1.11 Query
Treatment of salary paid to construction staff for the idle period awaiting transfer to other projects.
1. A public sector corporation, registered under the Companies Act, 1956, is engaged in construction and operation of hydroelectric power projects at different remote areas of the country. The number of staff required in a project at its construction stage is much more than the number of staff required for commercial operation of the project after completion of construction. The job requirements during construction and at operation stage are also different. The operational requirement is assessed and permanent sanction of posts for operation project is sanctioned.
2.Generally, the staff required for operation of the project are selected from the construction staff after imparting suitable training to them. The remaining staff not required for operations is declared surplus. The staff is also given option for voluntary retrenchment. The construction staff members are also being transferred in phases to other projects under construction as per the requirements. Naturally, there is some time gap between a particular category of staff becoming surplus and finding suitable alternative posting for them in other projects under construction. In the latter case, sometimes, some training is also imparted to the staff. Retention of such staff, who are accustomed to the working procedures and environment of the remote project areas, where it is not easy to get experienced staff, is considered beneficial by the corporation, even though their services are not being utilized for a certain period. Since this surplus staff is not required for operational projects and are not being transferred thereat, their salary is not chargeable to operational accounts. The remuneration paid to such staff during their training, idle period etc., is considered as part of the Head Office expenses which is allocated to different projects under construction.
3.The querist has sought the opinion of the Expert Advisory Committee as to whether the above policy adopted by the corporation is in conformity with the sound accounting principles.
Opinion February 12, 1988
1.The Committee notes from the facts of the query, that the employees rendered surplus on completion of a project, are retained for employment in other construction projects of the corporation. The salary is therefore paid to such employees for the intervening period, i.e., after completion of one project and their transfer to some other project. Since the salary for the said intervening period cannot either be allocated to a particular project or to operations, a such employees are not employed for the benefits of the operational activities of the corporation, it would be appropriate, in the view of the Committee, to treat such expenditure as indirect expenditure incidental and related to pending construction projects of the company being in the nature of general administrative expenditure in view of the general accounting principles laid down in this regard in the Guidance Note on Treatment of Expenditure During Construction Period, issued by the Research Committee of the Institute of Chartered Accountants of India.
2.On the basis of the above, the Committee is of the opinion that treatment of salaries paid to construction employees for the period for which they are awaiting transfer to other projects, as Head Office expenditure, and capitalization thereof as cost of construction of different projects under construction , is proper
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