Lecture given by M.Nageswara Rao, SSO(A)/south central railway, secunderabad on the subject of "Railway classification of expenditure or Railway Allocation rules on 10th September, 2011 at ESTC/Lallaguda, Secunderabad.

2. LECTURE ONrAILWAY ALLOCATION RULES Date: 10th September, 2011 Venue: ESTC/Lallaguda/Secunderabad By M.NageswaraRao, SSO(A)/S.C.Railway, Secunderabad

3. PREFACE This presentation is only illustrative and not exhaustive. Here, I am customized the Classification of Accounts expenditure according to Lallaguda unit needs.

4. What requires to perfect in allocations The First and foremost is Little interest One should have little interest in the allocations which he/she should do the work.

5. What requires to perfect in allocations The Second One is Should have Finance Code Volume II (Classification of Accounts Expenditure and Earnings) – either a hard copy or soft copy. Soft copy of the above one as well as other Railway Codes and Manuals is available in the Accounts Office.

6. Gone are the days, when one is facing so many difficulties to access to Railway Codes and Manuals. Due to wide use of computers, all codes and manuals are available at fingertips (through soft copy). What requires to perfect in allocations

7. What requires to perfect in allocations But most of the people afraid of the big volume covering nearly 250 pages. But the real fact is, if one condenses the above volume according to his requirements, it comes in just 50 pages.

11. So further it bring down from 130 pages to 50 pages only.

12. It may come down more, in case of executive staff, who is concern of his unit/department.What requires to perfect in allocations

13. What requires to perfect in allocations Even that 50 pages too meant for just reference and when ever the occasion arises only. For salaries and other regular expenses, if one landed in the correct allocation, they need not worry about further.

14. What requires to perfect in allocations NOW TAKE A PRACTICAL EXAMPLE, BY SELECTING DEMAND NO. 4 (REPAIRS AND MAINTENANCE OF PERMANENT WAY AND WORKS)

16. 3 Sub Heads (Out of 34 Sub Heads)

18. What requires to perfect in allocations The Third and Last one is Check that correct allocation is covered under BUDGET GRANT allotted to your Department or Unit. Otherwise, although the allocation is correct one, but it placed under Annexure K as “ Expenditure without Grant”

19. What requires to perfect in allocations For this purpose, we are distributing copies of Budget Grant for the current year i.e., 2011-12 to all the participants in this session. It is classified Department wise and Grant is available for Sub Head wise and PU wise. In addition to that, the important allocations of Suspense Heads ( Not Revenue allocations) also compile in one document and distributing to all the participants.

20. What requires to perfect in allocations After arriving the correct allocation, it is the duty of the staff to glance the above Budget Grant statement and ensures that funds are available for the said correct allocation (both Sub Head and Primary Unit of allocation) If not matches with the available grant, there is a possibility of MIS CLASSIFICATION.

21. What requires to perfect in allocations Some times, the activity for which expenditure may not cover under Budget grant. In such cases, funds will be asked for those activities during Budgetary Reviews such as August Review, Revised Estimates and Final Modification. Otherwise such expenditure will be included in Annexure K as Expenditure without Grant.

22. HOW TO IDENTIFY THE DEMAND NO AS PER ACTIVITY The moment the expenditure is going to be incurred, the executive staff has to identify primarily the Demand for which the activity is chargeable. For that recognize of all the Revenue Demands by staff is must.

23. HOW TO IDENTIFY THE DEMAND NUMBER AS PER ACTIVITY Understand of all Demands i.e., 03 to 13 is very easy, if one visualize the activities involved in the Demands. BECAUSE THE ORDER OF DEMANDS 03 TO 13 ARE PLACED AS PER THEIR ROLE IN THE TRANSPORTATION ACTIVITY. I expect, all the participants grasp easily all the 03 to 13 Demands once followed my visualization.

24. 03 DEMAND – gen.supdt.services BOSS

25. 04 DEMAND – P.WAY & WORKS

26. 05 DEMAND – LOCOS (MOTIVE POWER)

27. 06 DEMAND – CARRIAGES & WAGONS

28. 07 DEMAND – PLANT & EQUIPMENT

29. 08 DEMAND – OPTG.EXPENSES-ROLLING STOCK & eQUIPMENT

30. 09 DEMAND – OPTG.EXPENSES - TRAFFIC

31. 10 DEMAND – OPTG.EXPENSES - FUEL

32. 11 DEMAND – STAFF WELFARE AND AMENITIES

33. 12 DEMAND – MISCELLANEOUS WORKING EXPENSES

34. 13 DEMAND – P.F., PENSION & OTHER RETIREMENT BENEFITS

36. Detailed head & Primary unit

37. Now, come to practical-- Salaries of ministerial staff of CWM/LGD (functional) - DEMAND NO. 06 MINOR - 100 SUB - 110 DETAILED - 112 Thus, the final head of account is 06-112 Under this detailed head, Pus 01 to 16 and 20 are operated.

38. Now, come to practical-- Salaries of ministerial staff of Dy.CEE/Shops/LGD(functional) - DEMAND NO. 06 MINOR - 100 SUB - 140 DETAILED - 147 Thus, the final head of account is 06-147 Under this detailed head, Pus 01 to 16 and 20 are operated.

39. Example: Salaries of ministerial staff of S&T WORKSHOP (functional) DEMAND NO. - 07 MINOR HEAD - 100 ( Establishment in Offices) SUB HEAD - 110( Officers and Office est.-S&T) DETAILED HEAD-113 ( Admn. Office est -workshop.) Thus final head of account is 07-113 Under this detailed head, Pus 01 to 16 and 20 are operated.

40. Example: Salaries of ministerial staff of STORES DEPOTS DEMAND NO. - 03 (Gen.Suptd & Services) MINOR HEAD - 400 ( Materials Management) SUB HEAD - 420( Stores Depots) DETAILED HEAD-422 ( Office Est. (other than stock keeping, receipt and inspections.) Thus final head of account is 03-422 Under this detailed head, Pus 01 to 16 and 20 are operated.

41. EXPLANATORY NOTES IT IS GIVEN AT THE END OF EACH DEMAND IN THE FINANCE CODE VOLUME II. MOST USEFUL FOR UNDERSTANDING ALLOCATIONS IF ONE HAVE ANY AMBIGUITY IN UNDERSTANDING THE SAME.

42. Contingent expenditure

43. CONTINGENT EXPENSES UNDER 04, 06 AND 07 DEMANDS SUB HEAD 130 IS EXCLUSIVELY FOR CONTINGENT EXPENSES EXAMPLES OF CONTINGENT EXPENSES: Office expenses such as stationery, forms, books, telephone bills, etc.

44. NEW PENSION SYSTEM

45. NEW PRIMARY UNITS 15 - COMPOSITE TRANSFER GRANT (CTG) 20 - LEAVE ENCASHMENT 25 - CHILDREN EDUCATION LEAVE (PREVIOUSLY IT IS CALLED AS RTF) - Operated only in Demand No. 11

46. SIGNIFICANCE OF DIFFERENTIATING REVENUE FROM CAPITAL In simple view, REVENUE means Recurring expenditure like salaries, office expenses, maintenance, fuel etc. CAPITAL means One time expenditure like acquisition of locos, coaches, etc.

47. Dr. PROFIT AND LOSS A/C OF X COMPANY Cr. To Purchases 1,00,000 By Sales 1,20,000 To Salaries 2,000 To Office exp. 5,000 To Rent 5,000 To Profit 8,000 ----------- ------------ 1,20,000 1,20,000 ------------ ------------- BALANCE SHEET OF X COMPANY CAPITAL AND LIABILITIES ASSETS CAPITAL 1,50,000 CASH - 1,28,000 ADD: Profit 8,000 FURNITURE - 30,000 ------------ 1,58,000 ----------- ------------ 1,58,000 1,58,000 ------------ -------------

48. If I show, the furniture payment Rs.30,000 in Profit and Loss A/c (instead of Balance Sheet), the profit Rs.8,000 just turn into loss of Rs.22,000. -- To evade Income tax, this trick is played by companies. Similarly if Office expenses Rs.5,000 shows as office furniture in Balance Sheet(instead of Profit and Loss A/c), the profit will shoot up from Rs.8,000 to Rs.13,000. -- To get a loan from banks, by showing efficient the business they are running. Also termed this one as WINDOW DRESSING. SIGNIFICANCE OF DIFFERENTIATING REVENUE FROM CAPITAL

49. Take the following live example in which, the Mistake in this simple categorization cause irreversible damage and turned two giant organizations in their field to no more entities. SIGNIFICANCE OF DIFFERENTIATING REVENUE FROM CAPITAL

51. Fortune named Enron "America's Most Innovative Company" for six consecutive years

54. SIGNIFICANCE OF DIFFERENTIATING REVENUE FROM CAPITAL Arthur Andersen Because of It’s wrong practices in accountancy i.e., showing capital receipts as revenue receipts, it caused fall of Giant American company as well as termination of itself.

55. SIGNIFICANCE OF DIFFERENTIATING REVENUE FROM CAPITAL Arthur Andersen From a high of 28,000 employees in the US and 85,000 worldwide, the firm is now down to around 200 based primarily in Chicago due to effect of ENRON BANKRUPTCY.

56. HIGHER ORDER THINKING QUESTIONS WHAT IS THE LOGICAL DIFFERENCE BETWEEN CAPITAL AND CAPITAL FUND?