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Consultancy work of Preparation of Financial Statements
for the Financial Year 2017-18 to 2020-21
At
Modern Coach Factory, Raebareli
By
Shiromany Tyagi and Company,
Chartered Accountants.

About-Modern Coach Factory (MCF)
• In Dec 2015, MCF was planned at a total cost of Rs 3,192 Crore, with
annual production capacity of 1000 coaches. The first completely in-
house manufactured coach was turned out in August 2014. Since then,
MCF has almost doubled it’s production year by year, starting from 140
coaches in 2014-15, to 285 coaches in 2015-16, then 576 coaches in
2016-17 and first time achieving the given production target of 710
coaches by manufacturing 711 coaches in 2017-18 ,MCF has turned
out 1425 coaches in 2018-19 against a target of 1422 coaches. MCF also
produced 1920 coaches in the year 2019-20. In spite of Low Production
rate due to Locked Down, MCF has produced 1360 coaches due to
revised target in 2020-21.

Existing System of Accounting in Indian
Railways
Indian Railways is presently following Cash based system of Accounting.
Following are the key features of cash based system of accounting:
 The recognition trigger is simply based on flow of cash;
 Its primarily focuses on “Cash management”; and
 Budgetary and legislative compliances are easier under this system.

Limitations of Cash system of Accounting
• It does not give the full information on receivables e.g. accrued
income like outstanding royalty, fees, service charges, tax arrears
etc.;
• Comprehensive information is not available about government
liabilities;
• Unit cost and total cost of services provided by the entity is not
ascertainable;
• It ignores certain transactions by not recording expenditure already
incurred but payment not made e.g. salary, telephone charges,
overdue interest etc.;

Cont......
•No weightage is given to the concept of ‘matching’;
•No disclosure is made about contingent assets and contingent
liabilities;
•No information is provided about existing net liabilities of public
enterprises and agencies outside the government, although the latter
cannot escape such liabilities; and
•No disclosures are made about Accounting Policies on the basis of
which Financial Statements are prepared.

Accrual Based System of Accounting
 The accounting method under which revenues are recognized on
the income statement when they are earned (rather than when the
cash is received) and expenses are matched with the related revenues
and/or are reported when the expense occurs, not when the cash is paid.
 The transactions are recognised as soon as a right to receive
revenue and/or an obligation to pay a liability is created;
 The expenses are recognised when the resources are consumed and
incomes are booked when they are earned; and
 Its emphasizes on the recording of flow of resources i.e. labour,
goods, services and capital, the related cash flow may take place
after some time (of event) or it may or may not take place in the
same accounting period.

Advantages of Accrual Accounting System
•It helps in the assessment of financial performance correctly
•It gives information on whether income streams are adequate to meet
short and long term liabilities.
•It provides comprehensive information on expenses which helps in
knowing the cost consequences of policies and enables comparison
with alternative policies.
•Liquidity position of the Government can be better assessed.
•It gives comprehensive information on the Financial Position i.e.
assets and liabilities of government.

Cont....
 It bridges the gap leftover by cash accounting by inclusion of
accrued expenses and revenues (receivables and payables), assets,
liabilities and provisions, depreciation on fixed assets etc. in the
accounting system.
 It discloses the Accounting Policies used in the preparation of
Financial Statements for better understanding.

 Higher Transparency and Accountability;
 Value-addition to Strategic Financial Decision-making;
 Value-added Disclosures;
 Analyzability of Financial Statements;
 Comparability of Financial Statements;
 Increased value of Management Discussion and Analysis (MD&A);
and
 Increased effectiveness of internal control systems.
Qualitative Benefit of Accrual Accounting

 Review of Existing Accounting System;
 Preparation of Fixed Asset Register as per formats finalized by ICAI-
ARF team in consultation with Railway Board;
 Capturing of information related to Current Assets and Current
Liabilities as per CA-CL Format
 Uploading the FAR and CA-CL formats in IT utility prepared by
CRIS;
 Preparation of Trial Balance;
 Compilation of Financial Statements in IT utility; and
 Notes to Accounts.
Life Cycle of the consultancy Project - A
De-brief of Activities to be Followed

1. Review of Existing Accounting Systems
a. To undertake a diagnostic review, primarily with the purpose of
better understanding of the existing system and to plan the
strategies and measures for implementation of accounting reforms;
b. To study applicable codes and manual for Indian Railways and
other relevant material;
c. To analyze the present financial records, registers etc. and the
existing Financial Statements prepared on that basis;
d. To study in detail the information available on website of Indian
Railways, Annual report and other relevant sources;
e. To interact with the officials of Indian Railways.

2. Preparation of Fixed Asset Register
• Update the FAR in respect of assets which are introduced or
condemned during the Financial Year;
• Data of Fixed assets are obtained from all the departments under
MCF;
• Data is captured in prescribed formats;
• Asset introduced during the Financial Year is taken at ACTUAL
COST only.
• To charge the deprecation on all the fixed assets as per rates
specified by Railway Board; and
• To upload the formats of fixed assets in IT utility and validated the
same.

3. Preparation of CA-CL Formats
 Capture the data which are not captured in cash based accounting
which inter alia includes
 Advance Earning, i.e., earning received but not due
 Accrued Earning, i.e., earning due but not received
 Payables, i.e., services/supply received but payment not made
 Data will be captured in Accrual Impact sheet as per the guidelines
 To collect the information related to Current Assets and Current
Liabilities from different units/departments of MCF;
 To Identify and Classify the information into various formats of CA-01
to CA-15 and CL-01 to CL-18;
 To upload the formats of CA and CL in IT utility and validated the
same.

3. Preparation of Trial Balance
• Information related to Trial Balance are compiled from Account Current, Fixed Asset
register, Current Assets, Current Liabilities and Block Account;
• There are two side of Account Current, i.e., Receipt and Outgoing;
• Receipt sides denotes Credit Transactions while Outgoing side represent debit
Transactions;
• In Trial Balance, all credit transactions shall be put on credit side and all debit
transactions on debit side and final balance would be derived, which might be debit or
credit.
• Trial Balance is prepared from the Account current to categorized the transactions into:
– Assets;
– Liabilities;
– Income; and
– Expenditure

4. Compilation of Financial Statements
• Financial statements are intended to meet the needs of stake
holders and evaluating decisions about allocation of resources and
to demonstrate the accountability of the entity for the resources
entrusted to it. like taxpayers, members of Legislature, Government
entities, INVESTORS and the public.
• objective - to provide ‘true and fair’ view of the financial position,
financial performance and cash flows of the entity which is useful to
a wide range of users in making
• A complete set of financial statement comprises of:
– A statement of financial position; (Balance Sheet)
– A statement of financial performance; (Profit and Loss Account)
– A statement of changes in net assets/equity;
– A cash flow statement.

Status of the Project so far..
Particulars FY 2017-18 FY 2018-19 FY 2019-20 FY 2020-21
Fixed Assets
Register
Completed Completed Completed Completed
CA-CL Formats Completed Completed Completed Completed
Preparation of
Trial Balance
Completed Completed Completed Completed
Compilation of
Financial
Statements
Completed Completed Completed In Progress
Notes to
Accounts
Completed Completed Completed In Progress

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