CLEAR PROFITS AND DISPOSAL

1. CLEAR PROFITS

2. Meaning
Clear Profits means the difference between the total
income and the total expenditure plus specific
appropriations such as Development Reserve,
Contingency Reserve, Reserve and Appropriations-
permitted by the concerned State Government etc.
A profit after all expenses have been paid

3. Calculation of Clear Profits
Expenditure incurred
on
Rs
1. Generation and
purchase of energy
_
2. Distribution and sale of
energy
_
3. Rent, rates and taxes _
4. Interest on loans _
5. Interest on security
deposits
_
6. Legal charges _
7. Bad debts _
Income derived from Rs
1. Receipts from sale of
energy
_
less discounts _
2. Rentals from meters and other
apparatus hired to customers
_
3. Sale and repairs of lamps etc. _
4. Rents _
5. Transfer fees _
6. Investments, fixed and calls
deposits and bank balances
_

4. 8. Auditors fees _
9. Management _
10. Depreciation _
11. Other expenses admissible for
assessment of income tax
_
12. Contribution to PF, pension etc. _
Total _
Special Appropriations
1. Loss of previous year _
2. All taxes on income and profits _
3. Amounts written off intangible
assets and new capital expenses
_

5. 4. Contribution to the
contingencies reserve
_
5. Contribution towards
arrears of depreciation
_
6. Other special
appropriation permitted by
the State government
_
Grand Total _
Balance – Clear Profit _

6. Reasonable Return
In order to prevent an electricity undertaking to earn too high a
profit, a reasonable return has been allowed. It means the sum
of the following:
1. A yield at the standard rate on the capital base
2. Income derived from investments other than those included
in the capital base
3. An amount equal to
i. ½% on the loans advanced by state electricity board
ii. ½% on the amount s borrowed from approved financial
institutions
iii. ½% on the amount realised by issue of debentures
iv. ½% on the balance of development reserve

7. Capital Base
a) Original cost of fixed assets less the cost of service lines
contributed by consumers
b) Cost of intangible assets such as underwriting commission
and such preliminary and promotional expenditure as has
fairly arisen in promoting the business excluding any
amount paid on account of goodwill
c) Original cost of work in progress
d) Amount of investments compulsorily made on account of
contingency reserve with the amount such investments
made from contributions towards depreciation as could not
be utilised for the purpose of company’s business
e) The amount of working capital equal to the sum of:

8. 1. One-twelfth of book cost f stores, materials and supplies
including fuel in hand at the end of each month of the year of
account
2. One-twelfth of the sum of cash and bank balances and call and
short-term deposits at the end of each month of the year of
account, not exceeding one-fourth of the operating expenses
excluding generation, interest to the state electricity board and
the depreciation or in short monthly average of current assets but
excluding debtors
Following deductions are to be made from the amount of working
capital as calculated above
1. The amount written off or set aside on account of depreciation of
fixed assets and the amounts written off in respect of inatangible assets
in the books of the company
2. The amounts of any

10. Disposal Of Surplus
Surplus is excess of clear profit over reasonable return. If clear
profit exceed the reasonable return the surplus has to be
disposed of as under:
(a) 1/3rd of such excess, not exceeding 5% of the amount of
reasonable return, shall be at the disposal of the company as a
reward for efficiency
(b) Of the balance of the excess, one half shall be transferred to
a Tariffs and Dividends Control Reserve, and the remaining half
shall be distributed in the form of proportionate rebate to
consumers on the amounts collected from sale of energy and
meter rentals. Pending distribution, this remaining half is
carried to a Consumers Benefit Reserve