energy: Revenue from sale of energy is recognized when no significant uncertainty as to
the measurability or ultimate collection exists.
2. Interest Income: Interest on investment is booked on a time proportion basis taking into
account the amounts invested and the rate of interest.
3. Dividend Income: Dividend income is recognized when the right to receive payment is
established.
b. Other Observations:
1. Claims lodged with insurance company in respect of risk insured are accounted on admittance
basis.

2. Delayed payment charges under Power Purchase Agreements are recognized, on grounds of
prudence, as and when recovered.
3. Unscheduled Interchange (UI) charges receivable/payable is accounted as and when notified by
State Load Dispatch Center (SLDC)
4. Other income is recognized on accrual basis except when realization of such income is
uncertain.
5. Transactions in foreign currency are accounted for at the exchange rate prevailing on the date
of transactions.

3. Comparative Analysis:
The following table provides a comparative analysis of the accounting principles with respect to revenue
recognition of the ten companies listed above.
S.No

Revenue

Principle followed

Recognition

Impact

on

Balance

Company Name

Sheet

Category
1.

Realization
revenue

of
from

sale of energy

Revenue

In case it becomes

recognized on the

doubtful

basis of billings to

revenue, the company

customers but only

can only recognize the

when it is reliably

expenses

measured

against making the sales

reasonable

and
expect

to

All Companies

collect

incurred

as revenue

collection

2.

Realization
Revenue
Services

of
from

Revenue

on

Revenue

Long

Reliance Infra, Tata Power Strategic

percentage

of

term service contracts is

Engineering Business & project management

recognized

services, JSW Energy, SJVN, NTPC

completion basis

from

as

per

percentage

of

completion

method

which is certified by the

client. Hence, if the
customer

does

not

S.No

Revenue

Principle followed

Recognition

Impact

on

Balance

Company Name

Sheet

Category
agree

with

the

percentage

of

completion

measured

by the company, the

revenue

recognized

shall be reduced

3.

Revenue recognized

Company has to wait for

Tata Power excluding Strategic engineering

as

the

business & project management services

and

services

when
are

provided

completion

services

provided

of
to

recognize the revenue.

In

case

the

service

period is long term, the

entire revenue will be
recognized only at the
end of the period which
causes volatility of the
balance sheet revenue

4.

Revenue

from

Recorded

at

Exchange

rates

can

foreign

exchange

rate

fluctuate

currency

prevailing on the

differences between the

transactions

date of transaction

revenue recognized and

causing

the actual remittances

received. If exchange
rates rise, company has
additional
income

positive
from

the

transaction. If exchange
rates fall, company shall
incur a loss due to lower

All

S.No

Revenue

Principle followed

Impact

Recognition

on

Balance

Company Name

Sheet

Category
remittance

amount

received

5.

Revenue

from

Interest Income

Revenue recognized

Interest

income

is

on accrual basis

recognized as it accrues

NTPC, Adani Power, Tata Power,

irrespective of whether
actual

payment

is

received or not

Revenue recognized

Interest

income

on time proportion

proportional

basis

balance sheet period is

to

the

Reliance Infra, Gujarat Industries Power

Company

recognized irrespective
of

whether

actual

payment is received or
not

Income recognized

Interest income which is

on

recognized

accounts

of

for

Torrent Power, SJVN

has

ground of prudence

provisions created and

or when recovered

closed when amount is

recovered.

6.

Revenue

from

Dividend

Revenue

only

NTPC, Power Grid Corporation, Adani Power,

is

recognize dividends in

Reliance Infra, Torrent Power, Gujarat

when

the balance sheet when

Industries Power Company

the right to receive

there is good possibility

is established

of receiving the same.

dividends
recognized

8.

Revenue

from

from

The

revenue

Companies

can

is

Company has to wait till

Jai Prakash Power Ventures, Tata Power,

Certified

recognized only on

completion of CER to

Torrent Power

Emission

delivery

recognize revenue. If

S.No

Revenue
Recognition

Principle followed

Impact

on

Balance

Sheet

Category
Reduction

cannot distribute the

Program

revenue over the period

of the program. CERs
are in the form of
certificates, just like a
stock and are to be
treated as goods.

Company Name