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advance against depreciation

05 June 2018

what is the meaning of advance against depreciation??can anyone please define its meaning in simple words....plz plz plz

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6 Replies

RAJA P M ("Do the Right Thing...!!!") (127142 Points)
Replied 05 June 2018

Its only relevant for power generation companies...
That it is not treated as income and it is a reserve...

Phalguni Khilar (45 Points)
Replied 05 June 2018

thank u sir..what is the relation between depreciation and advance against depreciation???what is the concept??please will u explain a little elaborately??😖😖

Kartikey Jain (Intern) (2377 Points)
Replied 05 June 2018

Advance against depreciation (AAD) was a concept which was earlier notified for the Power generating companies by the Central Electricity Regulatory Commission (CERC). It was a part of the Tariff structure and its main objective was to mobilise additional cashflows for the electricity companies. This concept is no more applicable as the recent CERC norms have removed this element.

Electricity Companies (generally assuming 30 years of life) charge 3.33% depreciation every year due to usage of SLM method. In the initial years, the depreciation amount is generally less than the loan's repayment installment amount, so AAD would be collected by the companies to meet this shortfall as an advance against depreciation which would be adjusted in the future years. So once the loan was completely repaid, AAD collected in earlier years would be reduced from the depreciation of the later years and this inturn would lead to lowering of tariffs.

Hope I was able to help you.

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