RESPONSIBILITY ACCOUNTING

RESPONSIBILITY ACCOUNTING

              A system of control by delegating and locating responsibility for costs as well as revenues i.e., fixation of responsibility on Individuals( Sr.DEE, Sr.DCM etc), Departments (Mech dept. ,Comml. Dept etc).

Ø World Bank Team in 1970 year emphasized the need to fully develop a system of Responsibility Accounting on Railways.

Ø The Railway Convention Committee 1971 commented on the Accounting and Budgetary exercise as a routine and dogmatic exercise undertaken and produced by the bureaucratic elite.

Ø Consequently, the revised accounting Classification  came into force w.e.f 01-04-1979 which provides synchronization of Accounting and Budgetary exercises.

Salient  features:

Ø Emphasis division of an Organisation like Indian Railways among different Sub-Units like Sr.DEE or Accounts dept etc in such a way that each Sub-Unit is the responsibility of a Manager.

Ø Cause and effect relationship between the Manager’s decisions and actions.

Ø Manager should be held responsible for those activities directly falling under his/her control.

Pre-requisites:

Ø The area of responsibility and authority of each centre should be well defined.

Ø Each responsibility Centre should have clear set of Goal for the Manager.

Ø The Manager should participate in establishing such Goals that are going to be achieved.

Ø Only the Revenues, Expenses, Profits and investments that are controllable by the Manager should be included in the pefromance report of the Centre.

Ø Performance Report for each Responsibility centre should be prepared highlighting variances, the items requiring attention of the Manager.

Ø In the Performance Report of Responsibility centre, the Expenses, Revenues and Investments controlled by the Manager should only find place.

  Responsibility Centres - 4 segments

I)             Cost Centre:

Ø Examples:  Electrical Dept/Accounts Dept/Sr.DEE/Sr.DME/Sr.DFM etc.  Efforts are now on hand to identify small units such as IOW/Signal Inspector/PWI etc. as suggested by the Committee for identification of Cost Centres and profit Centres by Sri Hassan Iqbal.

Ø is a smaller segment of area of responsibility for which costs can be accumulated.  But Controllabile costs only be selected for this purpose.

II )   Revenue Centre;

Ø Examples;  Commercial Dept or Sr.DCM of a Division.

Ø Responsible for generating revenue.

      III)  Investment Centre:

Ø Examples: Projects like Doubling, New Line etc or CAO/CN, Sr.DEN etc.

Ø A segment of activity for area held responsible for both Profit and Investments.

Ø The Objective of Investment Centre is to maximize the Rate of Return on Investment.  The present Rate of Return is 10%.

     IV) Profit Centre:

Ø Examples:  Zonal Railways such as South Central Railway, Western Rly.etc.  

Ø An area of responsibility whereon the expenses and revenue pertaining to a particular Profit centre i.e., zonal Railway are accumulated;  So far zonal Railways are considering as a Profit Centre.(Profit and Loss Account and Balance sheet are prepared)

Ø Efforts are on the way to propose Divisions such as Secunderabad Division, vijayawada Division etc as Profit Centres as recommended by the Committee of Sri Hasan Iqbal.

Ø A Pilot project is being implementing the Sri Hasan Iqbal committee’s recommendation of Division as profit Centre in Vadodara Division in Western Railway with the help of Railway Staff College, Vadodara.

Ø To make Division as Profit Centre, it is necessary to introduce the Divisionalisation of Apportionment of Earnings with due weightage or originating earnings /terminating//transshipping Divisions as an inducement for adopting aggressive marketing strategies.

***