The Twin Accounting System in Indian Railways
Sunday, May 13, 2018
Indian Railway Finance & Accounts Lecture Series 7
Wednesday, May 9, 2018
Wednesday, May 2, 2018
TRAFFIC COSTING - COACHING COST STAGES
COACHING COSTING
The Coaching expenses (excluding expenses for EMU services) are split
into various components in 19 stages as follows
Stage I - Distribute the expenses in Running and Terminals and overheads.
Stage II - Distribute Running expenses into Passenger, parcel and catering.
Stage III – Distribute Passenger expenses, into M/Exp and Ordinary.
Stage IV – Further Distribute Passenger expenses class-wise.
Stage V – Distribute Running Parcel into M/Exp. And Ordinary
Stage VI – Distribute Running Catering into M/Exp and Ordinary
Stage VII – Distribute Terminal Expenses into Booking, Ticket, Enquiry, Special. Services, Misc. Terminal, Parcel and Catering.
Stage VIII – Distribute booking expenses into M/Exp & Ordinary
Stage IX - Further distribute booking expenses class-wise.
Stage X – Distribute Ticket expenses into M/Exp & Ordinary.
Stage XI – Further Distribute Ticket expenses class-wise.
Stage XII – Further Distribute enquiry expenses into M/Exp & Ordinary.
Stage XIII – Further distribute enquiry expenses class-wise.
Stage XIV – Distribute expenses on special services into M/Exp. & ordinary
Stage XV – Further distribute expenses on special services class-wise
Stage XVI – Distribute Misc. Terminal expenses into M/Exp & Ordinary
Stage XVII – Further distribute Misc. Terminal expenses class-wise
Stage XVIII – Distribute Terminal Parcel expenses into M/Exp. & Ordinary.
State XIX – Distribute Terminal Catering expenses into M/Exp & Ordinary.
After carrying out the distribution at each stage, the overheads are also apportioned on pro-rata basis.
In the next stage the Running expenses are further regrouped under following groups.
1. Running Diesel (Repair & Maintenance Direct Expenses)
2. Running Electrical (Repair & Maintenance Direct Expenses)
3. Other transportation expenses including Train passing staff
4. Expenses of Engineering Department. (Track)
5. Cost of Signalling
6. Cost of provision and maintenance of carrying units
7. Terminal services( Booking)
8. Terminal Services (Tickets)
9. Terminal Services (Enquiry & Reservation)
10. Terminal services (Spl. Services)
11. Terminal services (Misc)
12. Terminal Services (Catering)
13. Terminal services (Parcel)
After grouping the various expenses under the above-mentioned groups, Unit Costs are worked out for various Coaching Services.
Summary Form 6 – Overall Unit costs of services including overhead.
Summary Form 7 – Overall Unit Costs of services excluding overheads
Summary Form 8 – Unit Costs of Mail Express services excluding overheads
Summary Form 9 – Unit Cost for Ordinary services excluding overheads
Summary Form 10 –Class-wise Unit Costs for Mail Express services
Summary Form 11 –Class-wise Unit Costs for Ordinary Passenger ServicesTRAFFIC COSTING- GREEN BOOK
After segregating the freight expenses under each head of account, they are required to be regrouped into following functional Groups :
1. Running (a) Through Goods , (b) Van and shunting goods. 2. Marshalling. 3. Terminal Operation. 4. Transhipment at Break of gauge point. 5. Special Services for smalls (Repacking), 6. General overhead charges
For this, various statistical parameters which contribute in above-mentioned areas are analyzed in the form I of the Green Book to determine the ratios in which the expenses are to be apportioned in the above-mentioned categories. The performance factors for through trains and Van & Shunting goods trains are also determined at this stage.
Applying these to the relevant head of account, the freight expenses are split into above mentioned functional groups.
Development of unit costs
Unit Cost is the cost per unit of output for various functional group of transport. Green Book is the Basic document for developing the goods unit costs. It consists of seven schedules A to G.
Schedule A
Schedule A provides framework for distributing Working expenses for goods services including interest and depreciation among various functional groups of services. The general overheads are then distributed to these functional groups on pro-rata rupee basis. Expenses of running (line haul cost) are further split in the cost of carrying unit i.e., wagon and cost of hauling payload.
Schedule B
In the Schedule B, working expenses of various functional goods services are divided by the corresponding service units to arrive at the Unit costs. Some of the Unit Costs of Schedule B are: Terminal Cost per tonne. Total Terminal Cost per wagon in full loads, Line haul cost per train km., Line haul cost per wagon km. etc.
Schedule C
This schedule consists of the Performa for further segregation of expenses into different sub-activities like expenses of documentation, traction-wise expenses of train engines, other operating expenses.
Schedule D
This schedule uses the segregation of expenses carried out in schedule C, to arrive at various Unit costs. It gives the cost of documentation per invoice, cost of traction per engine hour, cost of traction per 1000 GTKM for each traction separately.
Schedule E
In this schedule, the expenses under different abstracts are combined for computation of Unit Cost for various facets of operation such as cost of Terminal operation, cost of transhipment, cost of repacking etc. Unit costs are also calculated separately for through trains and Van & Shunting goods trains.
Schedule F
Under this schedule, the total expenses under each facet of operation as worked out in Schedule E are divided by the related service units to work out the unit costs. Central charges are also calculated as a percentage of working expenses. Some of the unit costs worked out in schedule F.
Terminal services (a)Cost of documentation per invoice, (b)Cost of handling per tone, (c)Other terminal expenses per tone(d)Other terminal expenses per wagon (full load), Repacking (e)Cost of repacking of smalls per tonne per handling
Transhipment
(f)Cost of transhipment per tonne per transshipment, (a)BG (b)MG, Marshalling, (g)Cost of marshalling per wagon per yard handled.Prov & Maintenance of wagons h)Cost of Prov. And maint. Per wagon
Line Haul(Movement) costs (i)Cost of line haul per 1000 GTKM for each traction separately,(j)Cost of line haul (other transportation) per 1000 GTKM,(k)Cost of line haul (other transportation) per Train Km,(l)Cost of line haul track and signalling per Train Km,(m)Cost of line haul track and signalling per 1000 GTKM,Overheads,(n)General overhead charges as % of direct costs,(o)Central charges as % of Total cost.
Schedule G
This schedule contains the summarised results of unit costs as worked out in Schedule B, D and F,
Group A Costs
These are fully distributed costs and include interest, depreciation and overheads.
Group B Costs
Under Group B Costs, Unit Costs for each type of traction and also for through goods and Van and shunting goods train are given. Over heads & central charges are shown separately as percentages. For working out total costs, these will have to be added to the Unit Cost at the end.
GREEN BOOK
TRAFFIC COSTING - LIMITATIONS & REMEDIES
|
LIMITATIONS
|
No
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REMEDIES
|
|
generates aggregated costs for various facets of operations from the zonal railways as whole, whereas financial accounts are prepared division wise – vide variations in the costs from one zone to another which remains unexplained – the figures appear prima facie unreliable
|
1
|
Instead of concentrating on production of aggregate costs, should switch over to route wise costing in each division
|
|
major portion ( 75 %) of expenditure on repairs and maintenance is common to both coaching and goods – is bifurcated on assumptions which can be questioned
|
2
|
The Railway Reforms Committee suggested RITES to develop suitable parameters for apportionment of joint costs
|
|
traffic costing data is available only after 18 months of the close to the financial year by which time it is only historical interest and cannot be profitably used by management
|
3
|
Essential that the costing system should be integrated with the management information system( MIS) and provide useful traffic costing data in real time- with the computerization it should be possible for the IR to produce costing reports in time and quarterly instead of only once in a year so that the effect of seasonal variations in the cost of operation can be gauged
|
|
in the computation of cost the element of depreciation, interest, and freight charges have not been included in a scientific and reasonable proportion
|
4
|
The defect may be corrected
|
|
the variation in unit cost from one Zonal Railways to another and within a zonal railway from year to year should be studied in greater detail so that cost centers with wasteful and avoidable expenditure are identified and corrective and remedial measures are taken.
|
5
|
When the division wise costing is introduced the reasons for variation from one division with another in a zonal railway should be analyzed by concerned zonal railway and suitable steps taken to eliminate waste and control costs
|
TRAFFIC COSTING - SUBURBAN/EMU COSTING
SUBURBAN/EMU COSTING
Direct
1. pay and allowances including consumable stores like lubricants d no 08 400
2. electricity charges d no 10 332
3. IOH, POH, ROH change of control cables at depots & workshops d no 06 400
Direct allocation
STAFF
|
D NO
|
SUB
DETAILED HD
|
ACTIVITY
|
|
08
|
410
|
Running staff
|
|
08
|
420
|
Shed and yard staff
|
|
08
|
430
|
Other operating expenses
Like lubricants, consumable
Stores
|
|
08
|
440
|
Miscellaneous
|
FUEL 10 332 energy supplied to EMUs
INDIRECT
|
D NO
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SUB
DETAILED HD
|
ACTIVITY
|
|
06
|
410
|
Repairs in sheds
|
|
06
|
420
|
Repairs in workshops
|
|
06
|
430
|
Periodical Over Hauls
|
|
06
|
440
|
Intermediate over Hauls
|
|
06
|
450
|
Special repairs and Over Hauls
|
|
06
|
460
|
Other repairs –
control cables Running repairs in
sheds and Workshops
Control cables – other repairs POH
Control cables – other repairs IOH
|
|
06
|
470
|
Miscellaneous charges-
trials and experiments,
special adjustments
over/under charges on cost
over/under charges Manufacture
& repairs
|
Indirect
1. cost of repairs and maintenance of P Way d no 04
2. cost of repairs and maintenance of Plant & Equipment d no 07
3. other transportation charges Train Passing etc d no 09
Common costs/joint costs based on GTKM, TKM, Survey Ratios
Overhead
1. general superintendent d no 03
2. pension etc d no 13
Based on pro rata rupee basis
Depreciation
Railway wise, abstract wise and gauge wise (suburban)
Interest
Dividend pre 1980 6 %
Upto 1994 7 %
1995 7.5 %
Recommendations
|
EARNINGS
|
EXPENDITURE
|
|
Suburban earnings to be accounted
Separately
|
TKM basis for calculation not GTKM
|
|
Suburban earnings in JET separately
|
TKM to be inflated a factor of 1.5 %
|
|
Suburban earnings for traffic interchanged
With foreign railway separately
|
Track life to be 30 years instead of
55 years
|
|
Earnings at suburban section
a. license fee, VLR, book stall
b.
|
OHE life to be 20 years instead of
40 years
|
|
|
EMU costing not to take leasing charges
Cf: Nanjundappa Committee Report
|
|
|
Separate sub detailed head for EMU like in
Mumbai and
|
Recommendations:
Like in Mumbai, a separate Urban Rail Transport Corporation under the authority of Union Ministry of Urban Development with the stack holders local self-government (municipal corporations), Non-Banking Finance Corporation, Infrastructure Development Companies, State Govt, and the public may be formed.
Already, M/s Chennai Metro Rail Corporation has finalized taking over of MRTS –Railways. (Mass Rapid Transport System – Railways.
A similar system of urban transport is prevalent in European Union. In Italy, the ‘Trans Alto Velocita’ has bifurcated the train operation into rail and wheel separation. The Rail infrastructure is invested by various stack holders.
Like in Malaysia, bus connectivity Rapid Bus with railheads Rapid Rail may be initiated.
Proper compensation for the surrender of infrastructure and rolling stock, signal and OHE is to be acquired from Union Ministry of Urban Development.
TRAFFIC COSTING - TRAIN COSTING
TRAIN COSTING
Direct costs:
- locomotives – crew demand no 8
oil and lubricants demand no 10
depreciation demand no 8
interest demand no 8
repairs and maintenance demand no 05
b. coaches depreciation demand no 8
interest demand no 8
repairs and maintenance demand no 06
c. power generation of a/c fuel and lubricants demand no 10
stores demand no 8
staff demand no 8
d. cost of train examination demand no 9
e. catering
f. staff on train/train superintendent etc demand no 9
TOTAL DIRECT COST:
indirect costs:
cost of track maintenance demand no 4
cost of signaling demand no 7
other transportation costs demand no 9
cost of traction OHE demand no 7
cost of terminal services demand no 9
TOTAL DIRECT & INDIRECT COSTS
overhead charges
add over head charges 22%
Demand No 3,11 & 12 on direct and indirect costs cumulative up to OH
Central charges add central charges 0.46%
demand no 1 & 2 on direct and indirect costs cumulative up to
detention cost cost of detention to goods train 10% cumulative up to central charges
total cost per annum = total direct + indirect + OH+ CC + D / no of trips per year
= cost per trip
TRAFFIC COSTING - TECHNIQUES OF TRAFFIC COSTING
TECHNIQUES OF TRAFFIC COSTING
Direct – bifurcation of expenses between different gauges, coaching and goods services
Indirect – assessment through
1. Engineering Analysis based on experience and knowledge of engineers- ratios for apportionment of traffic maintenance, expenditure, repairs & maintenance of locomotives
2. Statistical Analysis used for apportionment of common costs through survey method – ratios based on sample survey in S Railway 1986 and 1995 statistical regression analysis based on correlation analysis simple and multiple regression analysis –more than one independent correlated or regressed with the dependent variable. Simple one dependent variable correlated with one independent variable
3. Percent Variable Method – proportionate distribution of joint costs in relation to the direct cost to total expenses
4. Ratio Of Direct Expenses – the ratio of direct expenses of different services
5. Cost Accountant’s Method – based on the behavior of different elements of cost by a study of employee duty hours machine hours, and other factors required for producing passenger and goods services.
TRAFFIC COSTING - FARE & FREIGHT (NANJUNDAPPA) COMMITTEE RECOMMENDATIONS
FARE & FREIGHT (NANJUNDAPPA) COMMITTEE RECOMMENDATIONS
Ø Crisis in traffic costing world over
Ø Study by ICWA in 1960
Ø Monopoly government rate fixing
Ø Loss to be met by state governments
Ø Adhoc basis discontinued in 1948
Ø 1950’s bifurcation of coaching and goods on an equity basis
Ø 1960 world bank suggested a costing cell
Ø 1970 passenger and EMU services loss identified
Ø 1986 task force – analysis of fully distributed costs – complex in nature passenger no class wise
Ø different costs, different capital, different interest
Ø lacks professional approach
Ø no normalization or annualized of huge expenditure
Suggestions:
1. survey ratios - frequent surveys
2. apportionment - simplified as against 1200 detailed accounts heads, 160 apportionment factors
3. annualisation or normalization – 3 to five years
4. methodology adopted for green book also for passenger (pink ) book
5. liability register to be maintained at the lowest cost centre
6. Accounting system to be revamped with professionals, finance ministry and cost accountants
7. demands to be fixed and variable – accounting complexes
8. interest accrued to be taken for assets replaced by DRF
9. data on the differential cost to be ascertained ( type & class)
10. divisional accounts to delinked from EMU costing
11. divisional accounts to be separated from repair and maintenance of HQ buildings, other railway buildings, welfare building such as central hospital
12. leasing charges to IRFC not be included in EMU costing
13. further breaking of the variable cost of stores, staff, fuel, and energy for each facet of operations
14. loss on branch lines to be made good by additional traffic on mainline based on avoidable cost
15. PRS to be used for collection of data on passengers
16. effective use of surplus staff and stores
17. cost of repairs and maintenance to be fixed assets, depreciation, interest to reckon long time variable cost
18. speed restrictions etc on cost consciousness – brochures and newsletters
19. posting of cost accountants in major cost centers
20. a comprehensive book on traffic costing
21. spread costing information to wider area
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