Rule 92 of The General Financial Rules 2017 Subsidiary Accounts for Commercial Activities
Original Rule Text
Visual Summary
For departments with commercial or quasi-commercial activities.
Maintain subsidiary accounts in commercial form.
Includes Manufacturing, Trading, P&L, and Balance Sheet.
Executive Summary
Rule 92 of The General Financial Rules, 2017 mandates that Government Departments engaged in commercial or quasi-commercial activities must maintain subsidiary proforma accounts in a commercial format. This is necessary because the standard cash-based Government accounting system is often unsuitable for such operations. These commercial accounts, which must be agreed upon by the Government and the Comptroller and Auditor General of India, include essential financial statements like Manufacturing, Trading, Profit & Loss Accounts, and Balance Sheets, ensuring a clearer financial picture of these specific ventures.
In-Depth Analysis of the Rule
Rule 92 addresses a critical aspect of financial management for Government Departments that operate beyond traditional administrative functions. It recognizes that a one-size-fits-all cash-based accounting approach is inadequate for entities involved in commercial or quasi-commercial activities, such as industrial factories or stores.
The rule outlines a specific requirement for these units:
- Scope of Application: It applies to Government Departments whose operations are commercial or quasi-commercial in nature.
- Problem Identified: The standard cash-based Government accounting system is deemed unsuitable for accurately reflecting the financial performance of these commercial ventures.
- Mandatory Requirement: The Head of such units is required to maintain subsidiary proforma accounts.
- Commercial Format: These accounts must be kept in a commercial form, allowing for a more accurate representation of business-like operations.
- Joint Agreement: The specific format and maintenance of these accounts must be mutually agreed upon between the Government and the Comptroller and Auditor General of India.
- Key Financial Statements: The commercial accounts must include Manufacturing Accounts, Trading Accounts, Profit & Loss Accounts, and a Balance Sheet.
Practical Example: Imagine a government-run textile factory. While it’s part of a government department, its operations involve purchasing raw materials, manufacturing goods, selling them, and incurring production costs. A simple cash-based ledger would not provide insights into its profitability, cost of goods sold, or inventory valuation. Rule 92 ensures that this factory maintains commercial accounts (like a private company would) to track its manufacturing efficiency, sales revenue, and overall financial health, allowing for better management and accountability, while still being under government oversight.
Related Provisions
To fully understand the context and implications of Rule 92, it is beneficial to consider the following related provisions:
- Rule 93 of The General Financial Rules 2017 Methods and Principles for Commercial Accounts: This rule further elaborates on the specific methods and principles to be followed for keeping these subsidiary commercial accounts.
- Rule 74 of The General Financial Rules 2017 Cash Based Accounting: This rule defines the general cash-based accounting system for Government accounts, highlighting why a different approach is needed for commercial activities.
Learning Aids
Mnemonics
- CASH-PRO: Commercial Activities Subsidiary Helps Profit & Report Outcomes.
Process Flowchart
Multiple Choice Questions
1. According to Rule 92 of The General Financial Rules, 2017, for which type of Government Department operations are subsidiary proforma accounts required?
- A) Purely administrative functions
- B) Commercial or quasi-commercial activities
- C) Charitable endowments
- D) Public works projects
Show Answer
Correct Answer: B) Commercial or quasi-commercial activities
2. Why does Rule 92 of The General Financial Rules, 2017 necessitate subsidiary proforma accounts for commercial operations?
- A) To reduce the workload of the Accounts Officer
- B) Because the cash-based Government accounting system is unsuitable
- C) To simplify tax calculations for the department
- D) To align with international accounting standards for all government functions
Show Answer
Correct Answer: B) Because the cash-based Government accounting system is unsuitable
3. Who must agree on the form of subsidiary proforma accounts for commercial activities as per Rule 92 of The General Financial Rules, 2017?
- A) The Head of the Department and the Ministry of Finance
- B) The Parliament and the President of India
- C) The Government and the Comptroller and Auditor General of India
- D) The Accounts Officer and the Drawing and Disbursing Officer
Show Answer
Correct Answer: C) The Government and the Comptroller and Auditor General of India
4. Which of the following accounts is explicitly mentioned in Rule 92 of The General Financial Rules, 2017 as part of the subsidiary proforma accounts for commercial operations?
- A) Contingency Fund Account
- B) Public Account
- C) Manufacturing, Trading, Profit & Loss Accounts and Balance Sheet
- D) Consolidated Fund of India
Show Answer
Correct Answer: C) Manufacturing, Trading, Profit & Loss Accounts and Balance Sheet
5. What is the primary purpose of maintaining subsidiary proforma accounts in commercial form for Government Departments undertaking commercial activities, as per Rule 92 of The General Financial Rules, 2017?
- A) To simplify the annual budget preparation process
- B) To provide a more suitable and accurate financial overview of commercial operations
- C) To reduce the need for external audit
- D) To facilitate quicker disbursement of funds
Show Answer
Correct Answer: B) To provide a more suitable and accurate financial overview of commercial operations
Frequently Asked Questions
Q1: Why can’t the standard cash-based Government accounting system be used for commercial activities?
A1: The standard cash-based system primarily records cash receipts and disbursements, which is insufficient for commercial operations that require tracking of accruals, inventory, depreciation, and profitability to provide a true and fair view of financial performance.
Q2: What kind of Government Departments are considered to be undertaking ‘commercial or quasi-commercial activities’ under Rule 92?
A2: This typically refers to departments operating like businesses, such as industrial factories, stores, or other units involved in production, sales, or service delivery where a financial result needs to be determined, rather than purely administrative functions.
Q3: What is the significance of the agreement between the Government and the Comptroller and Auditor General of India for these accounts?
A3: This agreement ensures that the commercial accounting practices adopted are appropriate, standardized, and meet the necessary oversight and audit requirements, balancing commercial transparency with governmental accountability.
Key Takeaways
- Rule 92 mandates commercial accounting for government units with commercial or quasi-commercial operations.
- The standard cash-based government accounting system is deemed inadequate for such activities.
- These subsidiary accounts must include Manufacturing, Trading, Profit & Loss Accounts, and a Balance Sheet.
- The specific form of these accounts requires agreement between the Government and the Comptroller and Auditor General of India.
Conclusion
Rule 92 of The General Financial Rules, 2017 is a forward-thinking provision that acknowledges the diverse nature of government functions. By requiring commercial accounting for business-like operations, it promotes greater financial transparency, accountability, and efficiency, enabling better decision-making and performance evaluation for these specific government ventures. This rule ensures that public funds, even when utilized in commercial settings, are managed with appropriate financial rigor and oversight.