Differences between Government & Commercial Accounts

      Are the Government Accounts and Commercial Accounts are same or not?  If not explain the differences between both with the backdrop of Indian Railways ? 

      The Indian Railways is a departmental commercial undertaking of the Government of India. That means on one side, It performs as departmental functions like other Government depts such as Defence, Finance, CPWD, etc and on other side act as Commercial undertaking since Railways manufacture and sells the perishable commodity "TRANSPORT".  Hence the accounts of Indian Railways should comply the Government Accounts as well as Commercial Accounts.

       To achieve this distinguishing accomplishment,  Indian Railways has performing dual role of maintaining  the both sets of Accounts with the help of Four suspense Heads i.e., 1. Demands Payable (DP) 2. Labour  3. Traffic Account  4. Demands Recoverable.  These are called "LINK HEADS", since the same are linking Government accounts and Commercial Accounts.  The discussion on LINK HEADS will be discussed separately in the same blog.

      The following features are the differences between Government accounts and Commercial Accounts.

GOVERNMENT ACCOUNTS	COMMERCIAL ACCOUNTS
1. Government Accounts are maintained on CASH basis. It accounts Actual cash receipts and actual cash payments during the financial year.	A.  In Commercial Accounts, ACCRUAL is the basis. That means Accrued earnings, whether realised or not, and the liabilities incurred, whether actually disbursed or not.   In the above example,
2. The Govt. Accounts are technically known as "FINANCIAL ACCOUNTS"  and maintained in accordance with the requirements of Government Accounts.  These accounts compiled annually for the purpose of representing a Consolidated Fund duly classified under the heads of accounts prescribed for Government accounting system.	B.  The Commercial Accounts are technically knows as "CAPITAL AND REVENUE ACCOUNTS".   These accounts facilitate a review of finances of the Railway as Commercial undertaking.  These are compiled every and included in the Annual Report of the Railway.
3. Mostly Government Accounts are maintained on Single entry system.	C. Commercial Accounts are maintained on Double entry system. (For every Debit, there is equivalent Credit existed)
4. Government prepares Accounts of its incomings and outgoings only. (Not Profit & Loss A/c and Balance Sheet, since it is not commercial oriented)	D. Commercial firms prepares Profit & Loss A/c and Balance Sheet to know how much profit they earned during the year and what is their position (Assets and Liabilities) at the end of the year.
E. Government Accounts are designed "How little money it (Govt) need to take out of the pocket of the tax payer (citizen) in order to maintain its necessary activities i.e., welfare of the people, defence of the country etc".	E. Commercial Accounts are designed to show how much money the firm can put into the pockets of the owner/business in the form of Profit.

Differences between Lease & License

Differences between Lease and License

1991 with Books - 10 marks.

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Lease:   

1. It is an agreement between the Lessee (user) and the Lessor (owner) for use of an asset in return for specified rental/lease payments.

2. As per Section 105 of The transfer of Property Act, 1882   -  " A transfer of right to enjoy the concerned property for a pre-defined time period or in perpetuity subject to the consideration given by Lessee (user of the property)  to the Lessor (owner of the property).
License:

1. A promise by the Licensor not to sue the Licensee.  That means without a License, any use or exploitation of intellectual property by a third party would amount to copying or infringement.

2. As defined in section 52 of the Indian Easements Act, 1882  -  " License does not allow any interest in the Property on the Licensee's part.  It merely gives the Licensee the right to use and occupy the Property for a limited duration."

Basically looks both terms are one and alike.  But for entitlement/possession and title of property, many a difference between Lease and Licensee.  Those who ( Property owners) avoid risk will prefer License mode.  But they have to lose higher remuneration/compensation compare to Lease mode.

Lease	License
1.Parties: Lessor (owner) and Lessee (user)	1.Parties: Licensor (who accorded permission) and Licensee (to whom permission is accorded)
2. Exclusive possession of property to Lessee for a period of time.	2. No such exclusive possession of property to Licensee.
3. It is irrevocable.  Means cannot be cancelled before the completion of Agreement unless otherwise specified.	3. It is revocable/cancel before the completion of Agreement at the choice of Licensor.
4. Consideration is called Lease rental	4. consideration is called Fees.
5. It is transferable.  That means Lessee can transfer the lease to third party.	5.  It is not transferable.
6. Transfer of interest in the property to the Lessee.	6. Here the legal possession continues to be with the Licensor, not Licensee.  But Licensee is permitted to make use of the property for a particular purpose.  So it does not create any interest in the property to Licensee.
7. Can be terminated as per the terms of Agreement only.  ( But not at the will of parties).	7.  Can be withdrawn /terminated at any time by the Licensor.  For this reason organizations such as Indian Railways prefer License option rather than Lease option, while permit using of its assets by third parties.
8. It does not come to an end either by death of Lessor or the Lessee.	8. But here it come to an end either by Licensor or Licensee.
9. Lessee entitled to any improvement made to the property.	9.  No such entitlement to  Licensee for any improvement to the property.

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Differences between Demands Recoverable and Bills Recoverable

DIFFERENCES BETWEEN

Demands Recoverable (D.R)	Bills Recoverable (B.R)
1.       Introduced from 01.04.1988.	1. Existed since the beginning of Railway Accounts
2.       Purpose: to bring to account all dues pertaining to Rent/lease of Railway Land and Buildings and Interest and Maintenance Charges of Sidings.	2. Purpose: to bring into account all dues pertaining to Water, Electricity, Staff charges & AMC of LC gates
3.       When the amounts due for Railway has been raised in the form of Bills – Debited to Demands Recoverable and Credited to Abstract Z earnings.	3.When the amounts due for Railway has been passed for payment  - Debited to Concerned Revenue Demands and Credited to Cash A/c ( Cheques& Bills)
4.       On the receipt of remittance from the parties – Debited Cash A/c (RIB) and Credited to Demands Recoverable.	4. On receipt the remittance from the parties -Debited Cash A/c(RIB) and Minus Debited to concerned Revenue Demands. (exception : water charges. These will be credited to earnings)
5.       Closing Balance of D.R.: Represents unrealized amount in the form of outstanding “Demands Recoverable”.	5. No question of closing balance as there is no separate Bills Recoverable A/c
6.       Examples: A.Land rent charges for engineering and commercial plots. B. Interest, maintenance charges & Inspection charges for sidings. C. Rent of Buildings & D. Maintenance charges for ROBs, FOBs and level crossings.	6. Examples: A. Cost of commercial staff/other staff (engineering) deputed to sidings. & B. Maintenance/Wagon repair charges. C.Water bills D. Electricity bills
7.       These are form a part of Sundry earnings (Abstract Z	7.These are not part of Sundry earnings (Abstract Z).  Recovery from parties reduces the expenditure in Revenue Demands which are already accounted in Books. (exception : water charges. These will be credited to earnings)
8.       Clearance under the “Demands Recoverable” leads to reduction in Traffic Suspense.  Thus resulting in Better operating Efficiency.	8. Clearance under the “Bills Recoverable” leads to the reduction in Revenue Demands. Thus results in improving Operating Ratio.
9.       It is one of the “LINK HEADS” connecting Government Accounts with Commercial Accounts.	9. It is not a Link Head.

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Differences between Reserve Bank Suspense & Reserve Bank Deposit

DIFFERENCES BETWEEN

RESERVE BANK SUSPENSE AND RESERVE BANK DEPOSIT

Most important question asked several times in appendix 3A examination (in 1986, 1988, 1990 & 1997 (without Books) and asked as Short Notes question.

The below given material is useful for question of Differences between as well as Short notes.

Reserve Bank Suspense (RBS) :

Ø  It is a suspense head operated for settling INWARD transactions from other Accounts Officers      ( Except for Cheques & Bills and Remittance into Bank)

Ø  As and when, the ADVICES received, the RBS A/c is debited ( in case of receipts) or credited (  in case of expenditure).

Ø  on receiving "CLEARANCE MEMO" from RBI-Reserve Bank of India, the a/c in RBS is cleared by contra Debit or credit to Reserve Bank Deposit (RBD).

Ø  All balances under RBS should be NIL at the end of financial year i.e., 31st March.  If any balance is left over, the same should be transferred to MAR (if debit balance) or to Deposit Misc (if credit balance) as the case may be.

Journal entries:

example: Receiving Debit from other Accounts Officer.

1) On receipt of ADVICE ( Debit ) from the other Accounts Officer 

                                Concerned Revenue Demand        Dr.               xxxx

                                                To Reserve Bank Suspense (RBS)    Cr              xxxx

( Booking of expenditure to respective Demand and simultaneously placed under RBS for clearing due from RBI)

2) On receipt of CLEARANCE MEMO from RBI-Reserve Bank of India

                                Reserve Bank Suspense (RBS)      Dr                         xxxx

                                                To Reserve Bank Deposit (RBD)    Cr                  xxxx

(Clearing balance in RBS duly debited and credited to Railway Central Fund i.e., RBD- Reserve Bank Deposit)

RESERVE BANK DEPOSIT (RBD)

v  The original name is "Deposit with Reserve Bank" Major Head 8675.

v  It is a Railway Central Fund in the Books of Reserve Bank of India - CAS- Central Accounts Section at Nagpur.

v  It is operated to record, the "Clearance Memo" which are received from RBI in clearance of transactions intimated either by :-

a)      FA&CAO's for the transactions originating in Railway Books and are to be settled through RBI.

b)      In clearance of transactions which are intimated by other Accounts Officers to the RBI.

c)       The clearances of RIB-Remittances Into Bank  and C&B- Cheques & Bills( through PSB suspense - Public Sector Bank Suspense)

v  The Balance under RBD is closed to "GOVERNMENT" at the end of the year i.e., 31st March.

v  RBD is reconciled with the General Books.

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DIFFERENCES BETWEEN

RESERVE BANK SUSPENSE - RBS	RESERVE BANK DEPOSIT - RBD
1. Operated only for INWARD transactions	1. Operated for both INWARD & OUTWARD transactions
2. Operated for settling Inward transactions from other Accounts Office i.e., Defence, P&T etc	2. Operated for adjustment of transactions i.e., clearance of C&B, RIB and transactions settled with Non-Rly depts as well as outward transactions raised by FA&CAOs against other depts.
3. Nature of the Head is "SUSPENSE" in the books of Railways	3. Nature of the Head is FINAL i.e., "Railway Central Fund" in the books of RBI/CAS/Nagpur.
4. Until the transaction adjusted, this Head is bear the transaction.  Once the transaction is adjusted to RBD, the balance under this Head is cleared.	4. With the operation of this Head, the adjustment of transaction is over, thereby effecting the balance of Railway Deposit in RBI/CAS/Nagpur.
5. Clearance: All the items under this head should be cleared at the end of the year.  If any balance is left over, the same is transferred to MAR (debit balance) or Deposit Misc (Credit balance) as the case may be.	5. Clearance: The balance under this Head should  be transferred to GOVERNMENT at the end of the year i.e., March, 31st.

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Differences between MAR & Deposit Miscellaneous

5 marks question -1986 (WO) & 1993 (WO)

DIFFERENCES BETWEEN

MAR	DEPOSIT MISCELLANEOUS
1.It is a Suspense Head under the Major Head 3002   - Indian Railways Commercial Lines.	1. It is a Suspense Head under the Major Head 8445 - Indian Railways Deposits.
2. It records all DEBITS of transactions which cannot be booked directly to the final heads of accounts for want of allocation, inter-dept. transactions awaiting acceptance, Debit balance in Reserve Bank Suspense (RBS), etc at the end of the year.	2. It records all CREDITS like miscellaneous deposits made to Railways like Security Deposit, EMD, Court attachment recoveries, Deposit Works amount paid by concerned persons etc.
3. It always shown as Debit Balance.	3. It always shown as Credit Balance
4. The Balance under this Head should be examined to see "That there are no Credit Items"	4. The Balance under this Head should be examined to see "That there are no Debit items"
5. Direct Credit cannot be booked to this Head, unless there is corresponding Debit already there.	5. Direct Debit cannot be booked to this Head, unless there is a corresponding Credit already there.

Differences between Gross Receipts and Gross Earnings

1989 (wo), 1990 (wo) & 1995 (w) - 5 marks

DIFFERENCES BETWEEN

S.N.	Gross Receipts	Gross Earnings
1	Actual is the basis	Accrual is the basis.
2	Actually realized during the accounting period i.e., financial year. (irrespective of pertaining to previous year or next year)	Accrued during the accounting period i.e., financial year ( irrespective of whether actually realized or not)
3	Represents Gross earnings plus Traffic Suspense.	Represents Coaching Earnings plus Goods Earnings plus Sundry Earnings ( less refunds)
4	Conforms Government accounts	Conforms Commercial Accounts

Write back adjustments

WRITE BACK ADJUSTMENTS IN INDIAN RAILWAYS

• What is Write back in Indian Railways lingo?

• In Indian Railways lingo, Write Back means, at the time of condemnation of asset like rolling stock, the original cost of that asset will be write back from the source of finance for which originally used (normally “Capital” ) and debited to the Source of finance i.e., DRF – Depreciation Reserve Fund.

• For example, if the asset Diesel locomotive which is purchased at a cost of 35 Lakhs in the year 1965 and was put to condemnation in the year 2014, after expiry of its useful life period.  The Competent Authority gave its approval for such condemnation.

• In the books of Zonal Railway, the write back entries (Journal entries )are posted by using CONTRA JVs.

    In the Capital Books  - CJV

    CAP -20-2113 -08(Rolling Stock)                             ( - ) Debit  - Rs. 35 Lakhs

       Transfer Railway Revenue           (00878243)              Debit  -  Rs. 35 Lakhs

    In the Revenue Books  - RJV

     DRF – 2113- 08  (Rolling Stock)             Debit   - Rs. 35 Lakhs

     Transfer Railway Capital (008782 44)       Credit   -  Rs. 35 Lakhs

·         There by, the Capital Account is reduced to that extent (because the asset is no longer in use and condemned) and the dividend liability also reduced correspondingly.

·         The DRF - Depreciation Reserve Fund Account is debited to that extent .  The logic is,  throughout the life period of employing the said Diesel Loco in Indian Railways, "Depreciation" on yearly basis is credited to the DRF (fund). 

·         Hence the amount Rs. 35 Lakhs was write back from Capital (by minus Debit/Credit) and added to DRF (by Debit).

·         Also the proceeds realized from the condemnation of Diesel Locomotive credited to DRF  by debit to Railways Fund in RBI/Nagpur (through RIB - Remittances Into Bank A/c)

·          The operation of Depreciation Account and policy of Depreciation in Indian Railways is entirely different from commercial organizations.  Instead of providing Depreciation on individual basis, the Railways is appropriation to DRF on entire block of assets employed in Indian Railways.  In this, there is no scientific policy in providing contributions to DRF and at large depend on available amounts at the Railways.

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Differences between Write back and Write off

5 marks question in General Expenditure -1995 (WO),1997(WO) & 2001 (WO)

DIFFERENCES BETWEEN

Write back	Write off
1. Resorted for regularisation of the incorrect allocation to any Head or write back of provision in original Head.	1. Used when the Railway administration relinquishes its right of claim for one reason or other for an amount (after the same is incorporated into regular accounts)
2.The correct account head is debited and minus debit to that from which the charges are written back. Example: When the over aged coach (source of procurement is capital) is condemned, the original value of such asset i write back from the Capital as follows. CAPITAL - 2100  - Minus Debit  --   xxxxx        DRF - 2100  -  Debit              --   xxxxx	2. It mainly relates to bad debits such as irrecoverable amount of advance paid, loss of cash or stores due to theft, fraud or natural calamities, in efficient suspense balances, capital assets by amortisation etc.
3. It means to take reverse the original transaction i.e., write back for sufficient reason.	3. It means, a Debit balance in the books, but not possible to realise the same in future.   So Write off the same.

for article on Write Back adjustments

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Differences between Capital & Capital Fund

DIFFERENCES BETWEEN

CAPITAL	CAPITAL FUND
1. External source (given by Ministry of Finance)	1. Internal source ( Surplus available after paying Dividends and appropriating to DF, RSF )
2. Dividend to be paid on Capital provided by Ministry of Finance.	2. Dividend need not be paid, since it is a surplus after meeting all obligations of Railways.  On the other hand, Interest is credited to the Capital Fund on the balance of the Fund at the end of financial year.  (Rate of interest is equal to the Dividend rate and recommended by RCC from time to time)
3. Rules of allocation is prescribed in chapter V of Finance Code volume I.  They are a) cost of first construction b) Land c) Cost of construction of quarters.	3. No separate rules existing for utilizing this Fund usually charged to all Plan Heads (except Plan Heads 11 & 51).  However in current years, the Capital Fund is utilized for meeting the Plan Head 2200 - Principal component of lease charges payable to IRFC

Differences between IRCA & IRFA

Differences between IRCA & IRFA transactions

IRCA transactions	IRFA transactions
1. Expand : Indian Railway Conference Association.	1. Expand: Indian Railway Financial Adjustments.
2. Chargeable to : Demand No.09G-740-33	2. Chargeable to Demand No.09G-750-33
3. IRCA is authority for carrying out adjustments among all Zonal Railways.  Debits are raised by Northern Railway on other Zonal Railways based on the advice of IRCA.	3. Zonal Railways are responsible for raising charges on other Railways.
4. Pertaining to Goods Wagons only ( for Pakistan & Bangladesh Rly – All Rolling Stock)	4. Pertaining to Locos (Dsl & Electrical) & Coaches.
5.   A.Charges / Receipts relating to inter charged Stock (Goods wagons only) of Indian Railways-(i) Repairs, (ii) maintenance (iii) Depreciation                     B. Charges relating to Inter-change of all Rolling Stock with Foreign Railways(e.g. Pakistan and Bangla Desh Railways)	5..Will record the receipt / charges on account of adjustments carried out amongst Indian Govt. Railways on account of (i) Repairs, (ii) Maintenance and (iii) Depreciation in respect of rolling stock (other than goods wagons i.e., Locos & Coaches) of one Railway in use on other Railways.
6.Basis for calculation: Wagon balance is the net difference between the ownership and the actual holding of wagons of Zonal Railway.  On a particular day, if a particular Rly holds less number of wagons that it owns on a particular day, it is entitles to hire charges for balance of the Wagons.  Conversely the Rly holding more wagons that its own is liable to pay hire charges for the excess number of Wagons it holds.	6. Basis for calculation: (A) Locos : Debits will be passed on by the owning Railway to the using Railway at the unit cost based on the total engine hour on outage basis (i.e. from the time it leaves from the shed & till it returns to the shed) earned by the engines on the using Railway. (B) Coaches: The credit/debit adjustments should be worked out on the basis of kilometres earned by through rakes/passenger coaches running on more than one railway system. Vehicle kilometres in respect of through coaches should be worked out on the basis of the working time table periods and the rake links.

Note: Codal provisions in respect of IRCA & IRFA -Para 869 of Finance Code vol. One - Click for  Chapter 8th of Finance Code Volume One

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