Public Entities Audit General Directorate Ref No. 2075/76/ Date: February 19, 2019 Subject: Independent Auditor's Report The Secretary, Ministry of Finance, Singh Durbar, Kathmandu, Nepal. 1. Report on the Project Financial Statements We have audited the accompanying financial statements of Power Sector Reform and Sustainable Hydropower Development Project implemented by Nepal Electricity Authority and financed by International Development Association, World Bank, IDA Credit No: 5728-NP which comprise the Project Financial Statements showing sources and application of project fund as at 32ndAshad 2075 (16th July 2018) and a summary of significant accounting policies and notes relating to the project financial statements. The financial statements have been prepared by Nepal Electricity Authority (NEA) management to meet the financial reporting requirement of the financing agreements with World Bank (WB) signed between Government of Nepal (GoN) and WB. 2. Management's Responsibilities for the Project Financial Statements NEA management is responsible for the preparation of the Project Financial Statements in accordance with the financial reporting requirement of the financing agreements with WB, and for such internal control as NEA management determines is necessary to enable the preparation - of the project financial statements that are free from material misstatement, whether due to fraud or error. 3. Auditors' Responsibilities Our responsibility is to express an opinion on Project Financial Statements based on our audit. We conducted our audit in accordance with Nepal Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the Project Financial Statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the project financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the project financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to NEA's preparation of the project financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the N EA's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by NEA management, as well as evaluating the overall presentation of the project financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our qualified audit opinion. 4. Basis for Qualified Opinion 4.1.1 Financial statements not prepared based on Nepal Financial Reporting Standards (NFRS): The project financial statements exhibit a mix of cash receipts and payments during the period and financial position as at the end of reporting period only and set of financial statements like statement of financial position, statement of income, statement of cash flows and statement of changes in equity are not separately presented. It does not provide for information on budgeted versus actual expenditures and comparative information of balances at the previous reporting date. Also, accounting policies adopted for the following aspects are not in line with the applicable Nepal Financial Reporting Standards/Nepal Accounting Standards which are mandatory for application: a) Calculation of depreciation (NAS 16) b) Netting off of project unrelated miscellaneous income (NAS 01) c) Treatment of Interest During Construction Period, including interest on assets already capitalized (NAS 23/NAS 16). d) Treatment of effect of changes in foreign exchange rates and restatement of foreign currency assets/liabilities (NAS 21) e) Treatment of depreciation on capital grants (NAS 10) f) Distinction of current and non-current portion of GoN loans (NAS 1) g) Measurement of Inventory (NAS 02) 4.1.2 GoN share amount does not correspond to amount actually received and used by the projects There is receivable amount of NRs. 29 Million in the inter-unit account, which is shown as NEA Sources in the project Financial Statements consistently by NEA. 5. Opinion In our opinion, the project financial statements pertaining to Power Sector Reform and Sustainable Hydropower Development Project for the year ended 32ndAshad 2075 (16th July 2018) gives true and fair view, in all material respects, in accordance with the financial reporting requirement of the financing agreements with WB signed between GoN and WB. 6. Management Letter Management letter detailing conditions for qualification and highlighting areas for improving financial statements, including accounting and internal controls and compliances with the financial covenant of the agreement, local laws, regulations, NEA's own rules and regulations are provided separately. 7. Basis ofAccounting and Restriction on Distribution and Use Without further modifying our opinion, we draw attention to Note 3 of the significant accounting policies of the project financial statements, which describe the basis of presentation. The project financial statements are prepared to assist NEA to comply with the financial reporting requirement of the agreement with WB referred to above. As a result, the financial statements may not be suitable for another purpose. Our report is intended solely for NEA and WB and should not be distributed to or used by parties other than NEA or W8. Iswar Ne al Deputy Auditor General PROJECT FINANCIAL STATEMENTS CaAnup K. Shrestha Gyaneridra B. BhariCa Hem K. Kafle Page s6 NEPAL ELECTRICITY AUTHORITY Power Sector Reform and Sustinable Hydropower Development Project IDA CREDIT: 5728 -NP AUDITED PROJECT ACCOUNT As at Asar 32f", 2075 (i.e. July 16h, 2018) All Amounts in NRs. Sources Applications Schedule Up to Previous Year Up to Previous Description This Year Up to this Years Description Schedule Year This Year Up to This Year GoN Share 1 - 30,215,488.54 30,215,488.54 Fixed Assets CoN Loan (GoN Credit) 2 - Cost 8 - 85,000.00 85,000.00 CoN Loan(IDC Payable-100%) 2-1 - Depreciation 8-1 - (6,375.00) (6,375.00) GoN Loan (IDA Credit) 3 - 82,460,085.25 2,460,085.25 Net fixed Assets 78,625.00 78,625.00 GoN Loan (IDA Grant) 4 - - - Capital Works in Progress 9 1,200,643.00 1,200,643.00 NEA Sources 5 (29,000,000.00) (29,000,000.00) Operating Cost 10 221,893.54 221,893.54 Liabilities & Provisions 6 - - . Bank Balance 11 - 914,970.00 914,970.00 Outstanding Replenishment 7 - Advances 12 - 81,259,442.25 81,259,442.25 Stocks (Local) 12-1 Sub-Total - 83,675,573.79 83,675,573.79 Sub-Total - 83,675,573.79 83,675,573.79 Special A/C Initial Deposit 30,741,000.00 176,358,000.00 207,099,000.00) Special A/C Balance 30,858,000.00 100,849,810.67 131,707,810.67 Exchange GaiW(Loss) 13 117,000.00 6,951,895.92 7,068,895.92 Outstanding Replenishment 7 82,460,085-25 82,460,085.25 Sub-Total 30,858,000.00 183,309,895.92 214,167,895.92 Sub-Total - 30,858,000.00 183,309,895.92 214,167,895.92 Grand Total 30,858,000.00 266,985,469.71 297,843,469.71 Grand Total 30,858,000.00 266,985,469.71 297,843,469.71 Notes to account and accounting policy are the integral part of financial statements (Schedule 14) Mahadev BihatUrai 11m Ch dra Pandel Rajan Raj Ilid. Lekhauat Koirala K lall C Sinl Assistant D i, ISiSHN14O NAf OfDirator VI511sDP NEA DirciorALagnr 1i,r.nz,NFA DMD,FinanceNSA Managing iroctarNEA Dinas rrGhhni7 Surya rasad Caulsam CA an ntRaladtyhit IwarNepal Se.r"hiyrMil.CoN inancial Cnamp troller Uie ra l, FCCO C oN Joint Auditor Depuly Auditor General Date: Office of the Auditor Gereral Placm PJCIZ NEPAL E ECTRICITY AUTHORITY Power Sector Reform and Sustinable Hydropower Development Project IDA CREDIT: 5728-NP AUDITED PROJECT ACCOUNT As at Asar 32nd, 2075 (Le. July 16th, 2018) Detai!s of GON share Schedule-1 Uip le Prvns_________ _____________Thfs Year U ollýya De,criptiout Uprto Eev us Trimesier Il Trinestr hi YearTrip SLr Total Up to This Year GoN Share - - - Å 0,000,000.0 30,000,000,00 30,000,000.00 lDC Transer into tShar Capiol - 1 215,48-54 215488 54 215,4854 Total 30,215,488 54 3t,215-1S 54 30,215A8854 GON Shaye (IDA Grant) Schedukle-2 Description Up to Previcus This Year Up to This Year Descripfion__ _ Year I Trimester IJ 1Jrunester Il Tritmester Total Up to Tlis Year CON Siaire (IDA Grant) Total - Governmntt of Nepal Loan (JDC Payable) Schedule--1 Up to Previous TI-ns Year Up to,This Year Year Trimester rimester III Trimester 'otal p Go LDa (IDC Pa.vlt - Total - - - Govemment of Nepal Loan (IDA Credit) Description Up to Previlus This Year Up to ThiS Year Year lTrimester Il Trinesier IlITrimester Total Gon Loan (DC Payåbke -GoN Pan)t- IDA LAn(IPC PayIlmio GoN- [DA Par> 82,460,085.25 82,460,085.25 82,460,08525 Total 82,460,085.25 82,460,085.25 82,460,085.25 N EPAL ELECTRICITY AUTHORITY Power Sector Reforns and Sustinable Hydropower Development Project IDA CREDIT: 5728 - NEPAL AUDITED PRJ,ECT ACCOUNT As of Asar 32, 2075 (i.e. July 16, 2018) GoN Loan Schedules-4 Discription Up to Previous This Year Up to This Year Year I Trimester Il Trimester 111 Trinester Total lGoN Loan - Total NEA Sources Schedules-S [ip to Previous This Year ,._ Up to This Year Discriptio-n Year [ Tumester 11 I7iinester i11 Trimester Total Up to This Year NEA Snurce(Iner unitls + Other Incoi) (29,000,000,00) (29,000,000,00) (29,000,000.00) Total (2-9,000,000,00) (29,000,000,00) (29,000,000.00) Sundry Liabilities & Provisions Schedules-6 1Dp to Previous This Year I)iscription Year 1 Trimester I THimester III Trinester Total Up Lo This Year De btors L iabilities a Liabilies- mxpoyees liailities To tal- Outstanding Replenishment Schedules-7 Discription Up to Previous This Year Up toThis Year Year 1 Trimester I Trimester III Trimester Total Cutstatiing RepIenmhntent - Total -_______ � г ; Е : Ё s I � I � i j i � I ? € � 1 Л£PAi.Fi.ECIRICi7Y aL'Т'fi[�1йi'��У 1'г1�M1•ег•Scrtor Reform and 5ustinaЫe f3��drnpaFVer Dc�elnpnг+:пt f'г'r7ject , i f7n CR L i7э г, 5728-�F&I'А L, AL3ПFTTC7 i'[гДf kГ1' г�CCql1NT Asaf A�ar32, 2р75 (1.v. ju1y1G.2{118j Fixкd лsscls -_-,-."-�.,„.,_____ .............�... -_ Schedutes 9 � LF 1�, Рrгviп�г цнлг [Rs 1 fF��x �с•ar t,г. n� Пiь, ]'г�г �C���i� }.хFм'��гiiru�r•fЭгад i7�д с°г,� iп�� г„1�,:zп c�v�нrn� г..�.�: гла г[7д e.,n;�v�г, с„,г,1;чЕ'д с,�.�.�.�ел• G�,и1п;г:а• - ..._._" ,_..:г„�ч�..г En•� r.,�ti•.1ri с:�,ч��е,• ��,�i м _.._.-_.._ ._._ _�._. .....�._.._. ..........У.� s 1ii ii тп, гii тг� t�,и>> t г<< �гг т.� ifi ;г� Т•эi��l��мтт1 Тг.. ._ 1г 7г• ii: гii, тпw! � Г..иf . ...._.._. �...... W._. .� ьs,аий.ио нs.поогю ."'..... -._ �_..�...W --у- _..._._._._... ,�пд а.,•�;.� - __sрΡ___..�. дiа`• Э.л�:д . ' " , f , •- --..._„- -. •-.._._._...-. " . . .. .. ._._ 1.?71 ri.,гиkми�- . . - . - ' ._--" - - -.. . .. _ . . _ . " - ..-....:. �-__.-.- -_ .-... • , . - -- •- _. .._ -.. - __ " ._' - ' - - _ 3-]kЭli�и�l..F ё'qшг.рц•п1 . . ... . . _ _.... . . . .. '.. ' - . . . - - . � • _ --- _ -_' ' �- _ --' --- _ - �Э4а Ladпil•и ^ • _ � + ,""� Yii]] fиггоiрlойlпlип- ' _ .............�.Э - _ . . .. -.. " '- .-.. _--.- .- - � _ у•«�,• г • • . . ------ ичлхи�tы нз.гнк,г��. . __ - • --- _ • � лs.и�х,гю '4,�1] [)lriг� i 1.•�i I - ' • • � . .---_; ! [уΡ _ _ � , ьгьll :.г�,.,.Эi�•т.,�. � . . - _ i i - - j _ � - • ' . i_____._ � ' ' . - __.___�-_1_. " ' .___.. � ' ��..�.... � _ � • �I � �, �J � �� _ ���. ��� "': NEPAL ELECTRICITY A UTHORITY Power Sector Reform a-lid Sustiriable Hydropower Development Project IDA CREDIT., 5728 -N? AUDITED PROJECT ACCOUNT As at Asar 32nd, 2075 (i.e. July 16th, 2018) Schedule-8-1 Description -Up to Previous This Year Up to This Year 'Year I Trimester IlTrimeste'r fIlTrimester This Year Tot-at Provisions For Dep. Other Civil Structure - - Vehicle's - - Furniture &- Fixtures - - Office Equipment - - (6,375.00) (6,375-00) (6,375.00) Miscellaneous Asset - Total �. � / '�/ µ Ч � х i � � � � о в о n о о ❑ 6 о .^iv,г.е�:м,5� г`r�•'.,,�?, ,,^�г�i�.rэ�1п�+'r м1S'I'1i�oT [ гу - - - YroгS г,пlr �у " - ' ^ ' - - - - • • >..гиггг.qхН ]1 ! lOQ v - - . ° • .,,гпд.Еп4 гtге r - 51г11г1':1ui, ь[�R � _ _ _ тт .y,n>,i 1,•ыгr.] ь4игиУгонм.,h�� ие-У - • . - • . «„�„-,;гt„i,г уiгиг,п{,? 1.,,.,ьи! п,!> - - . _ . . . г�.иь,.г^c.,,,E�s ь^Е'-�Ft 5st и «iпlхггуд Wа�ггаы �ыа:f 76С Ь ' " ' ' - ' ' ..^рп�1 � •malsll�3r�lд�rr] CGC'Ь tlfi'EF9'г1[гZ't - fElЕ ��Л"0[Iг.'I пп•er�i'ппг'1 - - • [к:'г:�+'гнr'г гмЭьrь'гк�.•s t•егиь2S��ы г',7 Z6e i - - Е ч.�г г-- [6 7 - - ._ �._....� «.sг?г>ч� сг r . _ . _ , • � :гг:::.;���,г • 4ч.� � - .... ...-. . �игаш;цг?,г'-1 д.ь1 U 0 'У .-.. ..._._ - _ ,i4+�7 _ - � атгllвТ.ь �Д �цп1,П1,.1 L[i ' - ' ' ' ' - . . . - . . _ 1iьи:ьдiпЬq �•ыгнiС ЕЕЕ У " - ' ' ' . . . _ . . .гы,�имin.ьиьчСl L4E4 � _ _ � .. . . . . - - - ^ -iиiry•'n Y tw�[3 �рирч,ц..4Fр ZOE 7 ,чaг,.ti��q,,,p[}г fOCr - - - - 5�,г1.1г1i ]�'Р 1и��'. . - цопагинпn г., �дац1 7 L -7 _ •К»n•f•�1г� Е 4 ... - - - .-... �.... гlипПг 'i._.ц.� 4�у1Ггt� г[][[��гь.,гi " - ' " ' _ , . . . . . . - ' ао�гп il '4 утп�пп г' .xr, •�n� p��i- р«rг д0-F:49 д0й 3 ' • , iгll M1г?1чc,i:f.,i,� �« у1,+^t Эг•11.1г 1 S tm,>э .1'7N1?i^�^ Е�С3г 3�y�L1. ,,�iч.ь«гг,А1г[ ,.,;ч„ииiЭ1 ,.�i..,,П,,.L! 1�y�,i ,пl,,,�г«ьi]ьЕ ,.�;.•.н«„Сiг 1.,гч.,:,«,1.] f,•ц�.f. .��h1ч�^� ыдг sao:a Егы i � х,1^ [<5liLL .ыЭNгlпг�'�' _rtNгtt�•:7 t'аг ��оЕ пг.,;{,•,гг;грп„Еti,э Afltд .i[Э � J1'.г�; ьЛг,гл.L`J г,; ,j� G �fпР5ЧП5 zsa,Y❑г� 9ьРПS [н;цЭr,� 5 г8lR�'цЭ9I •[[�1 "•' ь] SCOL'РиZЕ аг•s[� lr su .N�C.T_ J� ?Э []?1д СЕ- Cl1l dN• 8"ьь5 �.LЭСiЭц> VtЭЭ ..._ _.�.._.....т.- .-..._. �._... _ _ _.�.._. .... .- .-..._. -._... _ _ _.�.._ .... .- .-..._. -._... _ _ _.�.._ . ....... ....._. �._... _ _ _.�.._. ......-_.-..._a��Iua��{цаигда;гпаа. .iап�адгцр,S1°[-�iaeuцsпr�.pue_ццсх}��..ггд7�[э�.аампд_ _.�.._. ......- .-..._. -._... _ _ _.�.._. .... .- .-..._. �._... _ _ _.�... .... .- .-.._. �._... _._ _.�.._ .... .- .-.._. �._... _ . ._ . A.LiгiC]1'LI.П �1.�.1.Э:.Н�i.1�?TI� "� V cE:i�! [ 1 I 1 � � ? 1 I I I € Ё � f ? i � [ г � IDA CRLDIT, ý7-28 -NI` Å 1) Ilk, 0 As A i A.5dr 3211d, 21175 ØE. Lý. j til ý, 16th, 20 18) Orv ritiliA Cor i ýcliedule M DFA, up io Prev ý.1 r (iý 5-) Tbis Up Lo Th is Ye,ýr (.1115 d L- Fý, cålý. ý1)A GcýNý GCN,,NI-V rýkt,%1 IDA IDA GON/Nhk .,,N/ N't GiNINFA' GoNINEA' ],h LN IDA GoNINEA GfN'ýNLN' NLA IT A fDJOlWQfE_GEACCOUNT A at Asai rI 2075 (i L. ulv 161., 2018) Schedule-13 -~~ c a gxhne -Balansre Dåte Wlue Date Discription Dr USD NPR Rate UD NPR DR C DR. CR DR. CR. DR, CR 7/16/2017 716/2017 Inlitial Deposit -300. 0000 30858,000 00 00,00 00 858,000 00 11/7/2017 11/712017 Payment Made to ESSD 20,361 71 2,101.125,25 103 19 279,633.29 28 75674.75 41012018 41G2018 The amount reclitecdur ntheperiod .7000700.0 47635.000.00 103..74 1079,638.29, 20 T4A74,75 . - - - - 4111.2D18 Payment made to Coreiltant 422,000.00 65 3.29 4/11/2018 4N1)2018 Payment made to Ccnsiltant 353,067.13 _ 035,90.0103.68 1,204,571.16 124.75591475 Exchange Gain (sum of 1,11 and 2Il Qtre. l IS3g.69 3j95992- 109.34 131 707,310 67 Total: _________ Closiing Balance of Dosignated account 1,204,67116 _31,707,810.67 1.204,5711 109.34 131,707.310.67 FalgLrg to end of Àshad Opening Balano Credit let Total Balance PrartiiularsI ULS1D N' GrnSD Exchange Rate NPR USD EchPg NPR)USD NPIR D.siggnied c 279,635.21 28,950,952.16 17L00M1:I 103.74 17n353,000.00 L979,63829 20.1 2.16 Viavmen tmade IQ Comuýil ki Nr .1D775,M7 13 13s 217·1 29,91 EhgGah/ LO9s 15) 1090344577,4 1 Total 279633.29 28,950,95216 ,700 . 176,358,000.00 775,067.33L_ . 12I4,571.16 13L.7,830.67 Nota Particulars -USD Exchange Råte |EV NPR Balance I Balance at the and of Falgon 279.63829 103.53 28.950,952.16 2E.050.62 16 Credted at Designted Account 1,700,000 00 103.74 176,358:000 00 205.308.952,16 i Debitedaat Desinmedtaccount(775,7 33) 103 5B (80>358,n60 00) 124949,92.1 Balance at the end of Ashad 1.204,571 16 109 34 131,707,810,67 Exchange Gamn/Loss 6,757,618 51 Total balance r L, 1317Q7ý0.67 Period between Shrawa to Falgun Utpb Mnth of FMgun Opening Balance Debit Grant Total USDti Credit G USD EXcliange Rate NPR USD £:chan5g N P11 0SD NPR Designatedac -30000020671 103.19 2,101.124.8 279,638.29 28.7575,6 Exchange-gn(14t iMaich 2018) 194,077.D ----1. - 194,077,0 300L00 3L6052,077.00 20,3,71 ;101 279,68.29 28,950.952.16 Note: Th is sheet to be used only if further detalis requread Nepal EIecIncity Authority Power Sector Reform and Sustainable Hydropower Deveopment Project Bank Statemnt etof Designaed Account (DA) AIC no 1206101/001/045/840 AC Name NepaT Electricily Authority- Sustan hydrcpower dev,pjt (PRSHDP) Currency USD . . Amoirit Date Valuo Dale Ref/Chq DIiption Dr/Cr FC NPR Exch.Rate Batance 7/6/2016 7/16/2017 Balancebd CR 300.00b 00 300.000.00 11/7/2017 1117/2017 Tansfer account t Dr t L0,6 l 7 1 (2.101.125.25 103 19 279.636.29 4/10/2018 411012018 6irm"98174/5 trecino charges for beneficiary CR 1,700.000.00 176,358.000,00 10374 1,979,638.29 4/11/2018 4ý1112018 ORMT PA.SA 074175, Cha.no 187 Daked as DR (422,000.00} (43.752,960.00) 103.6B 1,557,638.29 4/11/2018 4111/2018 ORMT Payment made to Consul(ant DR (353,067.13 (36,606,000.00) 103.68 1,204,571.16 Total Closing Balaice of Designated account ,204,571-16 NEPAL ELECTRICITY AUTHORITY Power Sector Reform and Sustinable Hydropower Development Project IDA CREDIT: 5728 -NP AUDITED PROTECT ACCOUNT As at Asar 32nd, 2075 (i.e. July 16th, 2018) Reconciliation IDA Credit 5728-NEP Description NPR USD A Balance of Special Account as at 32 Ashad, 2075(uly 16, 2018) 131,707,810.67 1,204,571.16 B Outstanding Amount (Not Reimbrused amount up to..-) C I)isbursement During this year D Replenishment During this year E Outstanding ReplinishmentAmount as at30 Ashad, 2075 (July 15,2017) (B+C-D) 82,460,085.25 795,428.84 F Balance (A+E) 214,167,895.92 2,000,000.00 The amount Credited during the period 176,358,000.00 1,700,000.00 G Exchange (Gain) Loss 6,951,895.92 H Special Account Initial Deposit 30,858,000.00 300,000.00 Significant Accounting Policies and Notes to accounts Fiscal Year 2074/75(2017/18) Power Sector Reform and Sustainable Hydropower Development Project IDA Credit No: 5728-NP 1. Background The special purpose financial statements are prepared to meet the reporting requirement of the Financing Agreements IDA(international Development Association) Credit No: 5728-NP signed between Government of Nepal (GoN) and World Bank (WB) on February 4, 2016. The project is implemented by Nepal Electricity Authority (NEA), which was incorporated on Bhadra 1, 2042 (16 August, 1985) under the Nepal Electricity Authority Act, 1984, through the merger of the Department of Electricity of Ministry of Water Resources, Nepal Electricity Corporation and related Development Boards. The merger was necessitated to remedy the inherent weaknesses associated with these fragmented electricity organizations with overlapping and duplication of works, and became necessary to achieve efficiency and reliable service. The principal objectives of NEA include generation, transmission and distribution of adequate, reliable and affordable electric power by planning, constructing, operating such facilities in Nepal's power system both interconnected and isolated. 2. Project Information The objectives of the Project are to strengthen the capacity of the Recipient's power sector agencies to plan and prepare hydropower and transmission line projects following international standard and best practices; and improve the readiness of the power sector agencies for regulatory and institutional reforms. The source of fund for the project is IDA (WB) and GoN. The Project agreement and subsidiary loan agreement are provided to the auditors at the time of auditing. Closing date of loan is 30 June, Was of now. 3. Significant Accounting Policy 3.1. Basis of Presentation A. The special purpose Project's financial statements are prepared in accordance with NEA's Financial Administration Regulations, 2068, terms of financing agreements with WB and GoN and Nepal Accounting Standards unless otherwise stated. The project financial statements have been. prepared on an accrual basis and under historical cost convention, except otherwise stated. The accounting policies adopted in the preparation of the project financial statements are consistent with those of previous year except for the change in accounting policy, if any explained below, These standards and practices are substantially in line with the principles set out in NFRS. The preparation of financial statements requires NEA's management to make estimates and assumptions that affect the reported balance of assets and liabilities, revenue and expenses and disclosures relating to the contingent liabilities. The management believes that the estimates used in preparation of the financial statements are prudent and reasonable and management is aware that future results could differ from these estimates. Any revisions to accounting estimates include provision for employee, net releasable value of long-term investment, non-recoverability of receivable balance etc B, The figures for the previous year are rearranged and reclassified wherever necessary for the purpose of comparison. C. Appropriate disclosure is made for the effect of any change in accounting policy, accounting estimate and an adjustment of error. D. The financial statements are prepared generally on accrual basis. Management believes that the impact of recognizing those revenues on cash basis will not be materially different from the current practice. E. Management has applied estimation while presenting financial statements such specific estimates are disclosed in individual section wherever they have been applied. 3.2 Reporting period and presentation currency Project financial statements are prepared as per Nepalese financial year i.e. Beginning of Ashadh to End of Shrawan (Mid June to Mid July) and are stated in Nepali Rupees (NRs.), 3.3 Property, Plant and Equipments Property, Plant and Equipments are stated at cost of acquisition and/or cost of construction less accumulated depreciation. The cost of property, plant and equipments include cost of acquisition or construction/erection together with other incidental costs and charges attributable to bringing the asset to its working condition for its intended use and also include borrowing costs directly attributable to the acquisition, construction/erection of qualifying asset. Write-downs are made for impairment, if any, in the value of such Property, plant and equipments. 3.4 Depreciation Depreciation is provided on Property Plant & Equipment except land on straight line method based on the estimated useful life of those assets. The rates of depreciation applied on property, plant and equipment are,as follows: Assets Category Depreciation Rate (Per Annum) A Tools and Equipment's 20%31-1o B Furniture and Fixture 120% C Office Equipment's 15% D MiscelIaneous Properties 50% E Addition during the Year 50% of applicable rate 3.4 Capital Work in Progress and Capitalization of Fixed Assets All expenditures in developing property, plants and equipment not yet completed or not ready to use are categorized as CWIP, Value of Capital works-in-progress includes stocks of equipment lying in store or in transit for the purpose of used in the construction or development. It also includes the balances with contractors and suppliers for the value yet to be received. These are capitalized upon commissioning or identified as being ready to use. Provisions are made for impairment and obsolescence, if any, in the value of such CW P, ZV 3.5 Inventories A Inventories include goods in hand being held for use, sale or as spares. 8 Inventories are valued at lower of cost or net realizable value, using the weighted, average method. C Net realizable value is. the sale price as estimated by the management in the ordinary course of business, less estimated costs, if any, necessary to make the sale. Further, provision for losses and obsolescence are made for those inventories identified by management as obsolete or otherwise. 3.6 Cash and Cash equivalents Cash and cash equivalents are carried at cost. They include deposits with banks which may or may not bear interest, Provision for loss in lieu of shortage of cash and cash equivalents are made for, if any, in the value of such cash and cash equivalents. 3.7 Share Capital * Share capital amount received in the form of cash and cash equivalent from Government of Nepal are accounted as and when received. Such amount includes initial contribution made by Government of Nepal. Eligible amounts are capitalized as share capital such as interest during construction period; grant amount received from Government of Nepal and on behalf of Government of Nepal as per the decision of Government of Nepal (Council of Ministers). * IDC Payable amount is converted into GON Share as directed by SLC Loan Agreement (Annex 1). 3.8 Interest During Construction (IDC) IDC is calculated on the basis of date of withdrawal from designated account. IDC amount is treated as Operation and Maintenance cost. 3.9 Sources of fund There are two sources of fund for the project. The sources are as follows; 1. GoN 2. IDA (WB) 3. NEA Sources All project income received in the form of loan and contributions are accounted for on cash basis. NEA contribution includes contribution made both in cash and kinds are used for rehabilitation purposes. 3.10 Foreign Currency Transactions and Exchange Gain/Loss Transactions in foreign currency are stated in terms using the exchange rate prevailing on the date of transaction i.e. spot exchange rate. Foreign currency liabilities as at the balance sheet date are translated in Nepalese rupees by applying closing exchange rates. C- ~QV