ERC IFRS Procedures First Draft

Ethiopian Railways Corporation (ERC)
IFRS Based Financial Procedures Manual
April, 2019
ETHIOPIAN RAILWAYS CORPORATION
Documented Information Title: IFRS Based Financial Procedures Manual
Ref.No:ERC_FID_FPM_IFRS_01 Version No: 01 Page 1 of 175
Table of Contents
I. INTRODUCTION ......................................................................................................................................1
A. Objectives of the Accounting procedure manual ...................................................................................1
B. Access to This procedure manual Document .........................................................................................1
C. Control of This procedure manual Document ........................................................................................1
D. 1.4 Amendments to This procedure manual Document .........................................................................2
E. Procedures to Amend This procedure Document...................................................................................2
F. Approval of the procedure Document ....................................................................................................3
1. Property, plant and Equipment procedure ..................................................................................................6
1.1. Purpose ...............................................................................................................................................6
1.2. Revision History.................................................................................................................................6
1.3. Persons Affected ................................................................................................................................6
1.4. Policy..................................................................................................................................................6
1.5. Definition ...........................................................................................................................................6
1.6. Recognition and measurement ...........................................................................................................7
1.6.1. Initial recognition of PPE ...........................................................................................................7
1.7. Subsequent Recognition of PPE .........................................................................................................9
1.8. Impairment of PPE ...........................................................................................................................11
1.9. Depreciation on PPE ........................................................................................................................15
1.10. PPE Transfer Process and Procedures ..........................................................................................17
1.11. Internal control over PPE .............................................................................................................18
1.12. Usage ............................................................................................................................................18
1.13. Insurance ......................................................................................................................................18
1.14. Property Log/Register ..................................................................................................................19
1.15. Property Tag Number ...................................................................................................................19
1.16. Periodic Physical Count of PPE ...................................................................................................20
1.17. Physical Count Procedures for Non-current assets ......................................................................20
1.18. Responsibilities ............................................................................................................................21
2. PPE retirement process.............................................................................................................................23
2.1. Purpose ............................................................................................................................................23
2.2. Revision History .............................................................................................................................23
2.3. Persons Affected .............................................................................................................................23
2.4. Policy ...............................................................................................................................................23
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2.5. Definitions .......................................................................................................................................23

2.6. Responsibilities ...............................................................................................................................23
2.7. Procedures ......................................................................................................................................23
2.7.1. General ....................................................................................................................................23
2.7.2. HANDLING AND DISPOSAL OF RETIRED PPEs, Scraps and Excess Materials .......24
3. Construction in progress Procedure .........................................................................................................27
3.1. Purpose ............................................................................................................................................27
3.3. persons Affected .............................................................................................................................27
3.4. Policy ...............................................................................................................................................27
3.5. Definitions .......................................................................................................................................27
3.7. Procedures ......................................................................................................................................27
3.7.1 Investment Projects procedure .............................................................................................27
3.7.2 Accounting for Progressive Projects.....................................................................................31
3.7.3 Work in progress ....................................................................................................................34
3.7.4 Accounting for Feasibility Study...........................................................................................35
3.7.5 Accounting for software installation project .......................................................................36
3.7.6 Accounting for Manual or other document preparation Project.......................................38
4. Assets held for sale and discontinued operations procedure ....................................................................40
4.1. Purpose ............................................................................................................................................40
4.3. Persons Affected .............................................................................................................................40
4.4. Policy ...............................................................................................................................................40
4.5. Definitions .......................................................................................................................................40
4.7. Procedure ........................................................................................................................................42
4.7.1. Classification ............................................................................................................................42
4.7.2. Recognition Criteria .................................................................................................................42
4.7.3. Measurement ............................................................................................................................43
4.7.4. Impairment Losses and Reversals ............................................................................................43
4.7.5. De-Recognition of an Asset Held for Sale ...............................................................................44
4.7.6. Presentation ..............................................................................................................................44
5. Intangible assets procedure ......................................................................................................................46
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5.1. Purpose ............................................................................................................................................46

5.3. Definition .........................................................................................................................................46
5.4. Policy ...............................................................................................................................................47
5.5. Persons affected ..............................................................................................................................47
5.7. Procedures ......................................................................................................................................47
5.7.1. Recognition / Recording...........................................................................................................47
5.7.2. Documentation .........................................................................................................................48
5.7.3. Controls by ERC ......................................................................................................................48
6. Investment property procedure.................................................................................................................52
6.1. Purpose ............................................................................................................................................52
6.3. Definition .........................................................................................................................................52
6.4. Policy ...............................................................................................................................................53
6.7. Procedures ......................................................................................................................................53
6.7.2. Measurement after recognition .................................................................................................55
6.7.3. Transfer to or from Investment Property ..................................................................................55
6.7.4. Disposal / De-recognition.........................................................................................................56
6.7.5. Disclosure .................................................................................................................................57
7. Government grant and assistance procedure ............................................................................................58
7.1. Purpose ............................................................................................................................................58
7.3. Definition .........................................................................................................................................58
7.4. Policy ...............................................................................................................................................58
7.7. Procedures ......................................................................................................................................59
7.7.2. Repayment of government grant ..............................................................................................61
7.7.3. Presentation & Disclosure ........................................................................................................61
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8. Lease procedure........................................................................................................................................63
8.1. Purpose ............................................................................................................................................63
8.3. Definition .........................................................................................................................................63
8.4. Policy ...............................................................................................................................................63
8.7. Procedures ......................................................................................................................................63
8.7.1. Accounting Treatment ..............................................................................................................64
8.7.2. Depreciation of Leased Assets .................................................................................................67
8.7.3. Internal Controls .......................................................................................................................68
8.7.4. Presentation & Disclosure ........................................................................................................68
9. Procedure manual .....................................................................................................................................70
9.1. Purpose ............................................................................................................................................70
9.3. Definition .........................................................................................................................................70
9.4. Policy ...............................................................................................................................................70
9.7. Procedures ......................................................................................................................................70
10. Cash and Loan Management procedure ...............................................................................................76
10.1. Purpose ........................................................................................................................................76
10.2. Revision History .........................................................................................................................76
10.3. Persons Affected .........................................................................................................................76
10.4. Policy ...........................................................................................................................................76
10.5. Definitions ...................................................................................................................................76
10.6. Responsibilities ...........................................................................................................................76
10.7. Procedure ....................................................................................................................................77
10.7.1. Cash Position ............................................................................................................................77
10.7.2. Liquidity Forecast ....................................................................................................................77
10.7.3. Fixed Term Deposit ..................................................................................................................78
10.7.4. Loan Management ....................................................................................................................78
11. Inventory procedure .............................................................................................................................80
11.1. Purpose ........................................................................................................................................80
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11.3. Definition .....................................................................................................................................80
11.4. Policy ...........................................................................................................................................80
11.7. Procedures...................................................................................................................................81
11.7.1. Accounting for Inventory .........................................................................................................81
11.7.2. Recognition of Inventory .........................................................................................................81
11.7.3. Classifications of Inventory......................................................................................................83
11.7.4. Measurement of Inventory .......................................................................................................83
11.7.5. Inventory Write Down .............................................................................................................84
11.7.6. Inventory Transfer Process.......................................................................................................85
11.7.7. DERECOGNITION of Inventory ............................................................................................86
11.7.8. Physical Count..........................................................................................................................88
12. Receivable procedure ...........................................................................................................................90
12.1. Purpose ........................................................................................................................................90
12.3. Nature and Definition ................................................................................................................90
12.4. Policy ...........................................................................................................................................90
12.7. Procedures...................................................................................................................................90
12.7.1. Accounting for RECEIVABLE ................................................................................................91
12.7.1.1 Recognition ..........................................................................................................................91
12.7.2. Receivable Record....................................................................................................................91
12.7.3. Collection and Receivable Follow up ......................................................................................91
12.7.4. Valuation ..................................................................................................................................92
12.7.5. Write off of receivables ............................................................................................................94
12.7.6. Accounting Entries ...................................................................................................................94
12.7.7. Staff Receivables ......................................................................................................................95
12.7.8. Presentation and Disclosure .....................................................................................................95
12.7.9. Trade and other receivables ......................................................................................................99
12.7.10. Bond receivables ..................................................................................................................99
12.7.11. Term deposit .......................................................................................................................100
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12.7.12. Subsequent measurement ...................................................................................................100

12.7.13. Impairment .........................................................................................................................101
12.7.14. Reclassification of financial assets .....................................................................................101
12.7.15. Financial liabilities .............................................................................................................102
13. Liabilities, provision, contingent liabilities and contingent assets procedure ....................................105
13.1. Purpose ......................................................................................................................................105
13.2. Revision History .......................................................................................................................105
13.3. Policy .........................................................................................................................................105
13.4. Definitions .................................................................................................................................105
13.5. Responsibilities .........................................................................................................................106
13.6. Procedure ..................................................................................................................................106
13.6.1. General ...................................................................................................................................106
13.6.2. Accounting for Liability, Provision, Contingent Liability and Contingent Asset. .................107
14. Payroll and employee benefits procedure ..........................................................................................110
14.1. Purpose ......................................................................................................................................110
14.3. Definition ...................................................................................................................................110
14.4. Policy .........................................................................................................................................111
14.5. Persons affected ........................................................................................................................111
14.7. Procedures.................................................................................................................................111
14.7.1. Recognition / Recording.........................................................................................................111
14.7.2. Presentation and Disclosure ...................................................................................................117
15. Financial Instruments procedure ........................................................................................................118
15.1. Purpose ......................................................................................................................................118
15.3. Nature and Definition ..............................................................................................................118
15.4. Policy .........................................................................................................................................118
15.5. Persons Affected .......................................................................................................................119
15.7. Procedures.................................................................................................................................119
15.7.1. Financial assets.......................................................................................................................119
15.7.2. Cash and Cash Equivalents ....................................................................................................119
15.7.3. Financial liabilities .................................................................................................................126
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15.7.4. De-recognition of financial Assets/liabilities .........................................................................127

15.7.5. Presentation & Disclosures ....................................................................................................127
16. Corporate Taxes procedure ................................................................................................................129
16.1. Purpose ......................................................................................................................................129
16.3. Policy .........................................................................................................................................129
16.4. Definitions .................................................................................................................................129
16.7. Procedure ..................................................................................................................................130
16.7.1. General ...................................................................................................................................130
17. Revenue Procedure.............................................................................................................................132
17.1. Purpose ......................................................................................................................................132
17.3. Definitions .................................................................................................................................132
17.4. Policy .........................................................................................................................................133
17.5. Accounting procedure ..............................................................................................................133
17.5.1. Contract identification ............................................................................................................133
17.5.2. Revenue Recognition .............................................................................................................134
17.5.3. Revenue from Grant ...............................................................................................................138
17.5.4. Other Revenue and Gains .......................................................................................................138
17.5.5. Measurement of revenue ........................................................................................................139
17.5.6. Presentation and Disclosure ...................................................................................................139
17.5.7. Other qualitative disclosures. .................................................................................................140
17.5.8. Internal controls......................................................................................................................140
18. Expenditure Procedure .......................................................................................................................142
18.1. Purpose ......................................................................................................................................142
18.3. Definitions .................................................................................................................................142
18.4. POLICY ....................................................................................................................................142
18.5. Procedure ..................................................................................................................................142
18.5.1. GENERAL .............................................................................................................................143
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18.5.2. General cash disbursement procedure ....................................................................................143

18.5.3. Bank Reconciliation ...............................................................................................................145
18.5.4. Handling Petty Cash Funds ....................................................................................................145
18.5.5. Administration of Petty Cash Funds ......................................................................................146
18.5.6. Internal Control ......................................................................................................................148
19. Foreign currency exchange rates procedure .......................................................................................150
19.1. Purpose ......................................................................................................................................150
19.3. Definition ...................................................................................................................................150
19.4. Policy .........................................................................................................................................151
19.7. Procedures.................................................................................................................................151
19.7.1. Recognition/Recording of Foreign Currency denominated Transaction ................................151
19.8. Foreign currency Translation .................................................................................................154
19.9. Recognition of Exchange gains and losses ..............................................................................154
19.10. Translation of foreign operations in to the functional currency of the parent ...................154
19.11. Disclosures.................................................................................................................................155
20. Budget PROCEDURE........................................................................................................................156
20.1. Purpose ......................................................................................................................................156
20.3. Definitions .................................................................................................................................156
20.4. Objectives ..................................................................................................................................157
20.5. Budget Preparation ..................................................................................................................159
20.6. Budget process ..........................................................................................................................159
20.7. Budget Period and Calendar ...................................................................................................160
20.8. Budget Committee ....................................................................................................................160
20.9. Revenue Budget ........................................................................................................................161
20.10. Budget Holder...........................................................................................................................161
20.11. Budget Transfer and Alteration..............................................................................................161
20.12. Budgetary Performance Evaluation and Monitoring ...........................................................161
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21. Events after the reporting period procedure .......................................................................................164
21.1. Purpose ......................................................................................................................................164
21.3. Definition ...................................................................................................................................164
21.4. Policy .........................................................................................................................................164
21.7. Procedures.................................................................................................................................164
21.7.1. Recognition / Measurement....................................................................................................165
22. Cash Flow procedure..........................................................................................................................170
22.1. Purpose ......................................................................................................................................170
22.3. Definitions .................................................................................................................................170
22.4. Policy .........................................................................................................................................170
Please refer Statement of Cash Flows Policy Number _____________. ...................................................170
22.7. Procedures.................................................................................................................................171
22.7.1. Preparation .............................................................................................................................171
22.8. Presentation and Disclosure ....................................................................................................173
22.8.1. Presentation ............................................................................................................................173
22.9. Disclosure ..................................................................................................................................175
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I. INTRODUCTION
The Accounting procedure manual of Ethiopian Railway Corporation is published by its

Management to provide authoritative guidance on the application of International Financial
Reporting Standard (IFRS/IAS), respective Interpretations and conceptual framework as issued
by International Accounting Standards Board (IASB). The Chief Executive Officer (CEO) and
the Deputy Chief Executive Officer (DCEO Finance and Investment) are empowered for
effective implementation of accounting procedures formulated in this document.
A. Objectives of the Accounting procedure manual

This Accounting procedure manual document is required to bring in clarity, objectivity and
consistencies in the accounting practices and ensure Ethiopian Railway Corporation’s
commitment to;
a) Provide clear-cut and formally written guidelines for originating and handling various
accounting processes within the Corporation.
b) Provide standard procedures in dealing with financial and accounting matters related
directly to it.
c) Establish appropriate documentation and control for Financial and Accounting procedures.
d) Use as a training tool for current and newly recruited accounting staff.
e) Ensure that staffs are abiding by the financial and accounting procedures as defined by the
management;
f) Ensure that the accounting entries have proper supporting documentation for processing
financial transactions;
g) Standardize all accounting forms, reports and files;
h) Provide all managerial levels with timely and accurate financial data.
B. Access to This procedure manual Document

This procedure manual document has been prepared to guide both management and all
concerned staffs. So, it should be accessible to all concerned employees.
C. Control of This procedure manual Document
a) Each distributed copy of the procedure manual document shall have a serial number;
b) Accounting team under Finance department shall maintain a record of these copies;
c) Recipients of the procedure manual document shall sign the record confirming receipt;
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d) The recipient will not remove, amend or photocopy any part of the procedure manual
document without prior approval of the Board of Management;
e) This procedure manual document should always be kept in a safe place;
f) Contents of this procedure manual document are confidential and are intended for internal
use only. Under no circumstances may the contents of this document be revealed to third
parties without the written permission of the DCEO Finance and Investment or his/her
designee.
D. 1.4 Amendments to This procedure manual Document

While preparing this procedure document, various issues and assumptions have been duly
validated through extensive discussions among the project team members. Yet it is possible
that some of the external forces or key business drivers may change in future, including
changes in accounting policy necessitating suitable amendments to this procedure
document. For such an eventuality, amendment procedures are described as follows;
a) All the amendments relating to this procedure document shall be properly documented and
authorized prior to implementation.
b) The need for amendments which could be due to various reasons including but not limited
to changes accounting policy, regulatory requirements, Changes in management practice,
and changes in business environment or economic drivers shall be documented.
c) Procedure amendment shall use a form designed for the purpose to update the amendments.
d) In order to ensure that the document is used and updated regularly, DCEO Finance and
Investment shall obtain regular feedback from the process owners including issues they
encounter while implementing the procedures, operational feasibility, and any amendments
required in the existing procedures. Besides, DCEO Finance and Investment should
regularly review the procedure document to assess its appropriateness under the prevailing
environment.
e) Approving any amendments to the manual values or structure should be in accordance with
the corporation’s Delegation of Authority Matrix (DoA).
E. Procedures to Amend This procedure Document

a) Receive requests from any concerned staffs or officers.
b) Review the form to ensure that the sections/sub-clause and the reasons for the amendment
sections are properly filled.
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c) After ascertaining the appropriateness of the proposed amendments, the DCEO Finance
and Investment shall forward it to the CEO.
d) The QMS Department shall review and evaluate the suggested modifications and forward
the amendments to the Board of Directors for approval.
e) The approved amendments shall then be issued in writing, by the DCEO Finance and
Investment to all users of the procedure document in the form of new or replacement pages.
f) Holders of the procedure documents are responsible for incorporating the amendments as
specified in the list of amendments.
g) Rejected amendments are communicated to the concerned employee /office through the
DCEO Finance and Investment.
F. Approval of the procedure Document

The Finance and Investment Division shall implement this manual effective from the date of
approval by the Management. From this date onwards, concerned departments are required to
formally adhere to the provisions indicated in this procedure document. Any misapplication or
escape of a procedure stated in the document is not accepted.
a) The elements of financial statements
 Financial statements presented by ERC shall portray the financial effects of transactions
and other events by grouping them into broad classes according to their economic char-
acteristics. These broad classes are termed the elements of financial statements. The
elements directly related to financial position (Statement of Financial Position) are:
Assets, Liabilities and Equity. The elements directly related to performance (The
statement of profit or loss and other comprehensive income) are: Income and Expenses.
The cash flow statement reflects both income statement elements and some changes in
Statement of financial position elements. Definitions of the elements relating to financial
position and performance;
 An asset is a resource controlled by ERC as a result of past events and from which
future economic benefits are expected to flow to ERC.
 A liability is a present obligation of ERC arising from past events, the settlement of
which is expected to result in an outflow from ERC of resources embodying economic
benefits.
 Equity is the residual interest in the assets of ERC after deducting all its liabilities.
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 Income is increases in economic benefits during the accounting period in the form of
inflows or enhancements of assets or decreases of liabilities that result in increases in
equity, other than those relating to contributions from equity participants. Statement of
financial position
 Expenses are decreases in economic benefits during the accounting period in the form
of outflows or depletions of assets or incurrence of liabilities that result in decreases
in equity, other than those relating to distributions to equity participants.
 The definition of income encompasses both revenue and gains. Revenue arises in the
course of the ordinary activities of an ERC and is referred to by a variety of different
names including sales, fees, interest, dividends, royalties and rent. Gains represent
other items that meet the definition of income and may, or may not, arise in the course
of the ordinary activities of ERC. Gains represent increases in economic benefits and
as such are no different in nature from revenue. Hence, they are not regarded as consti-
tuting a separate element in this Framework.
 The definition of expenses encompasses losses as well as those expenses that arise in
the course of the ordinary activities of ERC. Expenses that arise in the course of the
ordinary activities of ERC include, for example, cost of service, wages and deprecia-
tion. They usually take the form of an outflow or depletion of assets such as cash and
cash equivalents, inventory, property, plant and equipment. Losses represent other
items that meet the definition of expenses and May, or may not, arise in the course of
the ordinary activities of ERC. Losses represent decreases in economic benefits and as
such they are no different in nature from other expenses. Hence, they are not regarded
as a separate element in this Framework.
b) General criteria for recognition of elements of financial statements
 Recognition is the process of incorporating in the financial position or the statement of

profit or loss and other comprehensive income an item that meets the definition of an
element and satisfies the specific criteria for recognition.
 As general principle the elements are recognized when it is probable that any future
economic benefit associated with the item will flow to or from ERC; and the item's cost
or value can be measured with reliability.
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 An asset is recognized in the statement of financial position when it is probable that the
future economic benefits will flow to ERC and the asset has a cost or value that can be
measured reliably.
 A liability is recognized in the statement of financial position when it is probable that an
outflow of resources embodying economic benefits will result from the settlement of a
present obligation and the amount at which the settlement will take place can be
measured reliably.
 Income is recognized in the statement of profit or loss and other comprehensive income
when increase in future economic benefits related to an increase in an asset or a decrease
of a liability has arisen that can be measured reliably. This means, in effect, that recogni-
tion of income occurs simultaneously with the recognition of increases in assets or
decreases in liabilities.
 Expenses are recognized when decrease in future economic benefits related to a decrease
in an asset or an increase of a liability has arisen that can be measured reliably. This
means, in effect, that recognition of expenses occurs simultaneously with the recognition
of an increase in liabilities or a decrease in assets.
c) General principle for measurement of the elements of financial statements
 Measurement involves assigning monetary amounts at which the elements of the
financial statements are to be recognized and reported. Accounting policy adopted by
ERC acknowledges that a variety of measurement bases are used to different degrees
and in varying combinations in financial statements, including: Historical cost, Current
cost, Net realizable (settlement) value and Present value (discounted).
 Historical cost is the measurement basis most commonly used in ERC, but it is usually
combined with other measurement bases. This framework does not include concepts or
principles for selecting which measurement basis should be used for particular elements
of financial statements or in particular circumstances. Individual Accounting policies
shall provide guidance on this issue.
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1. Property, plant and Equipment procedure

1.1. Purpose
The purpose of Property, plant and Equipment procedure is to establish guidelines for:-
a) Capitalization of PPE
b) Depreciation of Capital Assets
c) PPE Acquired by Donation, free of charge, legal, leased, grant and inheritance.
d) Criteria for Deferral and Purchase Incentives recognition and measurement
e) The accountability of maintaining property and equipment records and forms.
f) Componentization of PPE
g) Recording transfers of PPE between business unit, departments and sections within the
Corporation.
h) Internal control of PPE
1.2. Revision History
Date Rev No. Change Reference Section

01-JUL-2017 ________ __________ __________
1.3. Persons Affected

Supplies & property administration department and Finance section employees and all
employees whose departments are using PPE items.
1.4. Policy
Please refer Property, Plant and Equipment (PPE) policy of Ethiopian Railway
Corporation.
1.5. Definition
Property, plant and equipments (PPE) - are defined as tangible items that are held for
use in the production or supply of goods or services, for rental to others or for
administrative purposes; and are expected to be used for more than one year and with an
acquisition value of at least ETB 2,000.00.
Disposal of PPE - refers to withdrawal of PPE from operational use due to sale/exchange,
obsolescence, damage beyond economic use, stolen/loss or worn-out and thereby de-
recognition of the asset from the financial position.
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An impairment loss - is the amount by which the carrying amount of an asset exceeds its
recoverable amount.
Carrying amount - is the amount at which an asset is recognized after deducting any
accumulated depreciation (amortization) and accumulated impairment losses thereon.
Cash-generating unit - is the smallest identifiable group of assets that generates cash
inflows that are largely independent of the cash inflows from other assets or groups of
assets.
Corporate assets - are assets other than goodwill that contribute to the future cash flows of
both the cash-generating unit under review and other cash-generating units.
Costs of disposal - are incremental costs directly attributable to the disposal of an asset or
cash-generating unit, excluding finance costs and income tax expense.
Depreciable amount - is the cost of an asset, or other amount substituted for cost in the
financial statements, less its residual value.
Depreciation (Amortization) - is the systematic allocation of the depreciable amount of an
asset over its useful life.
Fair value - is the price that would be received to sell an asset or paid to transfer a liability
in an orderly transaction between market participants at the measurement date. (See IFRS
13 Fair Value Measurement.)
The recoverable amount - of an asset or a cash-generating unit is the higher of its fair
value less costs of disposal and its value in use.
1.6. Recognition and measurement

1.6.1. Initial recognition of PPE
1.6.1.1 All PPE shall be recognized as an asset if, and only if:
a) It is probable that future economic benefits associated with the item will flow to the
entity,
b) The cost of the item can be measured reliably and
c) Control of the asset is transferred to ERC.
1.6.1.2 Recognition threshold of PPE shall be Birr 2,000. This means that any expenditure
on an asset for Birr 2,000 and above that has a useful life of more than one year shall
be recorded as PPE and depreciated over its useful life. Any asset whose useful life
is more than one year but costs less than Birr 2,000 shall be expensed during the
7
fiscal year in which the expenditure was incurred. The PPE will then be recorded in
the PPE memorandum register for control purpose till the end of its useful life.
1.6.1.3 PPE shall be measured at its total cost, which comprises of purchase price, including
import duties and other non-refundable taxes or levies, and any directly attributable
cost of bringing the asset to its working condition for its intended use. Any trade
discounts and rebates are deducted in arriving at the purchase price. General
overhead, training and administrative expenses as well as start-up costs are also
excluded.
Examples of directly attributable costs that must be included in the initial measurement are:
 Site preparation;
 Initial delivery and handling costs;
 Installation cost, such as special foundations for plant; and
 Professional fees, for example fees of architects and engineers.
Examples of costs that must be excluded (expensed during the year) in the initial
measurement are:
 Costs incurred after an item of property, plant and equipment is in the location and
condition necessary for it to be capable of being operated in the manner intended,
such as training;
 Costs incurred post to asset recognition criteria being satisfied;
 General administration costs; and
 Indirect overhead costs.
1.6.1.4 When asset is acquired at no cost or for nominal consideration, such as PPE acquired
through donation or grant, it shall be recorded at its current fair value or at the
estimated amount determined by the expert, whichever is practical.
1.6.1.5 The cost of PPE that is self-constructed by ERC shall include all relevant costs
incurred to develop the asset and make it ready for use, including interest costs and
foreign exchange loss foreign exchange loss eligible for capitalization during
construction on borrowed loan to finance the construction of the asset.
1.6.1.6 Salvage value of birr equivalent to 0.5% of the initial cost or birr 100 whichever is
higher shall be assumed for PPE at the initial recognition for controlling purpose and
shall be deducted from the initial cost to determine its depreciable value which will
be charged in the form of deprecation over the life of the asset.
1.6.1.7 Procedures and process that shall be used for initial recognition of PPE is shown in
the table as follows:
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Task Location Role Task description

Determine the Head Office Senior To determine the cost of PPE, obtain and review all documents
cost of PPE /Business Accountants or such as purchase requisition, purchase order, supplier invoice
and record the unit/ Accountants as and goods receiving note, freight, insurance and bank charges,
acquisition in the case may be import duties, non-refundable taxes, and any other directly
the books attributable costs or fair value or revaluation by expert (if
obtained through donation or grant) and prepare journal entries
to record the acquisition and present to the Team Leader for
review and approval. Once approved, record the journal entry
in the system and in the PPE register the asset with unique
identifier.
DR. PPE (ex. Furniture &Fixture) xxxx
VAT Receivable xxxx
CR. VAT Payable XXX
CR.Withholding tax payable XXX
Cash in Bank (A/P) xxxx
1.7. Subsequent Recognition of PPE

6.2.1 ERC does not recognize in the carrying amount of an item of property, plant and
equipment the costs of the day-to-day servicing of the item. These costs are recognized
in profit or loss as incurred. Costs of day-to-day servicing are primarily the costs of
labor and consumables, and may include the cost of small parts. These expenditures is
often described as for the ‘repairs and maintenance’ of the item of property, plant and
equipment.
6.2.2 Parts of some items of property, plant and equipment may require replacement at
regular intervals. For example train interiors such as seats and galleys may require
replacement several times during the life of the train. Items of property, plant and
equipment may also be acquired to make a less frequently recurring replacement, such
as replacing the interior walls of a building, or to make a nonrecurring replacement.
ERC recognizes in the carrying amount of an item of property, plant and equipment
the cost of replacing part of such an item when and if the cost incurred met the
recognition criteria. The carrying amount of those parts that are replaced is
derecognized in accordance with the derecognition (disposal) principle.
6.2.3 Major overhaul expenditure, including replacement spares and labor costs, is deferred
and amortized over the average expected life between major overhauls.
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6.2.4 Expenditures incurred subsequent to initial recognition shall be capitalized if at least

one of the following conditions is met.
 Improves the conditions of the asset beyond its originally assessed standard of
performance (increase operating efficiency or capacity for the remaining useful
life of the asset (betterments));
 Restore or maintain the future economic benefits (extraordinary repairs);
 The expenditures extended the useful life of the asset;
6.2.5 The procedures and process that shall be used for recording costs subsequent to the
acquisition of PPE is shown in the table as follow:

 Obtain and review all documents such as
purchase requisition, purchase order,
supplier invoice, goods receiving note,
etc. related to costs incurred for PPE
subsequent to its acquisition
 Analyze the impact of the expenditure on
the asset and put the expenditure in one of
the following categories:
Senior Accountants a) Charge (debit) to expense if the
Record costs Head
or Accountants as the expenditure is for ordinary repairs and
incurred Office / maintenance
subsequent to the case may be
Business b) Charge (debit) to PPE if the expenditure
acquisition of
unit/ results in extensions, enlargements,
PPE
expansions or increases in the use values
of the existing PPE
c) Charge (debit) to deferred expenditure for
major periodic over hall.
 Prepare the appropriate journal entries in
line with the above categories and record
them once the approval is made by the
Accounting Team Leader (Finance
Manager for Branches).
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1.8. Impairment of PPE

1.8.1. ERC must ensure that its Property, Plant and Equipment are carried at no more than
their recoverable amount.
1.8.2. PPE shall be tested for impairment losses in every three years or whenever events or
changes in circumstances indicate that the carrying amount of PPE may not be
recoverable and Recoverable amount is defined as the higher of the amount that could
be obtained by selling the asset (net realizable value) and the amount that could be
obtained through using the asset (value in use). Value in use is calculated by
forecasting the cash flows that the asset is expected to generate and discounting them
to their present value. Where individual assets do not generate independent cash
flows, a group of assets (Cash generating unit) is tested for impairment.ERC shall
assess at the end of each reporting period whether there is any indication that an asset
may be impaired. If any such indication exists, it shall estimate the recoverable
amount of the asset. events and changes in circumstances that indicate an impairment
may have occurred include:
 A significant decline in PPE’s market value during the period
 Evidence of obsolescence or physical damage to the PPE
 A significant adverse change in either the business or the market in which the PPE is
involved, such as the entrance of a major competitor or the statutory or other
regulatory environment in which the business operates.
1.8.3. During annual physical counts at the end of the reporting period inventory count
committee/ team/ shall examine in details the conditions of PPE and should write in
the remark column of count sheet or report separately, the asset team should analyze
the report and may initiate the impairment test procedure.
1.8.4. When the impairment test over PPE needs market value of the asset, search for this
information via internet or any other medium which can tell us the real market value
of PPE that is trusted by all stakeholders.
1.8.5. PPE shall be valued and reported at cost less accumulated depreciation and
accumulated impairment losses, if any.
1.8.6. If the carrying amount of PPE exceeds the recoverable amount, an impairment loss
amounting to the difference is reported in the profit and loss statement and recognized
in the period by:
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DR. Impairment losses XXX

CR. Acc. Impairment Loss – (Respective Asset) XXX
1.8.7. If the carrying amount is less than the recoverable amount no impairment is
recognized.
1.8.8. The reversal of past impairment losses is recognized when the recoverable amount of
PPE has increased because of a change in economic conditions or in the expected use
of the asset. However, the reversal of impairment loss can be up to the newly
calculated recoverable amount without exceeding what the original carrying amount,
net of depreciation, would have been.
To illustrate the above statement consider the following example:
At the end of 2009 budget year ERC tests a machine for impairment. The machine was
bought five years earlier (which is at end of 2004) for birr 300,000 when its useful life
was estimated to be 15 years and the estimated residual value was nil. At Sene 30,
2009, after recognizing the depreciation charge for 2009, the machine’s carrying
amount was birr 200,000 and its remaining useful life was estimated at 10 years.
The machine’s value in use is calculated using a pre-tax discount rate of 14 per cent
per year. Budgets approved by management reflect expected cash inflows net of the
estimated costs necessary to maintain the level of economic benefit expected to arise
from the machine in its current condition.
Assume, for simplicity, that the expected future cash flows occur at the end of each
reporting period. An estimation of the value in use of the machine at the end of 2019 is
shown below:
Probability-weighted Present value factor Discounted cash flow
Year
future cash flow CU 14% (in birr)
2010 22,742 0.877193 19,949
2011 25,090 0.769468 19,306
2012 26,794 0.674972 18,085
2013 35,497 0.592080 21,017
2014 39,985 0.519369 20,767
2015 41,959 0.455587 19,116
2016 43,462 0.399637 17,369
2017 47,344 0.350559 16,597
2018 47,287 0.307508 14,541
2019 46,574 0.269744 12,563
Value in use 179,310
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** The present value factor (PVF) is calculated as PVF = 1 ÷ (1 + i) n, where i is the discount rate
and n is the number of periods of discount (eg. for 2019 the present value factor is calculated as
follows: 1 ÷(1 + 0.14)10 = 1 ÷(1.14)10 = 1 ÷3.707221 = 0.269744.
**The expected future cash flow for year 2019 includes birr 2,000 expected to be paid to dispose of
the asset at the end of its useful life. The residual value is nil because it is expected that the machine
will be scrapped at the end of 2019.
Assuming that the fair value less cost to sell is lower than the value in use, the calculation of the
impairment loss at the end of 2009 is as follows:
Carrying amount before impairment loss 200,000
Less: recoverable amount 179,310
Impairment loss 20,690
Carrying amount after impairment loss (i.e. recoverable amount) 179,310
Assuming that the machine’s fair value less costs to sell (which is 160,000.00) is lower than its
value in use, the value in use is the recoverable amount. The entity recognizes the impairment loss
at Sene 30, 2009 as follows:
Dr Profit or loss (impairment loss) 20,690
Cr Accumulated impairment (machine) 20,690
As a consequence of the impairment loss recognized at 31 December 2009, the carrying amount of
the machine immediately after the impairment recognition is equal to the machine’s recoverable
amount (i.e. birr 179,310). In this case, in subsequent periods (i.e. 2010–2019), assuming all
variables remain the same as at the end of 2009, the depreciable amount will be birr 179,310. So the
depreciation charge will be birr 17,931 per year (i.e. birr 179,310 ÷10 years).
The impairment reversal process for an individual impaired asset is depicted follows:
At Sene 30, 2013 the same machine has a carrying amount of birr 107,588. Management has
reassessed the future cash flows based on changed circumstances since the end of 2009 budget year
and determined value in use at the end of 2013 to be birr 122,072 at Sene 30, 2013. Management
believes fair value less costs to sell is less than value in use.
At the end of 2013 the machine’s recoverable amount (i.e. value in use = birr 122,072) is higher
than the machine’s carrying amount before the recognition of any reversal of the impairment loss
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recognized in 2013 (birr 107,588). It is an indication that the impairment loss recognized in 2009 no
longer exists or may have decreased.
Recoverable amount 122,072

Carrying amount, before the reversal of the impairment
loss recognized at 30/10/2013 107,588
Difference 14,484
The difference is only an indication of the amount of the reversal because the reversal cannot
increase the carrying amount of the asset above the carrying amount that would have been
determined had no impairment loss been recognized for the asset in prior years.
At the end of 2013, the carrying amount that would have been determined had no impairment loss
been recognized for the asset in prior years is birr 120,000 (cost birr 300,000 less accumulated
depreciation birr 180,000). Thus birr 120,000 is the maximum carrying amount for the asset after
the reversal of the impairment.
The entity compares the carrying amount at 2013 if no impairment loss had been recognized (birr
120,000) with carrying amount at 2013 (birr 107,588) and determines that the maximum
impairment reversal is birr12, 412 (birr 120,000 less birr 107,588).
Cost 300,000
Less: notional depreciation since acquisition until 30/10/2013 (180,000)
Notional carrying amount at 30/10/2013 if no impairment
loss been recognized for the asset in 2009 120,000
Less: carrying amount at the year ended 30/10/2013, before
the reversal of the impairment loss recognized in prior
reporting periods 107,588
Reversal of prior year’s impairment loss 12,412
The entity recognizes the reversal of impairment loss at Sene 30, 2013 with the following journal
entry:
Dr Accumulated impairment loss—machine 12,412
Cr Profit or loss—reversal of impairment loss 12,412
As a consequence of the reversal, at Sene 30, 2013, of part of the impairment loss recognized at
Sene 30, 2009, the carrying amount of the machine immediately after the reversal of the impairment
loss recognition is birr 120,000 (i.e. birr 300,000 cost less birr 100,000 depreciation recognized for
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the period since the acquisition of the machine until Sene 30, 2009 less birr 71,726 depreciation
recognized for the period 2010–2013 less birr 8,274 accumulated impairment loss (i.e. birr 20,686
impairment loss recognized at Sene 30, 2009 less birr 12,412 reversal recognized at Sene 30, 2013).
In this case the carrying amount of the machine immediately after the reversal of the impairment
loss recognition is equal to the machine’s carrying amount that would have been determined had no
impairment loss been recognized for the asset in prior years.
In accordance with IAS 30 paragraph 27, in subsequent periods (i.e. 2014–2019 in the example
above), assuming that all variables remain the same as at the end of 2013, the depreciable amount
will be birr 120,000. Therefore the annual depreciation charge will be birr 20,000 (i.e. birr 120,000
depreciable amount ÷6 years remaining useful life).
1.9. Depreciation on PPE

1.9.1. Straight-line depreciation method of depreciation shall be used to determine
depreciation charges on PPE for financial reporting purpose. The applicable
depreciation rates for the purpose of computing depreciation for financial reporting
purpose for different PPE classifications are presented below:
i. Buildings 5% of cost per year
ii. Infrastructures
iii. Motor vehicles, 20% of cost per year
iv. Plant and machinery 16% of cost in the 1styear and 12% in the 2nd year onwards.
v. Office equipment and furniture and fittings, 10% of cost per year
vi. Computers, information systems and related products, 20% of cost per year.
The above rate shall be subject to revision at any time if ERC’s management feels that the rates
don’t reflect the reasonable portion of depreciation charges.
1.9.2. For tax reporting purpose, ERC shall be used Straight line method of depreciation
rates stipulated in the Income Tax Proclamation for determining the applicable
depreciation on PPE. Accordingly, depreciation is charged on the reducing balance of
the net book value * of each pool of PPE (declining carrying value), except for
building, by using the rates indicated below:
vii. Buildings, 5% per year
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viii. Plant and machinery, 15% per year

ix. Computers, information systems and related products, 20% per year
x. Office equipment and furniture and fittings, 15% per year
xi. Infrastructures
xii. Motor vehicles, 15% per year
1.9.3. The deprecation of PPE shall be commenced when the PPE is ready for use for
financial reporting purpose while for tax reporting at the acquisition date.
1.9.4. The depreciation rate of PPE may be amended in accordance with PPE physical
condition and change in estimate of its remaining use full life for financial reporting
purpose.
1.9.5. The difference in the net income figures resulting from the use of different deprecation
methods for financial reporting and profit tax reporting purposes shall be accounted
for as deferred tax (refer income tax procedure).
1.9.6. Depreciation for every PPE shall be computed and recorded on a monthly basis as per
its classification and identification number by using the applicable depreciation
method.
1.9.7. The depreciation expense will be closed to the profit & loss account at the end of the
fiscal year; whereas accumulated depreciation is carried to the statement of financial
position and shown as a deduction from the original cost of the PPE
1.9.8. The depreciation policy shall be subject to revision at any time when the management
of ERC’s feels that the previous policy doesn’t reflect the use pattern of PPE and
appropriate amount of depreciation.
1.9.9. Detailed Procedures for depreciation calculation and recording is as follows:
Determine and Head Senior  Review all documents and the system to
record Office/ Accountant, ensure that all PPE related transactions
depreciation on Business under are up to date before computing
PPE unit/ Accounting depreciation.
team (HO)  Run the monthly depreciation
Senior computation report with the necessary
journal entries depending on the use of
Accountant,
the PPE and record in the system once
under General approval is obtained from the Asset its
accounts team Team Leader.
(Business unit)  Depreciation for PPE
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DR. Depr. expense – PPE A xxxx

CR. Accum. Depr –PPE A xxxx
Allocation of Allocate Depreciation Charges (Expenses) to
Depreciation branch, Department and other sections as
appropriate.
1.10. PPE Transfer Process and Procedures

1.10.1. In the course of business, PPEs can be moved from Head office to Business unit and
vice versa, with in the head office between departments and business unit to business
unit. In the event a PPE is to be moved from one location to another or from one
responsibility center to another, a PPE Transfer Form must be completed and approval
must be obtained from Supplies and Property Administration Department the releasing
and receiving Business unit or Head office.
1.10.2. If the transfer of PPE is expected to be for a year or more, the PPE shall be
transferred completely from the releasing Business unit to the receiving Business unit
by removing the PPE’s records from the releasing Business unit or Head office and
recording the receipt in the records of the receiving Business unit or Head office.
1.10.3. If the transfer of PPE is expected to be less than a year, the transfer of PPE shall be
noted in the PPE Transfer Form and the releasing Business unit or Head office shall
record the appropriate depreciation on the asset while the receiving Business unit or
Head office shall bear its running and maintenance costs till it returns the asset back.
1.10.4. Procedures and process that shall be followed to record the transfer of PPE is as
follows:
Record the Business unit/ Senior  Obtain and review all documents such
transfer of Head Office/ Accountant, as Fixed Asset Transfer Form
PPE under approved by the releasing and
Accounting team receiving responsibility centers and
(HO) the corporate office and other relevant
Senior documents.
 Update the PPE Record before
Accountant,
performing transfer activities by
under General recording partial period depreciation
accounts team on the asset if the asset transfer is
(Business unit) permanent.
 For receiving Business unit or Head
Office by adding the PPE (Dr. to PPE
and Cr. to Accumulated Depreciation
17

and Head Office Account. This will
add the PPE and its related contra
account and increase the claims of the
head office on Business unit. Then
depreciation will be charged in the
usual way to P&L.
 Get the review and approval from the
Asset Team Leader before finalizing
the recording process.
1.11. Internal control over PPE

It is the policy of ERC to safeguard and maintain all of its assets with effective internal
controls in order to receive the maximum benefit from them and to properly record and
properly account for its PPE for financial and tax reporting.
While it is a responsibility of Property and Facilities Management Directorate or Business
unit Property and Facilities Management team to maintain proper records of the assets,
safeguard is the responsibility of everyone in ERC.
1.12. Usage
1.12.1. All Assets (PPE) must be used for business purposes only. This must be done in a
considerate and controlled manner so as to avoid damage and prevent any loss through
negligence.
1.12.2. All departments of ERC have the responsibility of recording, controlling and
safeguarding all PPE that have been assigned to their respective departments/division.
They also have responsibility to take periodic inventory and report the result to the
concerned departments /office.
1.12.3. Any loss, damage or theft of PPE’s should be reported, investigated and fully
documented, and the principal investigator should render a decision on the matter.
1.13. Insurance
1.13.1. PPE must be insured against loss, damage or theft. The insurance cover should be
comprehensive to include fire, theft, and injury to third parties (public liability),
general liability, riots and other uncontrollable perils.
1.13.2. Supplies and property administration, Railway network Division and Business unit
property administration are responsible to take care of the extent and nature of all the
new risks to be insured and any alterations affecting existing insurable risks.
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1.13.3. The value of PPE for insurance purposes shall be the book value or value advised by
an independent expert.
1.14. Property Log/Register
1.14.1. The Property and administration Directorate shall maintain a detailed register of all
property. The responsible positions are The Head of Machinery, Spare parts and
Maintenance Service Center (MSMSC) and Logistic team.
1.14.2. There should be Fixed Asset Register Card for each individual asset (PPE). The
details recorded in the card must be accurate and should be reviewed monthly to
ensure it remains up to date.
1.14.3. There should be Fixed Asset Register which captures a summary of all the non-
expendable assets, with an expected service life of 1 year or more and a unit cost of
more than Birr 2,000, including taxes, shipping, duties, installation, and related
charges. Examples of expendable assets are Rolling stocks motor vehicles and
photocopier machines.
1.14.4. The Fixed Asset Register Card and Fixed Asset Register must be updated at least
every month and/or when new assets are purchased.
1.14.5. The property Register shall also include movement of items and changes in the
location of items as they occur.
1.14.6. The Fixed Asset Register Cards and Fixed Asset Register will be used for asset
controls and as accounting for Assets (PPE).
1.15. Property Tag Number

1.15.1. All properties must have labels showing ERC serial number, Head office (Business
unit) and Department names, type and location.
1.15.2. For motor vehicles the registration number and license number will be used.
1.15.3. The tag numbers for other properties will be based on the asset class Head office,
Business unit and department.
1.15.4. The team leader of Machinery, Spare parts and Maintenance Service and Logistic is
responsible for determining tag numbering and will advise the asset team leader as
well as asset team accountants.
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1.16. Periodic Physical Count of PPE

1.16.1. The physical existence of PPE (fixed assets) recorded in the registers should be
verified from time to time, and at the close of financial year so that all assets are
covered and the physical count Supervisors and teams who are assigned by the CEO
and any person authorized by the CEO are responsible to the accuracy of the account
and assure this by way of their signature on the PPE count sheets. User departments
are also responsible for recording and counting of PPE. The year-end physical
verification may be done in the presence of external auditors.
1.16.2. The PPE (Fixed Asset) Accountants shall be responsible in carrying out periodical
physical checks of records of ERC PPE and reconcile with the financial records.
1.16.3. No PPE (fixed asset) should be disposed of without prior approval of an authorized
official.
1.16.4. Records of all PPE (fixed assets) shall be maintained in the fixed asset master file
system at the Head office, with duplicates at the user office/business unit. The master
file system shall rely on pre-defined lookup data such as Asset Category, Asset
Location and Custodian of Asset and Asset Useful Life, Suppliers name, purchase
price, depreciation rate and other relevant information’s.
1.17. Physical Count Procedures for Non-current assets

1.17.1. The purpose of a physical PPE count is to verify the existence and condition of PPE
and ensure the accuracy of the PPE accounting records.
1.17.2. The procedure and process to be followed in conducting the physical count is as
follows:
1. Prepare PPE Business Senior Fixed Asset  Review the PPE General Ledger and
count sheet, unit/ Head Accountant Control Account for accuracy and
Count Office completeness
schedule and  Establish the expected physical assets in a
procedure pre-numbered columnar count sheet and
prepare inventory counting program
Director of Finance  Review the asset list generated and the
department robustness of the asset inventory taking
program
20

Senior Fixed Asset  Perform physical count to confirm
Accountant existence, conditions and proper coding
with counting team, identify obsolete
items, reconcile differences between the
physical count and the fixed asset register
 Prepare report to highlight the observed
conditions and control environment and
problems encountered upon making
physical counting
 Prepare journal of proposed adjustment
with attached support documentation and
present to the Senior Inventory and Fixed
Asset Accountant
 Review the inventory count report against
the Program, the proposed adjustments for
appropriateness, and submit the report and
proposed adjustments to Director of
General Accounts for approval
 Reviews the proposed adjustments and
approve if it is within his/her mandate;
otherwise seek approval from the Deputy
Director General Finance, especially in
cases of missing assets or significantly
huge write-offs due to obsolescence
 Run the fixed asset adjustment as per the
instruction received to reconcile the
physical count with the fixed asset records
in the system, review the final agreed list
against register of insured items to
ascertain that all assets are insured.
Director of Finance
department
Fixed Asset
Accountant
1.18. Responsibilities
All directors under DCEO finance & investment division and other Divisions of ERC are
primarily responsible for procedures in this Section and also the specific responsibility for
this procedure is asset team under the finance director and the respective employees under
the team are responsible to PPE.
21
22
2. PPE retirement process

2.1. Purpose
The purpose of the procedure on PPE retirement process is to establish guidelines for
handling disposal of PPE items. PPEs might be proved to be no more economical and
effective to use in the business. In such circumstances, the asset needs to be disposed of
regardless of the book value they carry. Circumstances of this type are usually identified
during annual fixed asset inspection and counting. In such cases, the following procedures
shall be followed in dealing with this transaction.

01-Jul-2017 _______ ____________ __________
All Departments in General and Purchasing & Property Administration in particular.
2.4. Policy
Please refer PPE Policy Number …………………
2.5. Definitions
N/A
2.6.1 The Chief Financial Officer is primarily responsible for procedures in this section.
2.6.2 Division Heads are primarily responsible for all items of Capital nature and other
materials under the custody of their respective Departments to properly transfer same to
Property Administration Department when the PPEs are deemed not useful and/or when
they become unneeded by filling the applicable forms.
2.6.3 It shall be Property Administration’s responsibility to design means of disposal.
2.7. Procedures
2.7.1. General
2.7.1.1 When Fixed Assets are disposed of, the cost and accumulated depreciation of such
assets must be written off from the books. The proceeds on disposition will be offset
23
against the net book value of the asset and any resulting gain or loss will be
accounted for in the Profit and Loss.
2.7.1.2 Initiate the disposal request for a particular asset together with justification through
Asset Disposal Authorization form.
2.7.1.3 Review the request and set up a technical committee which assess the condition of
the asset and provide recommendation or decision. Depending on the materiality and
the nature of the item under consideration, forwards the request to the CEO.
Disposal of immaterial assets will be decided by the committee and CFO
(Materiality levels shall be set by management).
2.7.1.4 Review the request to dispose of material assets and may present the case to the
BODs and make the decision to dispose the asset.
2.7.1.5 Finance up on receiving the approved asset disposal authorization form, Assign code
and record and post the transaction which transfers the asset to Property
Administration Department.
2.7.1.6 Once the disposal is approved, Property Administration Department arranges
possible disposal methods.
2.7.1.7 If the PPE is disposed/sold or exchanged at a price greater than its book value, gain
on disposal shall be recognized; and if the PPE is disposed/sold or exchanged at a
price less than its book value, loss on disposal shall be recognized.
2.7.2. HANDLING AND DISPOSAL OF RETIRED PPEs, Scraps and Excess
Materials
2.7.2.1. All equipment of capital nature and other materials, including but not limited to the
following shall be transferred to Property Administration Department when they
become not useful or unneeded for use by concerned section.
a) Office/shop Equipments, Calculators, typewriters tools etc.,
b) Equipment, Furniture and fixture etc.,
c) Motorized vehicles and equipments
d) Electrical Appliances radios, Tape Recorders, kitchen appliances etc.
e) Scrap materials - metals, tires, empty metal barrels, tins, cans jars, pails, plastic
containers, woods, batteries etc.
2.7.2.2. All other items of Non-Capital nature shall be transferred to Property
24
Administration Department by completing the appropriate form.

2.7.2.3. Items listed as scrap material under 7.1.1 (e) shall be accumulated in a separate
place with a special container and shall be transferred to Property Administration
Department for disposal by auction or other means such as donations, as necessary
and subject to higher management approval.
2.7.2.4. Property Administration Department is responsible for the proper custody of all
transferred items in a separate secured place until the time of its proper disposition.
2.7.2.5. If any of the transferred items are needed for use by any other section same can be
transferred by filing the appropriate transfer document.
2.8. Disposal of motor vehicles

2.8.1. The Corporation disposes its motor vehicles in compliance with the Directives
issued by Ethiopian government.
2.8.2. With the consent of vehicle maintenance section all possible efforts should be
made to make the various car dealers in town accept the vehicle to be replaced as
part payment towards the purchase of a new vehicle.
2.8.3. Failing attempts prescribed in (7.3.2) above, the necessary paper work must be
expedited for transferring the vehicle to Property Administration Department.
Disposal of the vehicle shall be implemented per general PPE disposal process
described above.
2.8.4. Upon delivery of vehicle to Property Administration Department for disposal,
the vehicle shall be accompanied with all relevant documents and information
about the status of the vehicle.
2.8.5. A committee comprised Vehicle maintenance (Chairperson), Internal Audit &
User Section and Property Administration shall be formed by CEO per the
directives issued from Ethiopian government to evaluate requests submitted by
concerned Department or Regional Managers to dispose vehicles.
2.8.6. Requests for disposal of vehicle within its normal span of life shall be submitted
to Vehicle Maintenance Department. It shall review all records (vehicle
maintenance history) of the vehicle and submits the findings to the committee for
further evaluation.
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2.8.7. The committee shall review the additional information which describes the status
of the vehicle and recommend actions to be taken and Vehicle maintenance
Department shall submit it to the concerned Department or Regional Managers
after securing the approval.
2.8.8. The concerned Department or Regional Mangers shall prepare disposal
authorization if the committee decides to dispose the vehicles and forward it to
Property Administration Department complying conditions set in sections above
and after securing the approval per limits of authority and delivering the original
to Finance Department.
2.8.9. Finance Department shall amend its records according to the disposal authority
and notify Disposal of vehicle to all concerned to take the appropriate actions.
2.8.10. Vehicle maintenance Department shall be responsible to prepare records and
maintain history of each vehicle including the vehicle purchased for regional
Offices starting from the time of purchases, which will help to make decision to
dispose the vehicle.
2.8.11. Means of Disposing of vehicles: After the decision is made to dispose the vehicle
the disposal shall be per the directives issued from Ethiopian government, i.e.
sale; as it is, reuse or sale of parts, and as scrap material.
2.8.12. Administration Department shall carry out the final disposition.
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3. Construction in progress Procedure

3.1. Purpose
The purpose of Construction in progress Procedure is to identifying the types of work that
normally require Project works and establish guidelines for handling project works.

01-Jul-2017 _________ __________ ________
3.3. persons Affected
All Departments requesting Project works (Work breakdown structure).
3.4. Policy
Please refer Policy Manual Number ……………………………..
3.5. Definitions
N/A
3.6.1. The Deputy CEO Finance & investment Division is primarily responsible for
procedures in this section.
3.6.2. When a project is completed or ready for use, the Head of Divisions who initiated
the Project shall be responsible to notify of its completion to CEO Finance &
investment Division for taking appropriate accounting action and closing the
project work.
3.7. Procedures
3.7.1 Investment Projects procedure
This section provides standards and policies on accounting for Construction and work
in Progress (CIP & WIP), defined as PPE or intangible assets under construction or in
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the process of being developed but yet to meet the recognition criteria of being in the
location and condition necessary for it to be capable of operating in the manner
intended by ERC’s management. Example is a railway line under construction but has
not been issued with certificate of completion by the consulting engineer.
The CIP and WIP can be categorized as:
i. CIP - Railway infrastructure
ii. CIP - Building & other Construction
iii. WIP - Software installation, Feasibility and other Consulting works
Investment projects (Construction-In-Progress(CIP) and Work-In-Progress(WIP)) is the cost of
assets, such as railway infrastructures, buildings, feasibility studies or other capital projects that
are under construction or development as of the reporting date. The accounting process and
procedures for investment projects depends on the nature of construction contracts.
3.7.1.1. Construction in Progress
Three types of construction Projects have been identified and must be understood to
properly account for CIP.
i. First type of construction is referred to as an EPC /turnkey project, where the
contract requires the contractor to assume full responsibility for design,
procurement and construction or given the design the contractor constructs an asset
and make it ready for operation before being handed over to ERC;
ii. The second type is referred to a progressive project, where a contractor is
commissioned to construct an asset of which its design or specification is prepared
by ERC itself or other party and payment will be made progressively based on the
work accomplished;
iii. The third type is referred to as Self-Constructed project, where ERC uses internal
resources and professionals to develop or construct an asset.
The accounting procedures and processes to account for investment projects under
each of the above three construction in progress types are presented as follows:
Accounting for EPC /Turnkey Project
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An Engineering Procurement Construction (EPC /Turnkey) Project is a particular

form of contract arrangement between ERC and the EPC contractor where the EPC
Contractor is made responsible for all the activities from design, procurement and
construction to commissioning and handover of the project to the corporation.
Depending on the nature of the project, ERC may give the contract to the contractor
to design and construct the full facility or may give the contract to construct a
complete facility such as railway lines in accordance with the drawings and
specifications prepared prior to the conclusion of the contract.
 Payments are made by ERC to the contractor on the basis of percentage of works
completed specified in the contract but the payments may or may not necessarily
express the exact value of the works executed at the time of payment.
 Any advance payment and/or down payments made to the contractor should be
recognized as a receivable and shall transfer to the CIP upon recovery of the advance
payment.
 The turnkey project will be fully treated as the asset of ERC when it is completed and
handed over by the contractor as per the design and specifications given. This may
require a certificate of completion by the consultant to confirm that the project is
complete and ready for use.
 To recognize and accumulate costs incurred in relation with any EPC/turnkey project,
the person in charge should obtain and review all documents related to advance
payments made to the contractor or consultant of a turnkey project including payment
requests, approved payment certificates, payment receipt, invoice, advance payment
guaranty etc,. And shall calculate the amount that should be treated as advance
payment to the contractor or the consultant and record advance or down payment
receivable.
 Any payment made to Consultant, hired by ERC to provide assurance on the quality
and standard of work done by the contractor should be accumulated in the
Construction in Progress of the particular project.
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 Finance department should monitor and notify the expiry date of advance payment
and performance guaranties to the contract administration department.
 The Senior Accountant, under accounts team shall prepare the journal entry and get
approval from the Team Leader to account for the advance payment made. The entry
shall be as follows:
DR. Advance Payment to Contractor/consultant xxxx
DR. VAT receivable xxxx
CR. VAT payable xxxx
CR. With-holding tax xxxx
CR. Cash in Bank (A/P) xxxx
 Regarding monthly or interim payments the Senior Accountant, under accounts team
should obtain and review all documents related to progress payments made to the
contractor and employer’s representative (consulting firm) including payment
requisitions, approved payment certificates, invoices, payment receipt, performance
guaranty, advance payment guaranties etc,.
 The senior accountant, under accounts team shall prepare the journal entry and get
approval from the Team Leader to account for the interim payment.
DR. CIP – Project X xxxx
CR. Retention xxxx
CR. Advance/down payment Repayment xxxx
 Senior Accountant, under accounts team using all source documents to record the
transfer of the asset to PPE when the asset is fully handed over to ERC after being
certified by the consulting company and is ready for use, shall prepare the journal
entry and get approval from the Team Leader.
DR. PPE – Project X xxxx
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CR. CIP/WIP xxxx
3.7.2 Accounting for Progressive Projects
In this case, ERC hires a contractor to construct a project such as a building or a railway
line in accordance with the design and specifications given to it and payment will be made
progressively based on the work accomplished as per the certification given by the
consulting company or ERC’s internal professionals assigned to determine the level of
accomplishment of the construction work.
 Interim payment certificate refers to a series of invoices prepared by the contractor at

different stages in the progress of a major project, in order to seek payment for the
percentage of work that has been completed so far. Interim payment certificate will
show the original contract amount, any changes to that amount, how much has been
paid to date, what percentage of the job has been completed to date, what payment is
currently due and the total amount remaining to be paid.
 The payment made (Interim payments) to the contractor for the work accomplished
which is certified by the consulting company or professional assigned to do such
work by ERC shall represent the value of the works executed so far and should be
accumulated in the Construction in Progress (CIP) account.
 Any payment made to the consulting company which is hired by ERC to assure the
quality and standard of work done and to certify the level of work accomplishment by
the contractor should be accumulated in the Construction in Progress account of the
project.
 When the construction project is fully completed and certified by the consulting
company or professionals assigned to do such work by ERC, the project will be
transferred to PPE of ERC.
 To recognize and accumulate costs incurred in relation with any Progressive project,
the Senior Accountant should obtain and review all documents related to progress
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payments made to ERC’s contractor or consulting company for the construction or

consulting service it has provided for the construction project including approved
payment requisitions, payment receipt, invoice, etc. Then after, the Senior Accountant
shall prepare the journal entry and get approval from the Team Leader to account for
the progress payments made as follows:
DR. CIP – Project X xxxx
CR. Retention xxxx
CR. Advance/down payment Repayment xxxx
 Senior Accountant, under accounts team shall prepare the journal entry and get
approval from the Team Leader, using all source documents to record the transfer of
the asset to PPE when the asset is fully completed and handed over to ERC after
being certified by the consulting company.
DR. PPE –Project X xxxx
CR. CIP– Project X xxxx
3.7.3.1.Accounting for Self-Constructed Projects
 Essentially the same principles that have been established for recognition of the cost
of purchased PPE shall also apply to self-constructed assets. All costs that must be
incurred to complete the construction of the asset can be added to the amount to be
recognized initially, except the amount of wasted material or labor that can’t be
traceable to a particular project. The cost of a self-constructed PPE should comprise
of those costs that relate directly to the specific asset and those that are attributable to
the construction activity in general and can be allocated to the specific asset. These
costs represent a temporary capitalization of labor, materials, and equipment of a
construction project as at the statement of financial position date.
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 All direct costs of construction include labor, materials, construction machinery rental
costs and other variable overhead and directly attributable costs include such costs as:
i. Employee-related costs arising directly from the construction project such as
labor costs of an entity’s own employees (e.g., site workers, in-house architects
and surveyors)
ii. Costs of site preparation
iii. Initial delivery and handling costs
iv. Installation and assembly costs
v. Costs of testing whether the asset is functioning properly
vi. Professional fees such as the fees paid to a consulting firm
 All construction costs shall be accumulated to the CIP account until the asset is ready
for use. The cost can be accumulated from supplier invoices (for items purchased),
use of corporation's inventory items in the construction, transportation and other
expenses to make the asset ready for use.
 The senior accountant under accounts team shall obtain and review all documents
related to progress payments made to ERC’s consulting company for the consulting
service it has provided for the self-constructed investment project including approved
payment requisitions, payment receipt, consulting company’s invoice etc. Any
payment made to the consulting company which is hired by ERC to assure and certify
the quality and standard of work done shall be accumulated in the CIP account of the
project as follows;
Dr. CIP Project X xxxx
Cr. Cash at bank (A/p) xxxx
 The senior accountant shall obtain and review all documents related to self-
constructed investment project such as payment receipt, suppliers’ invoices,
construction material issuance, labor costs, etc.
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 The senior accountant shall prepare and get approval from the Team Leader for the
journal entries to account for the construction costs incurred so far and for the billing
made by the consulting firm for its service as follows:
Dr. Construction in Progress – Project X xxxx
Cr. Cash in Bank (A/ Payable) xxxx
 When the construction project is fully completed and certified by the consulting
company or professionals assigned to do such work by ERC, the project will be
transferred to PPE of ERC.
Dr. PPE Project X xxxx
Cr. CIP Project X xxxx
3.7.3.2.Valuation of Construction in Progress
Construction in Progress shall be valued and reported in the statement of financial

position at cost, which represents the known accumulated cost up to the reporting date.
3.7.3 Work in progress
Three types of Project work in progress have been identified and must be understood to
properly account for.
I. The first type is referred to as a feasibility study project, where a consultant is
assigned to undertake a feasibility study which will be an input to one of the
construction project types mentioned above;
II. The second type is referred to as a software installation project, where payments to
the software supplying company or internally incurred costs in relation with internally
developed software are accumulated over the progress period. And,
III. The third type is referred to as a Manual or other document preparation project where
by consultants are hired to produce a working manual or other type of documents.
IV. The accounting procedures and processes to account for investment
projects under each of the above three work in progress types are presented as
follows.
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3.7.4 Accounting for Feasibility Study
A feasibility study is an analysis and evaluation of a proposed project to determine if

it
 is technically feasible,
 is feasible within the estimated cost, and
 Will be profitable.
 Payments are made by ERC to the consultants on the basis of deliverables specified
in the contract.
 Any advance payment made to the consultant should be recognized as a receivable
and shall transfer to the WIP upon recovery of the advance payment.
 To recognize and accumulate costs incurred in relation with any Feasibility Study,
the person in charge should obtain and review all documents related to advance
payments made to the consultant of a Feasibility Study including payment requests,
approved payment certificate, payment receipt, invoice, advance payment guaranty
etc,. And shall calculate the amount that should be treated as advance payment to the
consultant and record advance payment as receivable.
DR. Advance Payment to consultant xxxx
 The Feasibility Study project will be fully treated as the asset of ERC when it is
completed and handed over by the consultant as per the specifications given. This
may require a letter of acceptance by ERC’s professionals to confirm that the
Feasibility Study project is complete.
 Any payment made to the Consultant, to provide deliverables of the feasibility Study
should be accumulated in the work in Progress account of the particular project.
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 Regarding payments made against deliverables to the consultant, Senior

Accountant, under accounts team should obtain and review all documents including
payment requisitions, approved payment certificates, invoices, payment receipt,
performance and advance payment guaranties etc,. Then, the senior accountant shall
prepare the journal entry and get approval from the Team Leader to account for the
interim payment.
DR. WIP – Project X xxxx
CR. Advance Repayment xxxx
 When the asset is fully handed over to ERC and is ready for use the Senior
Accountant, under accounts team shall prepare the journal entry to transfer the asset
to PPE and forward it to the Team Leader for approval.
DR. PPE- Project X xxxx
CR. WIP - Project X xxxx
3.7.5 Accounting for software installation project
 Payments are made by ERC to the software installation company on monthly basis
and/or deliverables specified in the contract.
 Any advance payment made to the software installation company should be
recognized as a receivable and shall transfer to the WIP upon recovery of the
advance payment.
 To recognize advance payments made in relation with any software installation
project, the senior accountant should obtain and review all documents including
payment requests, approved payment certificates, payment receipt, invoice, advance
payment guaranty etc. And shall calculate the amount that should be treated as
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advance payment to the software Installation Company and record advance payment
as receivable.
DR. Advance Payment to software
Installation Company xxxx
 Any payment made to the software installation company, to provide deliverables of
the software installation project should be accumulated in the work in Progress
account of the particular project.
 Regarding payments made against deliverables to the software installation company,
Senior Accountant, under accounts team should obtain and review all documents
including payment requisitions, approved payment certificates, invoices, payment
receipt, performance and advance payment guaranties etc,. Then, the senior
accountant shall prepare the journal entry and get approval from the Team Leader to
account for the interim payment.
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 The software installation project will be fully treated as the asset of ERC when it is
completed and handed over by the software installation company as per the
specifications given. This may require a certificate of acceptance by ERC’s
professionals to confirm that the software installation project is complete. Senior
Accountant, under accounts team shall prepare the journal entry and get approval
from the Team Leader.
DR. Intangible Asset – Project X xxxx
CR. WIP - Project X xxxx
3.7.6 Accounting for Manual or other document preparation Project
A Manual or other document preparation Project is a particular form of contract

arrangement where the consultant is made responsible for producing manuals or other
documents.
 Payments are made by ERC to the consultant on accomplishment of deliverables
specified in the contract agreement.
 Any advance payment made to the consultant should be recognized as a receivable
and shall transfer to the WIP upon recovery of the advance payment.
 To recognize advance payments made in relation with any Manual or other
document preparation Project, the senior accountant should obtain and review all
documents including payment requests, approved payment certificates, payment
receipt, invoice, advance payment guaranty etc. And shall calculate the amount that
should be treated as advance payment to the consultant and record advance payment
as receivable.
approval from the Team Leader to account for the advance payment made. The
entry shall be as follows:
DR. Advance Payment to consultant xxxx
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 Any payment made to the consultant, to provide deliverables of the Manual or other
document preparation Project should be accumulated in the work in Progress
account of the particular project.
 Regarding payments made against deliverables and on a monthly basis to the
consultant, the Senior Accountant, under accounts team should obtain and review
all documents including payment requisitions, approved payment certificates,
invoices, payment receipt, performance and advance payment guaranties etc,. Then,
the senior accountant shall prepare the journal entry and get approval from the
Team Leader to account for the interim payments.
 The accumulated cost of the Manual or other document preparation Project will be
fully treated as the asset of ERC when it is completed and handed over by the
consultant. This may require a certificate of acceptance by ERC’s professionals to
confirm that the Manual or other document preparation Project is complete.
 Senior Accountant, under accounts team shall prepare the journal entry and get
approval from the Team Leader.
DR. Intangible Asset – Project X xxxx
CR. WIP- Project X xxxx
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4. Assets held for sale and discontinued operations procedure

4.1. Purpose
The purpose of the Assets held for sale and discontinued operations procedure is to
establish guidelines for reclassifying and maintaining the Corporations’ derecognized
PPEs.

01-July-2017 ________ __________ _________
The departments of Investment, Finance and the operational offices are affected by this
procedure.
4.4. Policy
Please refer financial Instruments Policy Chapter _____________.
4.5. Definitions
Property, plant and equipments (PPE) - are defined as tangible items that are held for
use in the production or supply of goods or services, for rental to others, or for
administrative purposes; and are expected to be used during more than one year and with
an acquisition value of at least ETB 2,000.00.
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Disposal of PPE - refers to withdrawal of PPE from operational use due to

sale/exchange, obsolescence, damage beyond economic use, stolen/loss or worn-out
and thereby de-recognition of the asset from the financial position.
An impairment loss - is the amount by which the carrying amount of an asset exceeds
its recoverable amount.
Carrying amount - is the amount at which an asset is recognized after deducting any
accumulated depreciation (amortization) and accumulated impairment losses thereon.
Cash-generating unit - is the smallest identifiable group of assets that generates cash
inflows that are largely independent of the cash inflows from other assets or groups of
assets.
Corporate assets - are assets other than goodwill that contribute to the future cash
flows of both the cash-generating unit under review and other cash-generating units.
Costs of disposal - are incremental costs directly attributable to the disposal of an asset
or cash-generating unit, excluding finance costs and income tax expense.
Depreciable amount - is the cost of an asset, or other amount substituted for cost in the
financial statements, less its residual value.
Depreciation (Amortization) - is the systematic allocation of the depreciable amount of

an asset over its useful life.
Fair value - is the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the measurement date.
(See IFRS 13 Fair Value Measurement.)
The recoverable amount - of an asset or a cash-generating unit is the higher of its fair
value less costs of disposal and its value in use.
The Investment and Project Financing Department and Finance Department are
primarily responsible for procedures in this section.
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4.7. Procedure
4.7.1. Classification
4.7.1.1. This Procedure refers to all recognized non-current assets and all disposal
groups of the corporation, except for those asset types listed below:
 deferred tax assets;
 assets arising from employee benefits;
 financial assets; non-current assets that are accounted for in accordance with
the fair value model;
 non-current assets that are measured at fair value less estimated point-of-
sale costs; and Discontinued Operations
4.7.1.2. A discontinued operation is a component of the Group that either has been
disposed of or is classified as being held for sale. It must also:
 represent a separate major arm of business of the corporation or represent a
geographical area of operations;
 be part of a single co-ordinated plan to dispose of a separate major line of
the corporation or geographical area of operations;
 Or be a controlled entity acquired exclusively with a view of resale by the
corporation.
4.7.2. Recognition Criteria

The Corporation, in general terms, classifies non-current assets (or disposal groups) as held
for sale if its carrying amount will be recovered principally through a sale transaction rather
than through continuing use.
For this to be the case the Corporation deems that the asset (or disposal group) must
be available for immediate sale in its present condition subject only to terms that are
usual and customary for sale of such assets (or disposal groups) and its sale must be
highly probable.
4.7.2.1. For the sale to be highly probable, the appropriate level of management must
be committed to a plan to sell the asset (or disposal group), and an active
42
program to locate a buyer and complete the plan must have been initiated.
Further, the asset (or disposal group) must be actively marketed for sale at a
price that is reasonable in relation to its current fair value. In addition, the
sale should be expected to qualify for recognition as a completed sale within
one year from the date of classification.
4.7.2.2. Events or circumstances beyond the corporation’s control may extend the
period to complete the sale beyond one year. An extension of the period
required to complete a sale does not preclude an asset (or disposal group)
from being classified as held for sale.
4.7.3. Measurement
4.7.3.1. The corporation measures any non-current asset (or disposal group) classified
as held for sale at the lower of its carrying amount and fair value less costs to
sell.
4.7.3.2. When the sale is expected to occur beyond one year, the corporation should
measure the costs to sell at their present value. Any increase in the present
value of the costs to sell that arise due to changes in time will be presented in
the income statement as a financing cost.
4.7.4. Impairment Losses and Reversals

4.7.4.1. The corporation recognizes all impairment loss for any initial or subsequent
write down of the asset (or disposal group) to fair value less costs to sell.
4.7.4.2. The corporation recognizes a gain for any subsequent increase in fair value
less costs to sell of a disposal group, up to the cumulative impairment loss
that has been recognized.
4.7.4.3. An impairment loss recognized for a disposal group will reduce the carrying
amount of the non-current assets of the corporation.
4.7.4.4. A gain or loss not previously recognized by the date of the sale of a non-
current asset shall be recognized at the date of de-recognition.
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4.7.4.5. There is no amortization or depreciation of a non-current asset while it is

classified as held for sale or while it is part of a disposal group classified as
held for sale. The interest and other expenses attributable to the liabilities of a
disposal group classed as held for sale will continue to be recognized.
4.7.5. De-Recognition of an Asset Held for Sale

4.7.5.1. If the corporation has classified an asset
(ordisposal group) as held for sale, but the recognition criteria is no longer
met, then the corporation must cease to classify the assets as held for sale.
4.7.5.2. The corporation shall measure a non-current asset that ceases to be classified
as held for sale at the lower of either:
 The carrying amount before the asset was classified as held for sale,
adjusted for any depreciation, amortization that would have been
recognized had the asset not been classified as held for sale, or
 Its recoverable amount at the date of the subsequent decision not to sell.
4.7.5.3. 7.5.3 Any required adjustments to the carrying amount of a non-current asset
that ceases to be classified as held for sale will be transferred to the income
statement from continuing operations in the period in which the recognition
criteria are no longer met.
4.7.6. Presentation
Non-Current Assets Held for Sale
4.7.6.1. Non-current assets classified as held for sale and the assets of a disposal
group classified as held for sale shall be presented separately from the other
assets in the balance sheet.
4.7.6.2. The liabilities of a disposal group classified as held for sale shall be
presented separately from other liabilities in the balance sheet.
Discontinued Operations
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4.7.6.3. The results of discontinued operation shall be presented separately on the

face of the income statements as a single amount. An analysis of the single
amount and net cash flows attributable to the operating, investing and
financing activities of discontinued operations shall be presented either in the
notes or in the financial statements.
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5. Intangible assets procedure
5.1. Purpose
The purpose of the Intangible assets procedure is to establish guidelines for handling
recognition, measurement, control, derecognition and disclosure of intangible assets
Date Revision No. Change Reference Section

01-July-2017 00 Complete Whole Section
5.3. Definition
a) Intangible Assets-An intangible asset is an identifiable non-monetary asset without
physical substance that are held for use in the production or supply of goods or
services, for rental to others, or for administrative purposes; and are expected to be
used for more than one year.
b) De-recognition of Intangible Assets - refers to withdrawal of intangible assets from
operational use due to sale/exchange, obsolescence, damage beyond economic use
and thereby de-recognition of the asset from the statement of financial position.
c) An impairment loss -is the amount by which the carrying amount of an asset exceeds
its recoverable amount.
d) Carrying amount- is the amount at which an intangible asset is recognized after
deducting accumulated amortization and accumulated impairment losses, if any
e) Costs of disposal - are incremental costs directly attributable to the disposal of an
asset or cash-generating unit, excluding finance costs and income tax expense.
f) Amortizable amount- is the cost of an intangible asset, or other amount substituted
for cost in the financial statements less its residual value, if any.
g) Amortization -is the systematic allocation of the amortizable amount of an intangible
asset over its useful life.
h) Fair value - is the price that would be received to sell an intangible asset in an
orderly transaction between market participants at the measurement date.
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i) The recoverable amount - of an asset or a cash-generating unit is the higher of its

fair value less costs of disposal and its value in use.
5.4. Policy
Please refer Intangible assets policy number __________.
5.5. Persons affected
User sections, Purchasing and Finance department.
The highest finance official of ERC
5.7. Procedures
5.7.1. Recognition / Recording

5.7.1.1. Before recording intangible assets in the books of account, the responsible staff
shall ensure that;
a) The intangible assets fulfills the recognition and measurement criteria as indicated
in the policy document
b) Recognition is supported by duly signed and approved document.
c) Approval for recognition is made by authorized person
d) The minimum value for recognition is Br5,000
e) The cost at which the intangible assets recorded in accordance with provisions of
policy on intangible assets.
5.7.1.2. The cost of an internally generated intangible asset comprises all directly
attributable costs necessary to create, produce, and prepare the asset to be
capable of operating in the manner intended by management.
Examples of directly attributable costs are:
a) Costs of materials and services used or consumed in generating the intangible
asset;
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b) Costs of employee benefits incurred in generating or development of intangible

asset;
c) Fees to register a legal right; and
d) Amortization of patents and licenses that are used to generate the intangible
asset.
5.7.1.3. If the intangible assets acquired through government grant ERC recognizes both
the intangible asset and the grant initially at fair value plus any expenditure that
is directly attributable to preparing the asset for its intended use.
5.7.1.4. Intangible assets shall have their respective ledger account according to their
classification and the staff in charge shall set up the ledger account.
5.7.1.5. A class of intangible assets is a grouping of assets of a similar nature and use in
an entity’s operations. The items within a class of intangible assets are revalued
simultaneously to avoid selective revaluation of assets and the reporting of
amounts in the financial statements representing a mixture of costs and values as
at different dates
5.7.2. Documentation
When recognizing the intangible assets, the staff in charge shall ensure
a) Documents evidence the intangible assets are valid and in the name of ERC.
b) Completeness of the evidence
c) Proper filing of documents
5.7.3. Controls by ERC

5.7.3.1. An intangible asset must be under the control of ERC as a result of a past event.
ERC therefore be able to enjoy the future economic benefits from the asset and
prevent the access of others to those benefits. A legally enforceable right is
evidence of such control, but it is not always a necessary condition.
(a) Control over technical knowledge or know-how only exists if it is protected by a
legal right.
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(b) The skill of employees , arising out of the benefits of training costs, are most
unlikely to be recognizable as an intangible asset, because ERC doesn’t control
the future actions of its staff.
(c) Similarly, market share and customer loyalty can’t normally be intangible
assets, since ERC can’t control the action of its customers.
Amortization
Intangible assets that have finite useful life shall be amortized over its useful life and
amortization expense is recognized through profit or loss statement. Amortization should
start when the asset is available for use. The amortization method used should reflect the
pattern in which the asset’s future economic benefits are consumed. If such pattern can’t
be predicted reliably, straight straight-line method should be used.
5.7.3.2. ERC shall assess whether the useful life of an intangible asset is finite or
indefinite and, if finite, systematic allocation of the cost shall be made by
estimating the length of, or number of production constituting useful life (either
use pattern or straight-line method shall be applied).
5.7.3.3. The useful life of an intangible asset that arises from contractual or other legal
rights shall not exceed the period of the contractual or other legal rights, but may
be shorter depending on the period over which the Corporation expects to use the
asset.
5.7.3.4. If the contractual or other legal rights are conveyed for a limited term that can
be renewed, the useful life of the intangible asset shall include the renewal
period(s) only if there is evidence to support renewal by the Corporation without
significant cost.
5.7.3.5. An intangible asset shall be regarded by the Corporation as having an indefinite
useful life when, based on an analysis of all of the relevant factors, there is no
foreseeable limit to the period over which the asset is expected to generate net
cash inflows to the Corporation.
49
An intangible asset with an indefinite useful life shall not be amortized. Rather it
is tested annually for impairment and the impairment loss is recognized as period
expenses.
De-recognition / Disposal
5.7.3.6. Intangible asset shall be derecognized on disposal, or when no future economic
benefits are expected from its use or disposal.
5.7.3.7. Any gain or loss arising is to be recognized in the statement of comprehensive
income when the asset is derecognized.
5.7.3.8. Gains must not be classified as revenue, but shown as a gain in the statement of
comprehensive income.
Amortization of an intangible asset with a finite useful life does not cease when
the intangible asset is not in use, unless the asset has been fully amortized or is
classified as held for sale.
50
Disclosure
Required disclosures for each class of internally generated intangible assets and other
intangible assets include:
5.7.3.9. Whether the useful lives are finite or indefinite
5.7.3.10. if a finite useful life, the useful life or amortization rate and the amortization
method
5.7.3.11. line item(s) in statement of comprehensive income including any amortization
of intangible assets
5.7.3.12. A detailed reconciliation of the carrying amount at the start and end of the
period.
5.7.3.13. The carrying amount of intangible assets assessed as having an indefinite life,
with reasons supporting an indefinite life assessment.
5.7.3.14. A description, the carrying amount, and remaining amortization period of any
material individual intangible asset.
5.7.3.15. Details of intangible assets acquired by way of a government grant and
initially recognized at fair value.
5.7.3.16. Carrying amounts of intangible assets with a restricted title or pledged as
security for liabilities.
5.7.3.17. Amount of contractual commitments for the acquisition of intangible assets.
The aggregate amount of research and development expenditure recognized as an expense
during the
51
6. Investment property procedure
6.1. Purpose
The purpose of the Investment property procedure is to establish guidelines for handling
accounting transactions related to recognition, initial measurement, subsequent
measurement, presentation and disclosure of investment properties of the Corporation

01-July-2017 00 New Whole Section
6.3. Definition
a) An investment property is an investment in buildings that are not occupied
substantially for use by, or in the operations of, the corporation. Examples of
investment property of ERC may include;
 Building leased out under an operating lease
 Vacant building held to be leased out under an operating lease
 Property that is being constructed or developed for future use as investment
property.
b) Carrying amount is the amount at which an asset is reported in the statement of
financial position.
c) Cost is the amount of cash or cash equivalents paid or the fair value of other
consideration given to acquire an asset at the time of its acquisition or construction or,
where applicable, the amount attributed to that asset when initially recognized in
accordance with the specific requirements of other IFRSs.
d) Owner-occupied property is property held (by the owner or by the lessee under a
finance lease) for use in the production or supply of goods or services or for
administrative purposes.
Partial own use - If the owner uses part of the property for its own use, and use the
remaining part to earn rentals or for capital appreciation, and the portions can be sold
52
or leased out separately, they are accounted for separately. Therefore the part that is
rented out is investment property. If the portions cannot be sold or leased out sepa-
rately, the property is investment property only if the owner-occupied portion is in-
significant
6.4. Policy
For investment Property policy, Please refer policy number __________.
All operation service division, finance and investment division, human resource
development division
DCEO’s of Finance and Investment Division, Rail Transport Division and Strategic and
Business Development Division are primarily responsible for policies in this section.
6.7. Procedures

6.7.1.1. Investment property shall be recognized when it satisfies the recognition
criteria specified in the policy statement and as per the relevant financial
reporting standard.
6.7.1.2. The staff in charge of recording investment property shall ascertain that
recognition criteria are satisfied.
6.7.1.3. Examples of investment property in ERC business context are
a) building leased out under an operating lease
b) vacant building held to be leased out under an operating lease
c) property that is being constructed or developed for future use as investment
property
6.7.1.4. Up on initial recognition , the following cost element may be included as cost
of investment property:
a. Feasibility study
53
b. Market research
c. Purchase price
d. Lease costs
e. Stamp duty
f. Legal fee
g. Borrowing cost as applicable
h. Letting fee, etc
The lower of:

1. fair value of the 'cost' of
property interest initial
the
direct
2. present value of investmen
costs
the minimum t property
lease payments
6.7.1.5. Initial cost of a property interest held under lease that is classified as an
investment property is accounted for in accordance with policy and procedure
on leases.
a) Recognise the asset at the lower of the fair value of the property and the present
value of minimum lease payments
b) Equivalent amount recognised as lease liability
6.7.1.6. Investment property held under operating leases can be accounted for as if it
were a finance lease if:
c) Lessee’s interest is in both the land and the buildings
d) Buildings are classified as an investment property
54
e) The fair value model is adopted

6.7.1.7. Recording of investment property shall be substantiated by duly approved and
valid documents such as contracts, purchase invoices/commercial invoices,
construction certificates, agreements, etc
The finance department shall maintain proper subsidiary ledger account for major investment
property according to their category.
6.7.2. Measurement after recognition
6.7.2.1. After initial recognition, the Corporation depreciates investment property and
in a way as Property, Plant and Equipment items of the Corporation.
6.7.2.2. Investment properties that meet the criteria to be classified as held for sale (or
are included in a disposal group that is classified as held for sale are also
handled per policy and procedure on non-current assets held for sales.
6.7.2.3. Impairment on investment property shall be handled in accordance with policy
and procedure for impairment of assets.
6.7.2.4. Compensation from third parties for investment property that was impaired,
lost or given up shall be recognised in profit or loss when the compensation
becomes receivable.
6.7.3. Transfer to or from Investment Property
6.7.3.1. There may be circumstances when investment property transferred to Property,

Plant & Equipment or other assets or vice versa. In that situation the change in
use shall be evidence by:
a) Commencement of owner-occupation, for a transfer from investment property
to owner-occupied property
b) Commencement of development with a view to sale, for a transfer from
investment property to inventories
c) End of owner-occupation, for a transfer from owner-occupied property to
investment property
55
d) Commencement of an operating lease to another party, for a transfer from

inventories to investment property
6.7.3.2. When there is a transfer of investment property from one asset category or
vice versa, appropriate accounting entry shall be made depending the
accounting policy chosen at initial recognition of investment property or other
assets
As the Corporation uses cost model, transfers between investment property, owner-
occupied property and inventories do not change the carrying amount of the property
transferred and they do not change the cost of that property for measurement or disclosure
purposes.
6.7.4. Disposal / De-recognition
6.7.4.1. Investment property shall be eliminated or derecognized from financial record

when
a) It is disposed through sale or
b) When the investment property is permanently withdrawn from use and no
future economic benefits are expected from its disposal, or
c) Change of use (see ‘transfers’ section)
6.7.4.2.
ain
or
loss
arise
on
disp
osal
of
inve
stme
56
nt property is reported in profit or loss account.

6.7.4.3. ERC will maintain any liabilities that it retains after disposal of an investment
property.
6.7.5. Disclosure
Disclosure for investment property shall be made in accordance with requirement

listed in the policy document.
57
7. Government grant and assistance procedure
7.1. Purpose
The purpose of the government grant and assistance procedure is to establish guidelines
for recognition and measurement of government grants.

01-JUL-2017 00 New Whole Section
7.3. Definition
Government; refers to government, government agencies and similar bodies whether

local, national or international.
Government assistance; is action by government designed to provide an economic

benefit specific to an entity or range of entities qualifying under certain criteria.
Government grants; are assistance by government in the form of transfers of resources

to an entity in return for past or future compliance with certain conditions relating to the
operating activities of the entity. They exclude those forms of government assistance
which cannot reasonably have a value placed upon them and transactions with
government which cannot be distinguished from the normal trading transactions of the
entity.
Grants related to assets are government grants whose primary condition is that an entity
qualifying for them should purchase, construct or otherwise acquire long-term assets.
Subsidiary conditions may also be attached restricting the type or location of the assets or
the periods during which they are to be acquired or held.
Grants related to income are government grants other than those related to assets.
Forgivable loans are loans which the lender undertakes to waive repayment of under
certain prescribed conditions
7.4. Policy
58
Please refer government grant and assistance policy number __________ for details.
All corporate finance employees and managerial employees of ERC
Finance & investment division is primarily responsible for polices in this section
7.7. Procedures
7.7.1.1. The staff in charge of handling government grants shall observe relevant
International financial reporting Standards and comply when recognizing
government grant in the corporation’s book of accounts.
7.7.1.2. Government grants, including non-monetary grants shall not be recognized
until there is reasonable assurance that:
a) The corporation will comply with the conditions attaching to them; and
b) The grants will be received.
7.7.1.3. Receipt of a grant does not by itself provide conclusive evidence that the
conditions attaching to the grant have been or will be fulfilled.
7.7.1.4. ERC shall recognize government grants in profit or loss on a systematic basis
over the periods in which the entity recognizes the related costs for which the
grants are intended to compensate, i.e. income approach if conditions for
recognition is met ( when the corporation will comply with condition attached
to the grant and the grant is receivable)
7.7.1.5. There shall be proper documentation and assessment to make sure that the
grant fulfills the recognition criteria set in the policy.
7.7.1.6. If the government grant is related to asset and fulfilled the recognition criteria,
the corporation shall recognize the asset at its fair value and corresponding
deferred revenue account in the following manner;
Dr Cr
59
Specific asset account xxx

Deferred Revenue xxx
To record government grant of fixed asset
7.7.1.7. The asset shall be depreciated over its service life and deferred revenue shall be
amortized to match the depreciation cost and the following entry would be
made at the end of the period
Dr Cr
Depreciation expense xxx
Accumulated depreciation xxx
To record depreciation on granted asset
Dr Cr
Deferred income –Government grant xxx
Income xxx
7.7.1.8. The deferred revenue shall be allocated over the service life of the asset.
7.7.1.9. Once a government grant is recognized, any related contingent liability in case
of non-compliance with the condition attached is treated in accordance with
IAS 37 Provisions, Contingent Liabilities and Contingent Assets.
7.7.1.10. ERC shall recognize grant related income of the income qualify for recognition
as per the relevant International Financial Reporting Standards. The journal
entry up on receipt of the grant shall be:
Dr Cr
Cash /Grant receivable XXX
Deferred Income XXX
To record government grant
The deferred income shall be allocated on systematic basis
60
7.7.2. Repayment of government grant
7.7.2.1. government grant that becomes repayable due to unfulfilled conditions

attached to the grant shall be accounted for as a change in accounting estimate
7.7.2.2. Repayment of a grant related to income shall be applied first against any
unamortized deferred credit recognized in respect of the grant. To the extent
that the repayment exceeds any such deferred credit, or when no deferred credit
exists, the repayment shall be recognized immediately in profit or loss.
7.7.2.3. Repayment of a grant related to an asset shall be recognized by increasing the
carrying amount of the asset or reducing the deferred income balance by the
amount repayable.
The cumulative additional depreciation that would have been recognized in profit or
loss to date in the absence of the grant shall be recognized immediately in profit or
loss
7.7.3. Presentation & Disclosure
7.7.3.1. Government grants related to assets, including non-monetary grants at fair

value, shall be presented in the statement of financial position either by setting
up the grant as deferred income or by deducting the grant in arriving at the
carrying amount of the asset.
7.7.3.2. Grants related to income are presented as part of profit or loss, either separately
or under a general heading such as ‘Other income’; alternatively, they are
deducted in reporting the related expense
7.7.3.3. ERC shall make the following disclosure in the finical statement regarding
government grant:
a) the accounting policy adopted for government grants, including the methods
of presentation adopted in the financial statements;
b) the nature and extent of government grants recognized in the financial
statements and an indication of other forms of government assistance from
61
which the entity has directly benefited; and unfulfilled conditions and other
contingencies attaching to government assistance that has been recognized
62
8. Lease procedure
8.1. Purpose
The purpose of the lease procedure is to establish guidelines for the accounting treatment
and disclosure of assets held under lease

8.3. Definition
a) A lease is an agreement whereby the lesser conveys to the lessee (the Corporation), in
return for a payment or a series of payments, the right to use an asset for an agreed
period of time.
b) Finance Lease – A finance lease is a lease that transfers substantially all the risks and
rewards incident to ownership of an asset. Title may or may not eventually be
transferred.
c) Operating lease – An operating lease is a lease other than a finance lease.
8.4. Policy
Please refer lease Policy Number _____________.
Railway network Division, Finance & Investment division, strategy & business
Development Division, Human resources development division.
Finance & Investment division is principally responsible & human resources

development division also responsible for this policy.
8.7. Procedures
63
8.7.1. Accounting Treatment
8.7.1.1. ERC may lease property, transport, heavy equipment’s/machineries,

infrastructure or equipment for its operations. Thus, accounting for lease shall
be handled in accordance with accounting policy for lease. The staff in charge
of recording or recognizing the leased asset shall ensure that:
a) There is right/agreement duly signed and approved by both the lessee and
lesser.
b) The agreement is registered at concerned authority as applicable.
c) The lease type; finance lease or operating lease, proper categories will be done
accurately.
d) The value of the lease is accurately determined in accordance with accounting
policy for lease and applicable standards.
e) Proper classification is made for leased assets and subsidiary ledger account is
set for each leased asset category. If the lease agreement meets the recognition
criteria stated in the policy , both the assets (Right to Use Asset) and lease
liabilities shall be recognized in the financial statements
8.7.1.2. The initial measurement of the Right to Use Asset and lease liability has
several components, such as:
a) Fixed Payments
b) Certain Variable Payments
c) Residual Value Guarantee
d) Purchase Options
e) Termination Costs
f) Less Payments Made Previously and all components of the liability are added
together and discounted at an appropriate rate.
8.7.1.3. For example, assume ERC (the lessee) enters into a 5-year lease of a floor of a
building, with a 5 year extension option. Lease payments are Br50, 000 per
annum (including the extension period), all payable at the beginning of each
64
year. To obtain the lease, lessee incurs initial direct costs of Br20, 000 (Br
15,000 paid to the former tenant occupying the floor and Br 5,000 for real
estate commissions). The terms of the lease also require ERC annually to pay
the lesser 2% of the gross sales revenue generated from the space being rented.
ERC concludes that it is reasonably certain that it will exercise the extension
option. The rate implicit in the lease is not readily determinable. ERC has
determined that its incremental rate of borrowing is estimated at 5% per annum
To record the initial value of the lease asset and liability:
DR right-of-use asset 425,3911
CR lease liability 355,3912
CR cash 70,0003
i. PV of 9 payments at Br50,000, discounted at 5% + Br50,000 (initial payment
made up front) + Br20,000 initial direct costs
ii. PV of 9 payments at Br50,000, discounted at 5%
iii. 50,000 first period rent + 20,000 direct costs
8.7.1.4. The key date for recognizing the leased assets with corresponding liabilities in
book of account is the commencement date of the lease.
8.7.1.5. Operating lease shall be recognized as period expense and reported through
profit or loss and other comprehensive income where as it is inappropriate for a
leased item to show in a lessor’s account as noncurrent asset.
If ERC holds an asset under operating lease, ERC pays amounts periodically to
the lesser and these are charged to the statement of other comprehensive
income. Where ERC is offered an incentive such as a rent free period or cash
back incentive, this is effectively a discount, which will be spread over the
period of operating lease in accordance with the accruals principle. For
example if ERC entered into a four-year operating lease but was not required to
make any payments until year 2 the total payments to be made over years 2-4
should be charged evenly over years 1-4.Where a cash incentive is received the
total amount payable over the lease term, less the cash back, should be charged
65
evenly over the term of the lease. This can be done, by crediting the cash back
received to deferred income and releasing it to statement of other
comprehensive income over the lease term.
As the finance cost is measured and recognized on the outstanding liability by
applying the applicable discount rate.
8.7.1.6. 7.1.6 If ERC leases out an asset on a finance lease, the asset will probably never
be seen on its premises or used in its business again. It would be inappropriate
for ERC to record such an asset as a non-current asset. In reality, what it owns is
a stream of cash flows receivable from the lessee. The asset is an amount
receivable rather than a non-current asset.
Assume that ERC signs an agreement on January 1, 2010, to lease machinery to
a Construction Company. The following information relates to this agreement.
a) The term of the non-cancelable lease is 6 years with no renewal option. The
machinery has an estimated economic life of 6 years.
b) The cost and fair value of the asset at January 1, 2010, is Br 343,000.
c) The asset will revert to ERC at the end of the lease term, at which time the asset
is expected to have a residual value of Br 61,071, none of which is guaranteed.
d) The leased Company assumes direct responsibility for all executor costs.
e) The agreement requires equal annual rental payments, beginning on January 1,
2010.
f) Assuming the lesser (ERC) desires a 10% rate of return on its investment;
calculate the amount of the annual rental payment required.
Residual value 61,071
PV of single sum (i=10%, n=6) 0.56447
PV of residual value 34,473
Fair market value of leased equipment 343,000

Present value of residual value (34,473)
66
Amount to be recovered through lease payment 308,527

PV factor of annuity due (i=10%, n=6) 4.79079
Annual payment required 64,400
Journal entries
1/1/10 Lease Receivable 343,000

Equipment 343,000
To record initial recognition of lease

1/1/10 Cash 64,400
Lease Receivable 64,400
To record annual payment of lease
12/31/10 Interest Receivable 27,860

Interest Revenue 27,860
To recognize accrued interest on lease
8.7.2. Depreciation of Leased Assets
8.7.2.1. If the lease agreement transfers ownership of the underlying asset to the lessee
by the end of the lease term or if the cost of the right-of-use asset reflects that
the ERC will exercise a purchase option, ERC shall depreciate the right-of-use
asset from the commencement date to the end of the useful life of the
underlying asset.
8.7.2.2. ERC shall depreciate the right-of-use asset from the commencement date to the
earlier of the end of the useful life of the right-of-use asset or the end of the
lease term.
8.7.2.3. ERC shall apply policy and procedure on Impairment of Asset to determine
whether the right of use asset/leased asset is impaired and to account for any
impairment loss identified.
8.7.2.4. Depreciation of leased asset(right to use asset) shall be charged to depreciation
expenses as follows:
67
Dr Cr
Depreciation expenses xxx
Accumulated depreciation –Leased asset xxxx
If there is impairment loss identified on Leased assets the following entries shall be
made
Dr Cr
Impairment loss-leased assets xxx
Lease assets xxx
Similarly if ERC uses a finance lease to fund the ‘acquisition’ of a major asset which
it will then use in its business perhaps for many years. The substance of the
transaction is that it has acquired a non-current asset and this is reflected in the
accounting treatment prescribed by IAS 17, even though in law ERC never becomes
the owner of the asset.
8.7.3. Internal Controls
With regard to leased assets (the right to use assets), ERC shall put in place the
following internal controls over lease transactions;
a) The lease agreement shall be articulated and approved by concerned legal
professionals.
b) The lease agreement shall be registered as applicable at concerned office of authority.
c) The leased asset shall be protected from damage or theft. There shall be proper register
book for leased assets.
8.7.4. Presentation & Disclosure
8.7.4.1. The right to use assets/leased property shall be reported in the balance sheet as
single line item under non-current asset category net of accumulated
depreciation;
8.7.4.2. The lease liabilities shall be reported in the balance sheet as a line item
separately from other liabilities;
68
ERC shall make disclosures for leased assets and liabilities as disclosures
required in relevant International Financial Reporting Standard and as indicated
in the lease accounting policy
69
9. Procedure manual
9.1. Purpose
The purpose of this procedure manual is to establish guidelines for accounting treatment
of borrowing costs covering recognition, measurement, Suspension or Cessation of
capitalization and Disclosure requirements.

9.3. Definition
Borrowing costs: could incorporate interest, commitment fees, management fees, legal
fees and other costs that the corporation incurs in connection with loan agreements
made, finance charges in respect of finance leases recognized in accordance with
accounting policy for leases and exchange differences arising from foreign currency
borrowings to the extent that they are regarded as an adjustment to interest costs.
A qualifying asset: is an asset that necessarily takes a substantial period of time to get
ready for its intended use or sale.
9.4. Policy
This procedure is prepared under framework of borrowing costs policy number _______
Employees under DCEO Finance and Investment and project offices
The highest finance officials of ERC are responsible for policy issues cover in this
document.
9.7. Procedures
70
9.7.1. ERC shall capitalize borrowing costs that are identifiable and directly attributable
to the construction, production or acquisition of a qualifying asset as part of the
cost of that asset.
9.7.2. In cases where ERC borrowed money in relation to a qualifying asset, interest cost
shall be capitalized as follows:
 Identify a borrowing related to qualifying asset and rate of interest attached to it.
 Determine expenditures incurred on qualifying asset during reporting period
including timing of the spending.
 Calculate interest incurred with respect to the expenditure.
 Capitalize sum of interest incurred to qualifying asset.
 Other borrowing costs such as costs related to a qualifying asset measured at fair
value or assets that are ready for their intended use or sale when acquired or
inventories that are manufactured, or otherwise produced, in large quantities on a
repetitive basis shall be recognized as an expense in the period in which they are
incurred.
 Under Hyperinflationary Economies situations ERC shall recognize an expense the
part of borrowing costs that compensates for inflation during the period.
 Any investment income on the temporary investment of borrowings should be
deducted from the borrowing cost amount eligible for capitalization.
 The amount of borrowing costs that ERC capitalizes during a period shall not
exceed the amount of borrowing costs it incurred during that period.
9.7.3. ERC shall determine the amount of borrowing costs eligible for capitalization by
applying a capitalization rate to the expenditures on that asset where the funds
borrowed are to finance two or more qualifying assets.
9.7.4. The capitalization rate shall be the weighted average of the borrowing costs
applicable to the borrowings of the corporation that are outstanding during the
period.
71
9.7.5. To better understand the above concept: let’s assume ERC had the following loans
in place at the beginning and end of 2008 the accounting period being from Jan 01-
Dec 31:
Description 1 January 2008 31 December 2008
Bank loan, 6% p.a. 0 200 000
Bank loan, 8% p.a. 130 000 130 000
Debenture stock, 5.5% p.a. 50 000 50 000
 The bank loan at 6% p.a. was taken in July 2008 to finance the construction of a
new rail line (construction began on 1 March 2008).
 The bank loan at 8% p.a. and debenture stock was taken for no specific purpose
and ERC used them to finance general spending and the construction of new
machinery.
 ERC used birr 60,000.00 for the construction of the machinery on 1 February 2008
and birr 25,000.00 on 1 September 2008.
The borrowing cost that should be capitalized for the new machinery will be then:
 We can ignore bank loan at 6% p.a., because it is a specific borrowing for another
asset. We only need to find out the capitalization amount for the general
borrowings relate to the financing of the new machinery and therefore, we need to
calculate the capitalization rate:
 Weighted average rate = (8% x 130 000 /(130 000+50 000)) + (5.5% x 50
000/(130 000+50 000)) = 5.78%+ 1.53% = 7.31%
 Borrowing costs for the new machinery in 2008 = birr 60 000 x 7.31% x 11/12 +
birr 25 000 x 7.31% x 4/12 = birr 4 021 + birr 609 = birr 4,630.
9.7.6. IAS 23 requires capitalization of foreign exchange differences relating to
borrowings to the extent that they are regarded as an adjustment to interest costs.
The gains and losses that are an adjustment to interest costs include the interest
rate differential between borrowing costs that would be incurred if the entity
borrowed funds in its functional currency and borrowing costs actually incurred on
72
foreign currency borrowings. Foreign exchange gains and losses might include
effects of other economic factors as well.
The question then is how to determine what portion of foreign exchange
differences arises due to the differential between the interest rates in two countries
and, thus, represents an adjustment to interest costs.
The interest rate on borrowings in a currency that is stronger than an entity’s
functional currency is usually lower than the rate on equivalent borrowing in the
functional currency. When the functional currency depreciates against the currency
of borrowings during a period, the entity incurs foreign exchange loss on its
borrowings. Therefore, ERC estimates the portion of the foreign exchange
movement based on interest rates on similar borrowings in the corporation’s
functional currency.
Illustration:
Hamle 01, 2008 - inception of foreign loan of USD100 million, Spot exchange rate of
ETB/USD = 12, USD loan interest rate = 6%
 Assume similar ETB borrowing with interest rate at 9%
 Estimated interest amount for ETB borrowing = USD100 million x 12 x 9% =
ETB 108 million (A)
 Assume year end to be Sene 30, 2009
 Actual interest incurred for USD loan in the current reporting period of 2015 =
USD100 million x 6% x average exchange rate (12.25) = ETB 73.5 million (B)
 Estimated amount of exchange loss eligible for capitalization =Difference (A) – (B)
= ETB 34.5 million
 Exchange loss in the reporting period of 2015 = ETB 50 million [i.e. USD100
million x 12.5 (30 Sene 2009 exchange rate) – USD100 million x 12 (30 Sene 2008
exchange rate)]
 Exchange loss which should be charged to profit or loss = ETB 15.5 million (i.e.
ETB 50 million – ETB 34.5 million)
73
9.7.7. When the carrying amount or the expected ultimate cost of the qualifying asset
exceeds its recoverable amount or net realizable value, the carrying amount is
written down or written off. In circumstances where the asset appreciates in value,
the amount of the write-down or write-off shall be written back.
Commencement of Capitalization
ERC should commence capitalization of borrowing costs if and when the following
conditions are met.
(a) It incurs expenditures for the asset;
(b) It incurs borrowing costs; and
(c) It undertakes activities that are necessary to prepare the asset for its intended
use or sale.
74
Suspension of Capitalization
 Borrowing costs incurred during an extended period in which ERC suspends

activities necessary to prepare an asset for its intended use or sale shall be suspended
from capitalization. Such costs are costs of holding partially completed assets and do
not qualify for capitalization. However, capitalizing borrowing costs shall not be
suspended during a period when it carries out substantial technical and administrative
work. Furthermore, ERC shall not suspend capitalizing borrowing costs when a
temporary delay is a necessary part of the process of getting an asset ready for its
intended use or sale. For example, capitalization continues during the extended period
that high water levels delay construction of a bridge, if such high water levels are
common during the construction period in the geographical region involved.
Cessation of capitalization
 ERC shall cease capitalizing borrowing costs when substantially all the activities
necessary to prepare the qualifying asset for its intended use or sale are complete.
 When ERC completes the construction of a qualifying asset in parts and each part
is capable of being used while construction continues on other parts, the entity
shall cease capitalizing borrowing costs when it completes substantially all the
activities necessary to prepare that part for its intended use or sale.
Disclosure
ERC shall disclose,
(a) The amount of borrowing costs capitalized during the period; and
(b) The capitalization rate used to determine the amount of borrowing costs eligible for
capitalization.
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10. Cash and Loan Management procedure
10.1. Purpose
The purpose of the Cash and Loan Management procedure is to establish guidelines for
maintaining liquidity of the Corporation through effective and efficient use of financial
resources.

01-July-2017 ________ __________ _________
The departments of Investment, Finance and the operational offices are affected by this
procedure.
10.4. Policy
Please refer financial Instruments Policy Chapter _____________.
10.5. Definitions
Cash Position: It addresses the process of short-term planning and uses information from
bank accounts and bank clearing accounts.
Liquidity Forecast: It meets the requirement of planning for longer period and uses data
from vendor and customer sub ledgers. It is also possible to link the data from logistics
like open sales orders and purchase orders.
Fixed Term Deposit: Fixed-term deposits are amounts of money invested or borrowed
for a fixed term and at a fixed rate of interest. The fixed-term deposits can be rolled over
at the due date.
Maturity date: is the date on which the invested amounts and interest earned on such
investments are returned to ET’s account and ready for consumption or for roll over.
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The Investment and Project Financing Department and Finance Department are primarily
responsible for procedures in this section.
10.7. Procedure
10.7.1. Cash Position
10.7.1.1 Finance department generates reports and performs analysis of balances with
each bank account and provides the required information to Management.
10.7.1.2 Finance department further performs its activities timely to enable management
get reliable information regarding the actual cash position of Corporation.
10.7.1.3 Banks shall provide bank statements on a monthly basis and as required.
10.7.1.4 Finance department shall maintain and update exchange rates of all currencies
used by the Corporation to facilitate displaying cash position in various
currencies (like ETB and USD).
10.7.1.5 Investment and project financing department shall monitor and validate project
related finance sources and uses of cash by displaying the cash position report
and plan accordingly.
10.7.1.6 Finance department shall monitor and validate the various sources and uses of
cash related to administrative and operating activities by displaying the cash
position report and plan accordingly.
10.7.2. Liquidity Forecast
10.7.2.1. Investment and project financing department analyzes and prepares reports on
expected inflows and outflows from investment and/or borrowing activities to
provide the required information to Management.
10.7.2.2. Finance department analyzes and prepares reports on expected inflows and
outflows from business transactions to provide the required information to
Management.
10.7.2.3. Finance and Investment and project financing departments are responsible for
timely posting/reporting of Accounts payables, receivables and commitments
in their respective offices.
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10.7.2.4. Finance department shall monitor and validate the various sources and uses of
cash by displaying the liquidity position report and plan accordingly.
10.7.3. Fixed Term Deposit
10.7.3.1. Investment and Project Financing department invests excess/surplus cash

which is not required for operational needs for certain time period.
10.7.3.2. Investment and Project Financing department maintains authorized business
partners in the Corporation’s records to facilitate and control the short-term
investment.
10.7.3.3. Once Investment and Project Financing Department determines the amount of
funds to be invested and communicates with banks for best interest rates, it
shall forward such information to Finance for appropriate accounting actions.
10.7.3.4. After transferring the cash to investment account, the investment department
follows up the short term deposits until their maturity and collects the amount
which then needs to be reported to Finance for clearing account used in these
activities.
10.7.4. Loan Management
10.7.4.1. Investment and Project Financing Department in close coordination with legal
office corresponds with lenders, review the loan terms and conditions check
the correctness of loan amount, interest rate-fixed or floating and base and
margin if floating, payment frequency, starting and ending date of the loan, the
amortization table and finalize the loan agreements and supplemental
documentations.
10.7.4.2. Investment and Project Financing Department maintains full details of lender
as Vendor and handles creation of new files or updating the existing files
regarding lender for changes in role, payment or contact details.
10.7.4.3. For loans with floating interest rates, Investment and Project Financing
Department maintains LIBOR Rates or other base rates as necessary from time
to time and as received from relevant sources.
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10.7.4.4. For repayments of loans, Finance Department posts interest payments and
installment repayments on the due date of each installment repayments based
on information from Investment and Project Financing Department.
10.7.4.5. Finance Department prepares month end accruals and controls clearing account
used in initial loan recognition and repayment of loans.
1.1.1 Quarterly repayments through Security Trustee are handled by Finance Department as
normal advance payment transaction.
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11. Inventory procedure
11.1. Purpose
The purpose of the Inventory procedure is to establish guidelines for handling inventory
related transaction and controls required for effective and efficient management of stocks.
01-JUL-2017 00 Complete Whole Section
11.3. Definition
a) Inventories, in ERC’s context, are assets held in the form of materials or supplies to
be consumed in the operations or in the rendering of services.
b) Net realizable value refers to the net amount that an entity expects to realize from
the sale of inventory in a situation where the items are no more needed or consumable
in foreseeable future.
Fair value is the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the measurement
date
11.4. Policy
Please refer Inventory policy number _____________.
User sections, Purchasing and Property Administration and Finance departments

expected to be affected by this policy
DCEO, Finance and investment Division, Finance, Investment and project financing
and Branch Accounts Department Directors, Branch Finance directors and Team
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leaders under department directors that are located at Corporate Level & Branch
Level are responsible for the procedures in this Section.
11.7. Procedures
11.7.1. Accounting for Inventory
As stated before, Inventory items are assets held with the intention of being used
for the purpose of rendering services and is not held for sale in the normal course
of business.
The following points should be considered in accounting for inventory.
 The amount at which inventory should be recorded initially on acquisition

 The values at which inventory has to be reported in the statement of financial
position.
 How to account for write down subsequent to the acquisition of inventory.
 How the inventory transfers should be accounted for
 The physical count procedure and process
 The recording of the ultimate disposal of inventory
11.7.2. Recognition of Inventory
 General practice requires recording inventory when the goods are received, to
confirm the existence of the inventory to match with the Inventory account in the
General Ledger.
 Exceptions to the general rule are the Goods in Transit. Under this exception,
technically, purchases should be recorded as ERC’s inventory at the time when legal
title to the goods passes to ERC. This is in particular for overseas purchases which
takes time in shipments before being received by ERC. Purchase contract can
determine the legal title.
 Purchases on“F.O.B. shipping point”: Legal title to goods passes to ERC when the
goods are shipped (in the possession of the carrier). Hence Goods in transit at the end
of the period belong to ERC and should be shown in ERC’s books, Inventory Control
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Account. Goods in Transit are recorded at F.O.B cost (FAS or CIF or C&F), which
comprises the cost of goods; insurance costs, loading costs and freight charges.
 Purchases on “F.O.B. destination”: Legal title does not pass to ERC until the carrier
delivers the goods. Hence the cost of goods and freight should not be recorded as
Inventory or purchases of the particular fiscal period. As soon as ERC obtains
evidence of goods being delivered by the carrier or an agent, then ERC shall record a
journal entry by debiting the respective Inventory account and crediting cash or
accounts payables (vendor).
 All Inventories are typically classified as current assets on Statement of Financial
Position.
 Some inventories may be allocated to other asset accounts, for example, inventory
used as a component of self-constructed property, plant or equipment. Inventories
allocated to another asset in this way are recognized as an expense during the useful
life of that asset.
 Procedures and process that shall be used for initial recognition of inventory is shown
in the table as follows
Level of
automation
Determine Head Senior To determine the cost of inventory,
the cost of Office Accountant, obtain and review all documents such as
inventory /Branch under purchase requisition, purchase order,
and record accounts supplier invoice and goods receiving
the team (HO) note, freight, insurance and bank
acquisition charges, import duties, non-refundable
in the Senior taxes, and any other directly attributable
books. Accountant, costs or fair value or revaluation by
under expert (if obtained through donation or
General grant) and prepare journal entries to
accounts record the acquisition and present to the Agresso MIS
team Team Leader for review and approval. System
(Branch) Once approved, record the journal entry
in the system.
DR. Inventory xxxx
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Level of
automation
DR.VAT Receivable xxxx
CR. VAT Payable xxxx
CR. Withholding tax xxxx
11.7.3. Classifications of Inventory
Under ERC business the inventory will include the following categories.
 Spare parts: Rolling Stock, Signaling and other Spare parts
 Tyre and tube,
 Stationery ,
 Fuel and lubricant
 Office Supplies
 Electrical materials
 Hand tools
 Building materials
 Uniform and Protective
 Sanitary materials.
11.7.4. Measurement of Inventory
 Inventories shall be measured at the lower of cost and net realizable value.
 The costs of purchase of inventories comprise the purchase price, import duties
and other taxes (other than those subsequently recoverable by the entity from the
taxing authorities), and transport, handling and other costs directly attributable to
the acquisition of materials and. Trade discounts, rebates and other similar items
are deducted in determining the costs of purchase.
 When asset is acquired at no cost or for nominal consideration, such as inventory
acquired through donation or grant, it shall be recorded at its current fair value or
at the estimated amount determined by the expert, whichever is practical.
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 Other costs are included in the cost of inventories only to the extent that they are
incurred in bringing the inventories to their present location and condition.
 Weighted average cost method shall be used to value the cost of an inventory.
Under the weighted average cost formula, the cost of each item is determined from
the weighted average of the cost of similar items at the beginning of a period and
the cost of similar items purchased or produced during the period. The average
may be calculated as each additional shipment is received.
 In situations where the cost of inventories of items that are not ordinarily
interchangeable and goods or services produced and segregated for specific
projects shall be assigned by using specific identification of their individual costs.
Specific identification of cost means that specific costs are attributed to identified
items of inventory. This is the appropriate treatment for items that are segregated
for a specific project, regardless of whether they have been bought or produced.
However, specific identification of costs is inappropriate when there are large
numbers of items of inventory that are ordinarily interchangeable. In such
circumstances, the method of selecting those items that remain in inventories could
be used to obtain predetermined effects on profit or loss.
 Any demurrage or detention charges or penalty levied by revenue & customs
authority or other authorities for delay in clearance shall not form part of the cost
of imported materials.
 Left over project materials returned to ERC store shall be valued at their original
issue cost.
 All stock items shall have adequate insurance coverage.
11.7.5. Inventory Write Down
 Inventory write down refers to down ward revision of the book value of an
inventory to reflect its net realizable value that has dropped below book value due
to for example whole or partial obsolescence or damage.
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 The amount of write-down of inventories to net realizable value and all losses of
inventories should be recognized as an expense in the period the write down or
loss occurs.
 Inventories shall be written down to net realizable value item by item. In some
circumstances, however, similar or related items could be written down in group.
 The amount of any reversal of any write-down of inventories, arising from an
increase in net realizable value, shall be recognized as a reduction in the amount of
inventories recognized as an expense in the period in which the reversal occurs.
11.7.6. Inventory Transfer Process
In the course of business, inventories can be moved from Head office Ware house
(central Ware house) to branches (main stores) & vice versa and between
branches. If inventory is to be moved from one location to another or from one
responsibility center to another, Inventory Transfer Form must be completed and
approval must be obtained from the releasing and receiving branch (profit Centre)
or Head office.
Procedures and process that shall be followed to record the transfer of inventory is
as follows.
Level of
Task Location Role Task description automat
ion
Record the Branch/ Senior  Obtain and review all documents
transfer of Head Accountant, such as inventory Transfer Form
inventory Office under approved by the releasing and
Accounting team receiving responsibility centers
(HO) and the Head office and other
relevant documents.
Senior  Update general ledger by MIS
Accountant, removing transferred inventory Agresso
under General from releasing department while
accounts team the receiving department records
(branches) the transferred inventory. Get
the review and approval from
the Asset Team Leader before
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Level of
Task Location Role Task description automat
ion
finalizing the recording process.
11.7.7. DERECOGNITION of Inventory
11.7.7.1 All damaged and obsolete stock shall be disposed and written off from the
financial record at the decision of the CEO or his/her delegates.
11.7.7.2 At the minimum the following conditions must be met to determine inventory
that may be derecognized.
Condition Description
Obsolescence  When the type of inventory has been obsolete and when the
branch (user department) has confirmed about the obsolescence
condition.
Inferior productivity When a certain inventory becomes inadequate due to technological
backwardness.
11.7.7.3 ERC disposes its inventory in accordance with the directives of concerned
regulatory bodies and as per ERC internal economic cost justification. The
disposal shall be authorized by the CEO or his/her designates as per the mandate
given to them.
11.7.7.4 A report listing decision proposals made to derecognize an asset from the books
by branch and project management, and those cases that were presented to and
decided by the Board and transferred to profit and loss accounts shall be
prepared within three months starting from the decision date.
11.7.7.5 An inventory should be removed from the statement of Financial position upon
de-recognition or when it is withdrawn from use and no future economic
benefits are expected from its disposal.
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11.7.7.6 The gain or loss on de-recognition is the difference between the disposal
proceeds and the carrying value of the asset and should be recognized in profit
and loss statement.
11.7.7.7 The procedures and process that shall be followed for recording de-recognition
of inventory is shown in the table as follows:
Level of
Task Location Role Task description automatio
n
Record Branch/ Senior  Obtain and review all documents
the Head Accountant, related with the disposal of inventory
disposal Office under Accounting such as minutes of management
of team (HO) decisions, auction minutes, store
inventory issuance note, cash receipts vouchers,
Senior etc.
Accountant,  Analyze the impact of the disposal of
under General inventory and categorize into one of
accounts team the following:
(branches)
a) Loss on disposal of inventory: Cash MIS
in Bank and Loss on Disposal of Agresso
inventories is debited and the
inventory account is credited.
b) Gain on disposal of inventory: Cash
in Bank debited and the inventory
account and Gain on Disposal of
inventory are credited.
c) No gain and no loss: Cash in Bank
debited and the inventory account
credited
d) When the inventory disposed without
selling debit loss on disposal and
credit inventory.
 Prepare the appropriate journal
entries in line with the above
categories and record them once the
approval is made by the Asset Team
Leader.
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11.7.7.8 When an inventory is disposed, entries shall be made to remove the inventory.
11.7.7.9 The account that will be used to balance the debits and credits is called Gain or
Loss on Disposition of inventory. To illustrate gain or loss on disposal, consider
that an inventory was originally purchased for Birr 10,000.00. If the inventory
was sold at birr 9,000.00
DR Cash/cash at bank Birr 9,000.00
DR Loss on disposal Birr 1,000.00
CR Inventory Birr 10,000.00
If the Inventory is sold for Birr 12,000 cash, the excess of the selling price (Birr 12,000 –
Birr 10,000 = Birr 2,000) over the carrying value represents Gain on the disposal of
Inventory. ) and the cash collection will be charged to Cash in Bank as shown below.
DR. Cash/cash at bank 12,000.00
Cr. Gainon disposal 2,000.00
Cr. Inventory 10,000.00
11.7.8. Physical Count
 A physical count of all inventories shall be conducted at least once a year.

 Each and every count sheet must be signed by Store keeper and counting team.
 The shortage /overage inventory adjustment should be made in yearend closing.
 During the physical count obsolete, damage, slow moving and dead stock shall be
identified.
 All inventories shall be identified individually based on their location. Proper
register and records shall be maintained.
 When there is unconsumed inventory item in the satellite stores, it has to be
incorporated in the count and the reversal (adjustment) entry should be made.
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 Assume that on sene 12, 2009 main store dispatched inventory costing 100,000.00
to one of its satellite store and as of sene 30, 2009 when inventory count was held
there was unconsumed inventory costing 4000.00 left in the satellite store.
Initial Entry
DR.Expense inventory-----------------------100,000.00
CR. Inventory---------------------------------------------------100,000.00
Reversal Entry as of sene 30, 2009for unconsumed inventory
DR Inventory-------------------------------4,000.00
CR Expense inventory---------------------------------------4,000.00
 Reconciliation of physical count of inventory and its register shall be conducted on
every count.
 Perpetual inventory recording system shall be maintained for all types of inventory
items. A control record shall be maintained for used items which have no value
when they are returned to the store.
In the event of inventory counting, the counting committee should care to avoid or
minimize counting and recording errors. If errors have been committed in the event of
counting and recording and these corrections are few in number, the errors shall be
corrected and the counting team leader shall put his initial in front of the corrected figure.
In case the errors are many in number the count sheet shall be voided and replaced by a
new one.
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12. Receivable procedure
12.1. Purpose
The purpose of the Receivable procedure is to establish guidelines for accounting,

valuation, write off and presentation and disclosure of the corporation receivables.

12.3. Nature and Definition
Receivables are generally defined as claims held against others for the future receipt of
money, goods or services.
12.4. Policy
Please refer Financial Instruments Policy Number _____________.
DCEO, Finance and investment Division, Finance, Investment and project financing and
Branch Accounts Department Directors, Branch Finance directors and Team leaders under
department directors that are located at Corporate Level & Branch Level are responsible
for the procedures in this Section.
The highest finance officials of ERC are responsible for policy issues covered in this
document.
12.7. Procedures
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12.7.1. Accounting for RECEIVABLE
12.7.1.1 Recognition
 Any advance payment and/or down payments made to the contractors or

consultants shall be recognized as a receivable.
Example If ERC made advance payment and/or down payments made to the
contractors or consultants should be recognized as a receivable and the following
entries are required at the time of advance payment made:
Debit Credit
Account Advance Receivable-X contractors or consultants xxxx
Account Cash Xxxx
 Receivables from employees are recognized as they arise and cancelled when
payment is received.
 Advances to other Branches’ are recognized when the cash or other assets
borrowed are delivered or when payment is made for a liability of another
Branch.
 Other receivables are recognized upon the occurrence of event or transaction
which gives the Corporation a legal claim against others.
12.7.2. Receivable Record
12.7.2.1A follow up record shall be maintained for each receivable accounts indicating
the monthly billings, settlement and remaining balance at head office finance and
at respective branches finance offices, project offices, strategic business unit and
Special services (cost) centers.
12.7.2.2The record shall be up to date at any time and be reconciled with the financial
ledger balance.
12.7.3. Collection and Receivable Follow up
12.7.2.3 The Head office finance and respective branches offices, project offices,
strategic business unit and Special services (cost) centers shall follow up
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collection of non-direct railways receivables as per the terms and conditions

stated in the agreement.
12.7.2.4 Collection of direct revenues from basic railways services and foreign railways
administration shall be monitored by Head Office Finance and at respective
branches finance offices, project offices, strategic business unit and Special
services (cost) centers shall make sure that collection rules and regulations are
compiled; outstanding receivable balances are followed up, and monitor/report
its status on quarterly basis.
12.7.2.5 All non-direct receivables:- Suppliers advance, customs, transistors,
transporters that are past due for 180 days; purchasers advances that are past due
for 90 days shall be reported to the respective Head office Finance Director,
Branch Finance Director or the Finance unit Head of the respective project
offices. But if a decision is not passed within 15 working days these receivables
shall be reported to CEO & DCEO Finance and investment.
12.7.4. Valuation
 Receivables denominated in a currency other than the Birr shall be recognized by

applying to the foreign currency amount the exchange rate between the Birr and
the foreign currency at the date of the transaction.
 All receivable balances shall be valued at their net realizable value, calculated as
the gross amount of receivable minus any allowances provided for doubtful
accounts.
 Reasonably realistic balance of debtors shall be reported at the financial position
date. Hence adequate provision shall be made for uncollectable portion of the
balances.
 Allowance for doubtful accounts shall be provided in an amount equal to the total
receivables shown or reasonably estimated to be doubtful of collection.
 The amount of the allowance shall be based on past experiences and on a
continuing review of receivable aging reports and other relevant factors.
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 Any receivable or portion of receivable adjudged to be uncollectible shall be

written-off.
 Write-offs of receivables shall be done via the allowance for doubtful accounts
after all efforts to collect have been exhausted.
Example of Allowance for Bad Debts Process and Procedures to be followed as
follows:
 Accounts which become non-collectible and which qualify for write-off must be
charged against the Allowance for Bad Debt account.
 A detailed review and age analysis of accounts receivables shall be made at the end
of the fiscal year to estimate the provision for bad debts.
 Provision for doubtful accounts receivables (bad debt) shall be made as per the
following age group and criteria:
Age group of Receivables for Bad Debt
90 to 180 days past due inclusive 25%

More than 720 days eligible for write off 100%
 The amount of bad debt computed based on the above analysis of past due
accounts shall be the desired ending balance of the Allowance for Bad Debts
account. The balancing figure shall be the Uncollectible Accounts Expense of the
period.
 It shall be Corporation’s practice to aggressively pursue the collection of all
amounts owed for the provision of advances and related receivables, pursuant to
these policies. Collection effort shall continue until the debt is paid or it is
considered uncollectable.
 Debts owed to the Corporation will be considered uncollectable and therefore
written off, when either:
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 The collection agency to which Corporation refers an account determines the debt
is uncollectable, or
 The Corporation receives an unfavorable or unenforceable judgment rendered in a
small claims court case, or
 When the corporation legal expert determines that the department originating the
charges has documentation insufficient for pursuing legal remedies.
12.7.5. Write off of receivables
 Analysis of debtors account shall be done to show the collectable balance of

receivable on the Statement of Financial Position.
 All debtors’ account that provided to be uncollectible shall be written off.
 All legal requirements shall be observed before approving the write off decision.
 The authority to approve write off of bad debtors account shall be governed in
accordance to the appropriate regulation issued.
 A Memorandum record that holds the list of debtors written off from the record
shall be maintained.
12.7.6. Accounting Entries
The following entries are required at the time of maintain reserves for bad debt and
bad debt write off:
Debit Credit
I. Allowance for bad debt estimate
Bad Debt Expense xxxx
Allowance for Bad Debt Xxxx
II. Write off
Allowance for Bad Debt xxxx
Account Receivable-client name Xxxx
III. Collection of amount write off
Account Receivable-client name xxxx
Allowance for Bad Debt xxxx
(To reinstate write off)
Cash xxxx
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Account Receivable-client name xxxx

(To record collection of cash)
12.7.7. Staff Receivables
Staff receivables or debtors refer to cash claims from employees of the Corporation.
Such claims could arise from cash count shortages, extension of advances to
employees such as loans granted to the staff. Normally, advances should be
discouraged. However, if there is a request by employee of the company with
genuine reason, it shall be approved in accordance with the Policies and Procedures
set under the HR Manual of the Corporation.
12.7.8. Presentation and Disclosure
 Advances to contractors, consultants and Branches shall be identified as separate line

items in the Statement of Financial Position.
 Employees’ outstanding balances should be identified as a separate line item in the
Statement of Financial Position.
 Receivables should be classified in the Statement of Financial Position as current or
non-current. Current receivables are those collectible within one year from the date
of the Statement of Financial Position. Non-current receivables are those collectible
beyond one year.
 The allowance for doubtful accounts shall be deducted from the related asset with the
asset being shown in the Statement of Financial Position either at:
 (i) Gross, less the allowance; or
 (ii) Net, with the amount of the allowance indicated in the parenthetical notation.
12.7.8.1 All cash collections must be kept in a safe at ERC premises or deposited with the
ERC designed account at a bank on the day of receipt or the next working day at the
latest upon receipt of properly signed and stamped bank deposit confirmation slip.
Cash on hand should be accessible to only authorized responsible person.
12.7.8.2 The finance department shall set a limit for cash on hand and any amount in excess of
cash limit shall be deposited in the bank account without delay
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12.7.8.3 The ERC may purchase insurance policy as applicable for cash on hand
12.7.8.4 The controlling staff of the ERC shall make surprise cash count for cash on hand
12.7.8.5 Cash collection should be made using sequentially numbered cash receipt vouchers
or fiscal receipt of cash machine print out
12.7.8.6 Collection of cash shall be made by authorized and responsible persons
12.7.8.7 The finance department shall establish petty cash fund for small expenditures and
thus any payment limit over petty cash fund shall be made by serial numbered or
controlled payment vouchers as detailed in policy and procedure for expenditures.
12.7.8.8 Payments vouchers must be approved by authorized person of the ERC as detailed in
policy and procedure for expenditures.
12.7.8.9 There should be segregation of duties between the staff who prepares payment
instrument, who approve the payment voucher and the cash custodian.
12.7.8.10 The finance department shall make reconciliation of daily cash collection against
cash register Report and or Cash receipt vouchers
12.7.8.11 There should also be reconciliation of cash receipt voucher /Z report/ticket sales
summary with the cash ledger account balance.
12.7.8.12 The finance department shall also make regular independent bank account
reconciliation at least monthly.
12.7.8.13 All cash including cheques, money orders, travellers' checks and all forms of security
must be kept in a locked safe until the date of deposit.
12.7.8.14 Any deviation from the above procedures must be approved in writing in advance by
the Deputy Chief Executive Officer Finance and Investment.
12.7.8.15 Endorsement of any checks received shall be made in the following manner: "For
deposit only to the Account of ERC” Any deviations from the format shown above
may be made if required by laws or regulations in effect and must be approved by the
Deputy Chief Executive Officer Finance and Investment in writing.
12.7.8.16 No employee has authority to cash checks, drafts, money order, travellers' checks,
etc. payable to the order of "ERC". Such checks and money instruments etc. may be
accepted in payment of service charges for deposit in ERC designated account
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provided the individual is properly identified and item is previously approved by the
responsible supervisor-in-charge as to its genuineness.
12.7.8.17 Checks payable to ERC may be also accepted for deposited to ERC designated
account only by the Chief Cashiers.
12.7.8.18 Deposit slips furnished by each bank shall be properly and clearly completed in full,
having the reference (eg. Sales report number, sales date, invoice No. etc.), duly
stamped and receipted by the bank.
12.7.8.19 Information related to the operation of Bank accounts being extremely confidential,
direct contact of Employees, with ERC bankers and discussion of subjects pertaining
to any of the it's bank accounts must be avoided unless directed by the Deputy Chief
Executive Officer Finance and Investment.
12.7.8.20 Finance shall;
a) Compare the amount reflected on the deposit slip with the cash sales shown on the
sales report.
b) If the deposited amount is less or more than the cash sales, the difference shall be
transferred to correspondence or over collection account by clearly indicating sales
date and the amount of difference.
c) Immediately communicate the concerned Sales Office or person when any shortage
as in (b) above occurs. If the reply is inadequate initiate charge backs for the shortage
which will be subsequently deducted from salary of concerned staff.
Bank accounts and reconciliation
12.7.8.21 Bank accounts shall be opened, closed or changed with regard to the nature, terms or
signature authorization at the initiative of management subject to the approval of the
Board.
12.7.8.22 The Finance and Accounting Department should be notified of any of the above
actions. The Finance Department may, suggest changes or alternatives in particular
circumstances, keeping in mind the overall interests of the ERC.
12.7.8.23 To ensure that cash at bank is properly controlled, ERC periodically (specifically
monthly) receives bank statement and reconciles it with book balances. ERC prepares
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bank reconciliation to determine that it required making any corrections or

adjustments in either its book balance or the bank’s balance.
12.7.8.24 ERC prepares reconciliation for each bank account it has at banks separately.
12.7.8.25 Within the internal control structure, segregation of duties is an important way to
prevent fraud. One place to segregate duties is between the cash disbursement cycle
and bank reconciliations. To prevent collusion among employees, the person who
reconciles the bank account should not be involved in the cash disbursement cycle.
Also, the bank statement should be received directly by a person who reconciles the
bank account each month. Receiving the bank statement directly limits the number of
employees who would have an opportunity to tamper the statement.
12.7.8.26 Where possible, the bank selected should be a bank with which the ERC has an
extensive relationship in order to obtain maximum leverage at the ERC level.
Selected banks should be closely monitored for their financial stability, and any
negative findings promptly communicated to the Finance Department. Where
possible, Cash balances shall be centralized at a reliable Bank to maximize leverage
for the enterprise. Balances at other banks should be moved to the centralized bank
account at regular intervals.
12.7.8.27 Many banks request or require companies to maintain minimum balances on deposit
as a condition for granting and maintaining loans or lines of credit. Where such
compensating balances arrangements legally restrict the use of funds, the amounts so
restricted should be segregated in the balance sheet or separately disclosed.
12.7.8.28 All funds not immediately required for current use shall be deposited in saving
accounts or investments defined as cash equivalents in order to maximize interest
income.
12.7.8.29 All bank accounts must be reconciled with the general ledger within a week from the
end of the month, without exception, and reviewed and signed by the Finance
Manager.
12.7.8.30 Reconciliation of bank with book balances shall serve to check the accuracy of the
records of both the bank and the ERC.
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12.7.8.31 Individuals responsible for cash receipts, disbursements, bank deposits, posting of
deposits or accounts receivable activities, should not reconcile bank accounts.
12.7.8.32 All money received by an officer or employee of the ERC must be paid into the
ERC’s bank account.
12.7.8.33 Detailed records of the ERC’s banking activities must be kept.
12.7.8.34 Bank statements must be obtained as frequently as possible, particularly at the month
end, statements must be obtained quickly and reconciled with the cashbook by the
end of the first week of the following month.
12.7.8.35 The reconciliation statement must detail all outstanding cheques, outstanding debits
and credits and fully explain any differences between the balances. A copy of the
reconciliation statement must accompany the monthly trial balance.
12.7.8.36 Action must be taken to make the necessary entries in the accounts to rectify the
differences between the bank statement and the cashbooks. In particular direct debits
and credits to bank statements must be brought into the cashbook and ledger
accounts.
12.7.9. Trade and other receivables
Please refer to receivables procedure for details
12.7.10. Bond receivables
It may be common some times for the ERC to invest idle funds in some investment
areas such as government bonds with the business objective to collect principal and
interest on maturity of the bond. In that situation the ERC shall initially recognize
the bond receivables at the fair value in its financial record as follows:
Dr Cr
Bond receivables xxx
Cash xxx
To record initial recognition of financial asset (bond)
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12.7.11. Term deposit
12.7.11.1. When ERC invests idle fund in the form of fixed deposit, the finance
department shall recognize initially the financial asset –Term Deposit in the
financial record at its fair value as :
Dr Cr
Financial asset-term deposit xxx
Cash xxx
To recognize investment in term deposit
12.7.11.2. Directly attributable transaction costs for acquisition of financial asset shall be
considered at initial recognition
12.7.11.3. The finance department of ERC shall ensure that recognition of financial
assets are supported by duly signed and approved documents and those
documents shall be maintained in secured manner
12.7.11.4. The finance department shall also maintain subsidiary ledger account for each
specific financial asset
12.7.12. Subsequent measurement
12.7.12.1. ERC shall be measure financial assets at amortized cost if both of the
following conditions are met:
(a) The financial asset is held within a business model whose objective is to hold
financial assets in order to collect contractual cash flows and
(b) The contractual terms of the financial asset give rise on specified dates to cash
flows that are solely payments of principal and interest on the principal amount
outstanding.Amortised cost is the cost of an asset or liability adjusted to achieve
a constant effective interest rate over the life of the asset or liability. Amortised
cost is calculated using the effective interest method.
12.7.12.2. At the end of every reporting period ,the finance department shall measure
the financial assets except for trade receivable with no finance component , by
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applying effective interest rate on the carrying value and the following entry
may be made:
Dr Cr
Financial Asset (Interest receivable (cash) xxx
Interest income xxxx
12.7.12.3. Financial asset can be initial measured as Fair Value Through Profit or loss
account if :
o It meets the definition of held for trading
o Voluntary designation using the fair value option, or
o The financial asset does not fall into any other category.
12.7.12.4. Financial assets can be also measured at fair value through other
comprehensive income.
12.7.12.5. The measurement classification of financial assets is made at the time the
financial asset is initially recognised, namely when the ERC becomes a party
to the contractual provisions of the instrument
12.7.13. Impairment
For financial assets designated to be measured at amortised cost, the finance

department must make an assessment at each reporting date whether there is
evidence of possible impairment. For valuation at FVTOCI, the decrease in
carrying amount may be partially recorded as impairment. If impairment is
identified, it is charged in arriving at profit or loss immediately
12.7.14. Reclassification of financial assets
12.7.14.1. For financial assets, reclassification is required between Fair Value through
Profit or Loss and amortised cost, or vice versa, if and only if the ERC’s
business model objective for its financial assets changes so that its previous
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model assessment no longer applies. If reclassification is appropriate, it must

be done prospectively from the reclassification date. An ERC does not restate
any previously recognised gains, losses or interest.
12.7.14.2. Reclassification is not allowed where :
a) Measurement through Other comprehensive Income option has been
exercised for a financial asset; or
b) Fair value option has been exercised in any circumstance for a financial asset
or financial liability.
12.7.15. Financial liabilities
12.7.15.1. The financedepartment of ERC shall recognise financial at their fair values.
Directly attributed transaction costs are deducted from the initial recognition.
The journal entry for initial recognition can be:
Cash /other assets XXX

Financial liabilities XXX
12.7.15.2. Recognition of financial liabilities must be supported by appropriate signed
and approved documents
12.7.15.3. The finance department shall maintain proper subsidiary ledger account for
each specific financial liabilities
12.7.15.4. For financial liabilities held for trading and derivatives that are not part of the
hedging instrument, the financial department shall measure the financial
liabilities at Fair Value through Profit or Loss. The department shall measure
all other financial liabilities at amortized cost.
12.7.15.5. The following financial liabilities shall be measured at amortized cost
effective interest method;
a) Trade payables
b) Loan payables
c) Loan payables to related parties
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d) Loan payables to key management personnel

e) Deferred non-contingent consideration payables in business combinations
12.7.15.6. Equity Instrument
a) The finance department shall classify equity instrument as either an equity
instrument or a financial liability according to the substance of the contract, not
its legal form.
12.7.15.7. ERC must make this decision at the time the instrument is initially recognised
and the classification cannot be subsequently revised based on changed
circumstances
De-recognition of financial Assets/liabilities
12.7.15.8. If ERC does not control the asset then de-recognition is appropriate; however
if it has retained control of the asset, then the ERC continues to recognize the
asset to the extent to which it has a continuing involvement in the asset.
12.7.15.9. Financial liabilities are derecognized only when extinguished, that is
discharged, cancelled or expired.
Presentation & Disclosures
ERC must group its financial instruments into classes of similar instruments. The
following minimum disclosure shall be made to the note of the financial statement
a) Details of financial instruments measured at fair value through profit/loss,
reclassified, derecognised, pledged as collateral and terms breached
b) Items of income, expense, gains, and losses
c) Accounting policies for financial instruments
d) Information about hedge accounting
e) Information about the fair values of each class of financial asset and financial
liability
f) Risk exposures for each type of financial instrument
g) Management’s objectives, policies, and processes for managing those risks
h) Changes from the prior period
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i) Credit Risk
j) Liquidity Risk
k) Market Risk
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13. Liabilities, provision, contingent liabilities and contingent assets

procedure
13.1. Purpose
The purpose of the Liabilities, provision, contingent liabilities and contingent assets
procedure is to establish guidelines for the administrative responsibilities of corporate
and other related liabilities issues affecting operation.

01-Jul-2017 _______ ________ ___________
13.3. Policy
Please refer Liabilities, provision, contingent liabilities and contingent assets Policy of
Ethiopian Railway Corporation.
13.4. Definitions
a) A liability is a present obligation of the corporation arising from past events, the
settlement of which is expected to result in an outflow from the corporation of
resources embodying economic benefits.
b) Long-term liabilities are liabilities with a future payment over one year, such as
long term loans that mature longer than one year. They represent the sources of
funds and are generally bounded in form of capital assets.
c) A Provision is a liability of uncertain timing or amount.
d) A Contingent Liability is:
i. A possible obligation that arises from past events and whose existence will only
be confirmed by the occurrence of one or more uncertain events; or
e) A present obligation that arises from past events but is not recognized because it is
not probable that an outflow of resources will be required or the amount of the
Obligation cannot be measured with sufficient reliability.
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f) A Contingent Asset is a possible asset that arise from past events and whose
existence will be confirmed by the occurrence or non- occurrence of one or more
uncertain future events not wholly within control of an entity.
The highest finance officials of ERC are responsible for policy issues covered under this
document.
13.6. Procedure
13.6.1. General
 Provisions – which are recognized as liabilities (assuming that a reliable estimate

can be made) because they are present obligations and it is probable that an outflow
of resources embodying economic benefits will be required to settle the obligations.
 Contingent liabilities – which are not recognized as liabilities because they are
either:
(i) possible obligations, as it has yet to be confirmed whether the entity has a present
obligation that could lead to an outflow of resources embodying economic
benefits; or
(ii) present obligations that do not meet the recognition criteria in Provisions this
Standard (because either it is not probable that an outflow of resources embodying
economic benefits will be required to settle the obligation, or a sufficiently
reliable estimate of the amount of the obligation cannot be made).
 A Contingent Asset is a possible asset that arise from past events and whose
existence will be confirmed by the occurrence or non- occurrence of one or more
uncertain future events not wholly within control of the corporation’s. A contingent
asset must not be recognized. Only when the realization of the related economic
benefit is virtually certain should recognition take place. At that point, the asset is no
longer a contingent asset.
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13.6.2. Accounting for Liability, Provision, Contingent Liability and Contingent Asset.
13.6.2.1. Current Liability

A liability is a present obligation of the corporation arising from past events,
the settlement of which is expected to result in an outflow from the corporation
of resources embodying economic benefits. A liability should be classified as
a current liability when it
a) Is expected to be settled in the normal course of the corporation’s operating
cycle; or
B) is due to be settled within 12 months of the balance date. All other liabilities
should be classified as non-current liabilities.
Illustration 1, on meskerem 1, 2009 E.C ERC Purchased inventory from X-
Company on account for birr 50,000. ERC records purchases and uses a periodic
inventory system. The journal entry as follows:
Inventory------------------------------50,000.00
Account payable--------------------------------------50,000.00
Illustration2, Portion of bonds and other long-term debt birr
2,000,000.00 that will mature within the next fiscal year and then reclassified it
long-term debts to current maturities of long-term debt as current liability. The
journal entry as follows:
Bonds and other long-term debt --------------2,000,000.00
Current liability of current maturing ---------------2,000,000.00
13.6.2.2. Long-term liabilities
Long-term liabilities: - are liabilities with a future benefit over one year, such
as long term loans that mature longer than one year. In accounting, the long-
term liabilities are shown on the right wing of the financial position
representing the sources of funds, which are generally bounded in form of
capital assets.
Illustration3, when ERC request to one of its financer for the payment of
interim payment certificate to one of the contractor and after some days the
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financer notify to ERC as payment was made to the contractor. The journal
entry as follows:
Construction in progress------------------- XXXXXX
Long Term loan payable-----------------------XXXXXX
13.6.2.3. Provision
IAS 37 states that a provision should be recognized as a liability in the
financial statements when:
 The corporation has a present obligation (legal or constructive) as a result of a
past event.
 It is probable that an outflow of resources embodying economic benefit will be
required to settle the obligation.
 A reliable estimate can be made of the amount of the obligation.
Illustration 4, ERC knows that when it ceases a certain construction project in five years
time it will have to pay environmental cleanup costs of Birr 5,000,000.00.
The provision to be made now will be the present value of Birr 5,000,000.00 in five
years time. Assuming that relevant discount rate is 10%.
Therefore a provision will be made for: Birr
Birr 5,000,000.00×0.62092* -------------------------------- 3,104,600.00
*The discount rate for 5 years at 10%.
The following year the provision will be:
Birr 5,000,000.00×0.68301**--------------------------------- 3,415,050.00
**The discount rate for 4 years at 10%. 310,540.00
The increase in the second year of birr 310,450.00 will be charged to profit or loss. It is
referred to as the unwinding of the discount. This is accounted for as a finance cost. The
original provision of birr 3,104,600.00 will be added to the cost of assets involved in the
construction and depreciated over five years. When a provision is recognized the debit entry
for the provision is not always expense. Sometimes a provision may form part of the cost of
asset. The journal entry as follows:
For the first year: Project Cost ---------------3,104,600.00
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Provision--------------------------------3,104,600.00
For the second year: Expense----------------- -310,450.00

Provision---------------------------------310,450.00
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14. Payroll and employee benefits procedure
14.1. Purpose
The purpose of the payroll and employee benefits procedure is to establish guidelines
how to record and control costs of human capital of the Corporation.

14.3. Definition
 Employee benefits are all forms of consideration given by an entity in exchange for
service rendered by employees.
 Short-term employee benefits are employee benefits (other than termination benefits)
that are due to be settled within twelve months after the end of the period in which the
employees render the related service.
 Post-employment benefits are employee benefits (other than termination benefits such
as pensions, post employment life insurance and medical care) which are payable after
the completion of employment.
 Post-employment benefit plans are formal or informal arrangements under which an
entity provides post-employment benefits for one or more employees.
 Defined contribution plans are post-employment benefit plans under which an entity
pays fixed contributions into a separate entity (a fund) and will have no legal or
constructive obligation to pay further contributions if the fund does not hold sufficient
assets to pay all employee benefits relating to employee service in the current and prior
periods.
 Defined benefit plans are post-employment benefit plans other than defined
contribution plans.
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 Termination benefits are employee benefits payable as a result of either an entity’s

decision to terminate an employee’s employment before the normal retirement date; or
an employee’s decision to accept voluntary redundancy in exchange for those benefits.
 Other long-term employee benefits are employee benefits (other than post-employment
benefits and termination benefits) that are not due to be settled within twelve months
after the end of the period in which the employees render the related service.
 Compensated absences are compensations of absences for various reasons including
vacation, sickness and short-term disability, maternity or paternity, jury service and
military service.
 Accumulating compensated absences are those that are carried forward and can be
used in future periods if the current period’s entitlement is not used in full. On the other
hand, non-accumulating compensated absences are those entitlements which cannot be
carried forward and will lapse if not used during the current year.
14.4. Policy
Please refer payroll and employee benefits Policy number__________.
The Finance and Human Resource departments are affected by this procedure.
DCEO Finance and Investment and Director Human Resource are primarily responsible
for procedures in this section.
14.7. Procedures
14.7.1. Short term employee benefit

a) Short-term employee benefits such as wages, salaries and social security
contributions and other payroll related costs expected to be paid in exchange for
the service provided by employees as a liability (accrued expense), shall be
recognized as an expense of the period, except in the case where such costs are
costs included in the costs of assets such as inventory or fixed PPE.
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b) Supporting document for payroll preparation such as attendance sheet shall be

prepared by respective departments and approved by Heads of each department or
by Human Resource department as appropriate.
c) Payroll preparation is the responsibility of the Finance officer under Finance
department.
d) The payroll sheet shall be checked by the Senior Accountant and approved finally
by finance Manger.
e) The Finance Manager is responsible for sending payroll payments to the
corporation’s bank to transfer the payment to respective accounts of each staff.
f) Bank payment is reviewed and approved by the Finance Manager before sending it
to a bank.
g) The payroll officer should base him/herself on objectively verifiable documents for
the inclusion and exclusion of employees, their payments, deductions in to the
payroll sheet.
h) All employees shall be paid by direct deposit to their respective bank accounts
except hourly employees who are paid on a wage basis. This policy is useful for
switching 100% of employees to electronic payments through a bank account (with
direct deposit).
i) No one employee can be responsible for both processing payroll and distributing
pay slips. This process ensures that proper segregation of duties keeps anyone from
creating a paycheck, recording it, and then pocketing the funds.
j) Payroll taxes shall be remitted in full on a timely basis. This process makes it clear
to the payroll manager that taxes must be remitted in the full amount and on time,
with no exceptions.
k) Hourly employees must submit an approved timesheet by the designated date and
time in order to be paid as part of the regular payroll cycle. This process puts the
burden of timesheet submission on individual employees, rather than the payroll
staff.
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l) The Human Resource Department should keep a personnel record for each staff
members indicating the financial information necessary to correctly calculate
salaries.
m) A precise paper trail covering all transactions, changes in standing personnel data
approved by responsible officials and separate payroll and personnel files
periodically reconciled and shall be available in order for the payroll unit to
calculate and records payroll data accurately and completely for all employees.
n) To ensure payment for salaries is made only to employees entitled to receive
payment, the following processes shall be adopted:
i) No payment of salary is made by cash unless special approval is given by
Finance Manager.
ii) Use a pre-numbered cheque with the Finance Department.
iii) Complete audit trail on all payroll cheques and direct deposit with authorizing
signatures at each juncture.
iv) Detailed documentation shall be used regarding the receipt of cheques and the
handling of unclaimed payroll cheques.
v) Include allowances for transport, housing, acting appointments etc. in gross
salary and pay at the approved rates to the relevant staff as authorized by the
Board.
o) Unclaimed or unpaid salaries should be held in the Corporation’s bank account.
p) Payroll deductions should be recorded in appropriate General Ledger control
accounts and reconciled with payments made to third parties.
q) Any late and other notices received from third parties should be available for
review by internal auditor.
r) Employees calculating payroll deductions should be different from those who
make payments of payroll deductions to third parties and review payroll deduction
payments to third parties.
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s) ERC shall recognize the expected cost of profit-sharing and bonus payments when
and only when, the corporation has a present legal or constructive obligation to
make such payments as a result of past events and a reliable estimate of the
obligation can be made.
t) The finance department shall maintain subsidiary ledger accounts for each main
short-term employee benefits expense accounts and appropriate contra liabilities
accounts
u) Employee service related payments are accrued in the period where the employee
provided related service and the amount shall be determined at each reporting date.
v) If the short term employee benefits cost is capitalized as cost of an asset, such cost
shall be accounted in appropriate asset account and corresponding liabilities or
asset contra accounts shall be recorded.
w) Employee benefit shall be recognized from interest free staff loans granted to
employees which shall be calculated using effective interest rate. For example, if a
management employee receives Birr 100,000.00 on July 08, 2017 and if similar
type of loan is being granted at annual interest rate of 13% in the market, ERC
shall recognize employee benefit amounting to Birr 13,000.00 for the year ended
July 07, 2018 with respect to this employee.
x) Recognition of employee benefit shall be supported by duly signed and approved
supporting documents
y) Payroll deductions on behalf of employees should be limited to:
z) Taxation liabilities
aa) Compulsory deductions
bb)Deduction authorized by the employee e.g advances, loans etc
cc) Records should be maintained in respect of each and every employee of the
Corporation showing:
i) Gross salary
ii) Tax and details of all other payments and deductions
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iii) Sick, annual and long service leave available and taken.
iv) Pension deductions
v) Attendance records
vi) Unclaimed or unpaid salaries
dd)The following principal forms are referred to or used in the preparation of salary
and wage payments:
i) Letter of Appointment /Contract of Employment;
ii) Monthly Payroll;
iii) Wage sheet;
iv) Time/attendance sheet for permanent employees;
v) Time attendance sheet for temporary/casual workers.
ee) End of month accounting entries to recognize payroll authorization shall be:
Salary-Divisions & Services xxx
Pension-Employer’s contribution xxx
Other employment benefits xxx
Cash at Bank-specific xxx
Pension Payable- employer & employee xxx
Income tax payable xxx
Other payables xxx
Employees’ loan repayment xxx
14.7.2. Long term employment benefit
a. Long term defined contribution plan include pension contribution made by ERC
for post-employment benefit of the staff.
b. Pension contribution plan shall be recognized based on specific rate specified by
relevant law
c. ERC shall recognize the contribution payable to a defined contribution plan
expected to be paid in exchange for the service provided by employees as a
liability (accrued expense), after deducting any amount already paid. Contra
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asset or expense account shall be also recognized depending on the nature of

services provided. If the service provided is for production or construction of
asset, appropriate asset account shall be debited and contra asset/liability account
shall be created
14.7.3. Termination benefits
a) Termination benefits shall be recognized as a liability and an expense when and
only when, ERC is demonstrably committed to either terminate the employment
of an employee or group of employees (by legislation, by contractual or other
agreements with employees or their representatives or by a constructive
obligation) before the normal retirement date or provide termination benefits as a
result of an offer made in order to encourage voluntary redundancy (voluntarily
resign).
b) Where termination benefits fall due more than 12 months after the reporting
period, they shall be discounted using the discount rate.
c) In the case of an offer made to encourage voluntary redundancy, the
measurement of termination benefits shall be based on the number of employees
expected to accept the offer.
14.7.4. Payroll Related Taxes and Deductions procedure
a) Payroll related taxes and other deduction shall be done in accordance of
applicable law and regulation.
b) The responsible staff in charge of handling payroll transactions shall ensure:
i) Payroll related tax(income) tax are properly and accurately calculated
according to exiting income tax rate and recognized in ledger account
ii) Pension contribution are accurately calculated and recognized in ledger
account
c) The responsible staff shall also ensure that all payrolls related taxes and
deductions including employer contributions shall be declared and duly paid on
time to the respective tax authority.
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d) The Corporation shall use appropriate declaration forms issued by tax authority
when declaring such tax, and contribution.
The management shall make the following minimum disclosures in relation to

employee benefits:
a) short-term employee benefit expense for key management personnel
b) Amount recognized as an expense for defined contribution plans and information
about contributions to defined contribution plans.
c) Nature and amount of termination benefits expenses and information about
termination benefits for key management personnel.
d) If there is uncertainty about the number of employees who will accept an offer of
termination benefits the Corporation shall disclose information about the contingent
liability.
e) description of accounting policies
f) Reconciliation of changes in Present Value of planned Benefit obligation
g) Amount to be recognized in other comprehensive income-actuarial gains/losses, Re-
measurements of the net defined benefit liability
h) Information about actuarial assumptions, sensitivity analysis, historical data
i) Amount to be recognized in Comprehensive income - Current & past service costs,
Net interest costs/income
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15. Financial Instruments procedure
15.1. Purpose
The purpose of the Financial Instruments procedure is to establish guidelines for handling
financial assets and liabilities of the corporation.

15.3. Nature and Definition

a) A financial instrument is any contract that gives rise to a financial asset of one entity
and a financial liability or equity instrument of another entity.
b) A financial asset is any asset that is:
i. Cash; or
ii. A contractual right to receive cash or another financial asset from another entity.
iii. An equity instrument of another entity
c) A financial liability is any liability that is a contractual obligation:
i. to deliver cash or another financial asset to another entity; or
ii. To exchange financial assets or financial liabilities with another entity under
conditions that is potentially unfavorable to the entity.
d) Fair value is the amount for which an asset could be exchanged between knowledgeable,
willing parties in an arm’s length transaction.
e) Market value is the amount obtainable from the sale of a financial instrument in an
active market.
f) Equity instrument is any contract that evidences a residual interest in the assets of the
corporation after deducting all of its liabilities.
15.4. Policy
Please refer Financial Instruments Policy Number _____________.
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DCEO, Finance and Investment Division.
The highest finance officials of ERC are responsible for policy issues covered in this
document.
15.7. Procedures
15.7.1. Financial assets
ERC may carry the following common type of financial assets in its balance sheet
a) Cash and cash equivalent
b) Trade and other receivables
c) Investments in term deposits with maturity of more than three months
d) Investments in government/corporate bonds where the ERC plans to hold the bonds
up to a point that is approximately equal to their maturity
15.7.2. Cash and Cash Equivalents
 Cash is the most liquid asset that is used in acquiring goods and services,
settlement of obligations and other operations of the ERC.
 Cash and cash equivalents Include coins, currency, undeposited negotiable
instruments such as checks, bank drafts, and money orders; amounts in checking
and savings accounts; and demand certificates of deposit. A certificate of
deposit (CD) is an interest-bearing deposit that can be withdrawn from a bank at
will (demand CD) or at a fixed maturity date initially issued for less than three
months.
 The finance department shall recognize a financial asset in its statement of
financial position when, and only when, ERC becomes party to the contractual
provisions of the instrument.
Cash control
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 All cash collections must be kept in a safe at ERC premises or deposited with the
ERC designed account at a bank on the day of receipt or the next working day at
the latest upon receipt of properly signed and stamped bank deposit confirmation
slip. Cash on hand should be accessible to only authorized responsible person.
 The finance department shall set a limit for cash on hand and any amount in
excess of cash limit shall be deposited in the bank account without delay
 The ERC may purchase insurance policy as applicable for cash on hand
 The controlling staff of the ERC shall make surprise cash count for cash on
hand
 Cash collection should be made using sequentially numbered cash receipt
vouchers or fiscal receipt of cash machine print out
 Collection of cash shall be made by authorized and responsible persons
 The finance department shall establish petty cash fund for small expenditures
and thus any payment limit over petty cash fund shall be made by serial
numbered or controlled payment vouchers as detailed in policy and procedure
for expenditures.
 Payments vouchers must be approved by authorized person of the ERC as
detailed in policy and procedure for expenditures.
 There should be segregation of duties between the staff who prepares payment
instrument, who approve the payment voucher and the cash custodian.
 The finance department shall make reconciliation of daily cash collection
against cash register Report and or Cash receipt vouchers
 There should also be reconciliation of cash receipt voucher /Z report/ticket sales
summary with the cash ledger account balance.
 The finance department shall also make regular independent bank account
reconciliation at least monthly.
 All cash including cheques, money orders, travelers’ checks and all forms of
security must be kept in a locked safe until the date of deposit.
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 Any deviation from the above procedures must be approved in writing in

advance by the Deputy Chief Executive Officer Finance and Investment.
 Endorsement of any checks received shall be made in the following manner:
"For deposit only to the Account of ERC” Any deviations from the format
shown above may be made if required by laws or regulations in effect and must
be approved by the Deputy Chief Executive Officer Finance and Investment in
writing.
 No employee has authority to cash checks, drafts, money order, travelers’
checks, etc. payable to the order of "ERC". Such checks and money
instruments etc. may be accepted in payment of service charges for deposit in
ERC designated account provided the individual is properly identified and item
is previously approved by the responsible supervisor-in-charge as to its
genuineness.
 Checks payable to ERC may be also accepted for deposited to ERC designated
account only by the Chief Cashiers.
 Deposit slips furnished by each bank shall be properly and clearly completed in
full, having the reference (eg. Sales report number, sales date, invoice No. etc.),
duly stamped and receipted by the bank.
 Information related to the operation of Bank accounts being extremely
confidential, direct contact of Employees, with ERC bankers and discussion of
subjects pertaining to any of the it's bank accounts must be avoided unless
directed by the Deputy Chief Executive Officer Finance and Investment.
 Finance shall;
a. Compare the amount reflected on the deposit slip with the cash sales shown on
the sales report.
b. If the deposited amount is less or more than the cash sales, the difference shall be
transferred to correspondence or over collection account by clearly indicating
sales date and the amount of difference.
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c. Immediately communicate the concerned Sales Office or person when any

shortage as in (b) above occurs. If the reply is inadequate initiate charge backs
for the shortage which will be subsequently deducted from salary of concerned
staff.
Bank accounts and reconciliation
 Bank accounts shall be opened, closed or changed with regard to the nature,
terms or signature authorization at the initiative of management subject to the
approval of the Board.
 The Finance and Accounting Department should be notified of any of the above
actions. The Finance Department may, suggest changes or alternatives in
particular circumstances, keeping in mind the overall interests of the ERC.
 To ensure that cash at bank is properly controlled, ERC periodically
(specifically monthly) receives bank statement and reconciles it with book
balances. ERC prepares bank reconciliation to determine that it required making
any corrections or adjustments in either its book balance or the bank’s balance.
 ERC prepares reconciliation for each bank account it has at banks separately.
 Within the internal control structure, segregation of duties is an important way
to prevent fraud. One place to segregate duties is between the cash disbursement
cycle and bank reconciliations. To prevent collusion among employees, the
person who reconciles the bank account should not be involved in the cash
disbursement cycle. Also, the bank statement should be received directly by a
person who reconciles the bank account each month. Receiving the bank
statement directly limits the number of employees who would have an
opportunity to tamper the statement.
 Where possible, the bank selected should be a bank with which the ERC has an
extensive relationship in order to obtain maximum leverage at the ERC level.
Selected banks should be closely monitored for their financial stability, and any
negative findings promptly communicated to the Finance Department. Where
possible, Cash balances shall be centralized at a reliable Bank to maximize
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leverage for the enterprise. Balances at other banks should be moved to the
centralized bank account at regular intervals.
 Many banks request or require companies to maintain minimum balances on
deposit as a condition for granting and maintaining loans or lines of credit.
Where such compensating balances arrangements legally restrict the use of
funds, the amounts so restricted should be segregated in the balance sheet or
separately disclosed.
 All funds not immediately required for current use shall be deposited in saving
accounts or investments defined as cash equivalents in order to maximize
interest income.
 All bank accounts must be reconciled with the general ledger within a week
from the end of the month, without exception, and reviewed and signed by the
Finance Manager.
 Reconciliation of bank with book balances shall serve to check the accuracy of
the records of both the bank and the ERC.
 Individuals responsible for cash receipts, disbursements, bank deposits, posting
of deposits or accounts receivable activities, should not reconcile bank accounts.
 All money received by an officer or employee of the ERC must be paid into the
ERC’s bank account.
 Detailed records of the ERC’s banking activities must be kept.
 Bank statements must be obtained as frequently as possible, particularly at the
month end, statements must be obtained quickly and reconciled with the
cashbook by the end of the first week of the following month.
 The reconciliation statement must detail all outstanding cheques, outstanding
debits and credits and fully explain any differences between the balances. A
copy of the reconciliation statement must accompany the monthly trial balance.
 Action must be taken to make the necessary entries in the accounts to rectify the
differences between the bank statement and the cashbooks. In particular direct
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debits and credits to bank statements must be brought into the cashbook and
ledger accounts.
15.7.2.1 Trade and other receivables
Please refer to receivables procedure for details
15.7.2.2 Bond receivables
It may be common some times for the ERC to invest idle funds in some
investment areas such as government bonds with the business objective to
collect principal and interest on maturity of the bond. In that situation the ERC
shall initially recognize the bond receivables at the fair value in its financial
record as follows:
Dr Cr
Bond receivables xxx
Cash xxx
To record initial recognition of financial asset (bond)
15.7.2.3 Term deposit
 When ERC invests idle fund in the form of fixed deposit, the finance
department shall recognize initially the financial asset –Term Deposit in the
financial record at its fair value as :
Dr Cr
Financial asset-term deposit xxx
Cash xxx
To recognize investment in term deposit
 Directly attributable transaction costs for acquisition of financial asset shall be
considered at initial recognition
 The finance department of ERC shall ensure that recognition of financial assets
are supported by duly signed and approved documents and those documents
shall be maintained in secured manner
 The finance department shall also maintain subsidiary ledger account for each
specific financial asset
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15.7.2.4 Subsequent measurement

 ERC shall be measure financial assets at amortized cost if both of the following
conditions are met:
a. The financial asset is held within a business model whose objective is to hold
financial assets in order to collect contractual cash flows and
b. The contractual terms of the financial asset give rise on specified dates to
cash flows that are solely payments of principal and interest on the principal
amount outstanding.Amortised cost is the cost of an asset or liability adjusted
to achieve a constant effective interest rate over the life of the asset or
liability. Amortised cost is calculated using the effective interest method.
 At the end of every reporting period ,the finance department shall measure the
financial assets except for trade receivable with no finance component , by
applying effective interest rate on the carrying value and the following entry
may be made:
Dr Cr
Financial Asset (Interest receivable (cash) xxx
Interest income xxxx
 Financial asset can be initial measured as Fair Value Through Profit or loss
account if :
o It meets the definition of held for trading
o Voluntary designation using the fair value option, or
o The financial asset does not fall into any other category.
 Financial assets can be also measured at fair value through other comprehensive
income.
 The measurement classification of financial assets is made at the time the
financial asset is initially recognised, namely when the ERC becomes a party to
the contractual provisions of the instrument
15.7.2.5 Impairment
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For financial assets designated to be measured at amortised cost, the finance

department must make an assessment at each reporting date whether there is
evidence of possible impairment. For valuation at FVTOCI, the decrease in carrying
amount may be partially recorded as impairment. If impairment is identified, it is
charged in arriving at profit or loss immediately
15.7.2.6 Reclassification of financial assets
 For financial assets, reclassification is required between Fair Value through
Profit or Loss and amortised cost, or vice versa, if and only if the ERC’s
business model objective for its financial assets changes so that its previous
model assessment no longer applies. If reclassification is appropriate, it must be
done prospectively from the reclassification date. An ERC does not restate any
previously recognised gains, losses or interest.
 Reclassification is not allowed where :
c. Measurement through Other comprehensive Income option has been
exercised for a financial asset; or
d. Fair value option has been exercised in any circumstance for a financial asset
or financial liability.
15.7.3. Financial liabilities
15.7.3.1. The finance department of ERC shall recognise financial at their fair values.
Directly attributed transaction costs are deducted from the initial recognition.
The journal entry for initial recognition can be:
Cash /other assets XXX
Financial liabilities XXX
15.7.3.2. Recognition of financial liabilities must be supported by appropriate signed
and approved documents
15.7.3.3. The finance department shall maintain proper subsidiary ledger account for
each specific financial liabilities
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15.7.3.4. For financial liabilities held for trading and derivatives that are not part of the
hedging instrument, the financial department shall measure the financial
liabilities at Fair Value through Profit or Loss. The department shall measure
all other financial liabilities at amortized cost.
15.7.3.5. The following financial liabilities shall be measured at amortized cost effective
interest method;
a. Trade payables
b. Loan payables
c. Loan payables to related parties
d. Loan payables to key management personnel
e. Deferred non-contingent consideration payables in business combinations
15.7.3.6. Equity Instrument
a. The finance department shall classify equity instrument as either an equity
instrument or a financial liability according to the substance of the contract, not
its legal form.
b. ERC must make this decision at the time the instrument is initially recognised
and the classification cannot be subsequently revised based on changed
circumstances.
15.7.4. De-recognition of financial Assets/liabilities
15.7.4.1. If ERC does not control the asset then de-recognition is appropriate; however if
it has retained control of the asset, then the ERC continues to recognize the
asset to the extent to which it has a continuing involvement in the asset.
15.7.4.2. Financial liabilities are derecognized only when extinguished, that is
discharged, cancelled or expired.
15.7.5. Presentation & Disclosures
ERC must group its financial instruments into classes of similar instruments. The
following minimum disclosure shall be made to the note of the financial statement
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a) Details of financial instruments measured at fair value through profit/loss, reclassified,

derecognised, pledged as collateral and terms breached
b) Items of income, expense, gains, and losses
c) Accounting policies for financial instruments
d) Information about hedge accounting
e) Information about the fair values of each class of financial asset and financial
liability
f) Risk exposures for each type of financial instrument
g) Management’s objectives, policies, and processes for managing those risks
h) Changes from the prior period
i) Credit Risk
j) Liquidity Risk
k) Market Risk
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16. Corporate Taxes procedure
16.1. Purpose
The purpose of the Company Corporate Taxes procedure is to establish guidelines for the
administrative responsibilities of corporate and other related tax issues affecting operation.

01-Jul-2017 _______ ________ ___________
16.3. Policy
Please refer Income Taxes Policy
16.4. Definitions
a) Profit tax is an amount of direct tax to be paid on business income or profit realized
from corporation activity.
b) Withholding tax refers to tax withheld from payments made on purchase of goods and
services.
c) Value Added tax (VAT) is a tax on consumption. It is charged on most goods and
services which are purchased by the corporation.
d) Dividend tax is the tax imposed by a tax authority on dividends received
by shareholders (stockholders) of the corporation.
e) Employment Income Tax/Payroll Tax is a tax imposed by government on
employment income to be collected from employees.
f) Current tax is the amount of income taxes payable (recoverable) in respect of the
taxable profit (tax loss) for a period.
g) Deferred tax liabilities are the amounts of income taxes payable in future periods in
respect of taxable temporary differences.
h) Deferred tax assets are the amounts of income taxes recoverable in future periods in
respect of:
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i. deductible temporary differences;

ii. the carry forward of unused tax losses; and
iii. The carry forward of unused tax credits.
i) Temporary differences are differences between the carrying amount of an asset or
liability in the statement of financial position and its tax base.
j) The tax base of an asset is the amount that will be deductible for tax purposes against
any taxable economic benefits that will flow to the corporation when it recovers the
carrying amount of the asset. If those economic benefits will not be taxable, the tax
base of the asset is equal to its carrying amount.
Finance and investment division and Human Resource division.
The highest finance officials of ERC are responsible for policy issues cover in this
document.
16.7. Procedure
16.7.1. General
Notice of assessment, tax bills, tax receipts and all correspondence received by
corporation are forwarded immediately to the concerned department, with a copy to
the Legal department for further handling.
16.7.1.1. All offices of the Corporation shall keep informed on local tax conditions
and advise the Finance Department any information regarding the
following.
a) Tax assessment
b) Tax dates
c) Change in rates
d) Details of application of tax laws
e) Proposed changes in tax laws
f) New taxes
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g) Other pertinent tax matters

Safeguarding Tax Information
a) Certain information related to taxation is extremely confidential. Such
information may include the value of the Corporation property and equipment,
amount of payrolls, income and similar data.
b) Under no circumstances shall any employee issue any such information outside
the Corporation except at the direction of the Deputy Chief Executive Officer
Finance and Investment and CEO.
16.7.1.2. Tax Clearance
The following lists of detailed matters to be cleared at finance and other Offices
to protect the overall tax interests of the Corporation.
a) Acquisition of businesses and business interests.
b) Major changes in methods of doing business
c) Changes in location of facilities.
d) All types of disposition of property, both voluntary and involuntary.
e) Partnership and joint venture arrangements.
f) Capital gain transactions.
g) Major changes in foreign activities.
h) Establishing and changing rates of depreciation and amortization.
i) Other changes in accounting methods and unusual changes accounting
matters.
j) Establishing and changing tax accruals.
k) Legislative tax matters affecting the Corporation's operations.
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17. Revenue Procedure
17.1. Purpose
The purpose of this Revenue Procedure is to establish procedural guidelines, accounting

treatment and control of revenue Recognition, Measurement, classification, presentation
and Disclosure and Internal Control over revenues.

01-JUL-2017 00 new whole
17.3. Definitions
a) Revenue: is the gross inflow of economic benefits during the period arising in the
course of the ordinary activities of the corporation where those inflows result in
increases in net assets. The major portion of ERC’s revenue is normally derived
through the receipt of passenger & fright transport service and from TOD, Tuition Fee,
Grants and other revenues.
b) Other revenue and gains: are increases in net assets resulting from ERC’s peripheral
or incidental transactions and other events and circumstances affecting the ERC,
c) Contract: An agreement between two or more parties that creates enforceable rights
and obligations.
d) contract asset :An entity’s right to consideration in exchange for goods or services that
the entity has transferred to a customer when that right is conditioned on something
other than the passage of time (for example, the entity’s future performance).
e) Contract liability: An entity’s obligation to transfer goods or services to a customer
for which the entity has received consideration (or the amount is due) from the
customer.
f) Customer: A party that has contracted with an entity to obtain goods or services that
are an output of the entity’s ordinary activities in exchange for consideration.
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g) Income: Increases in economic benefits during the accounting period in the form of
inflows or enhancements of assets or decreases of liabilities that result in an increase in
equity, other than those relating to contributions from equity participants.
h) Performance obligation: A promise in a contract with a customer to transfer to the
customer either:
(a) A good or service (or a bundle of goods or services) that is distinct; or
(b) A series of distinct goods or services that are substantially the same and that have
the same pattern of transfer to the customer.
i) Stand-alone selling price (of a good or service): The price at which an entity would
sell a promised good or service separately to a customer.
j) transaction price (for a contract with a customer): The amount of consideration to
which an entity expects to be entitled in exchange for transferring promised goods or
services to a customer, excluding amounts collected on behalf of third parties.
17.4. Policy
Please refer Expenditures Policy Number _____________.
17.5. Accounting procedure
17.5.1. Contract identification
ERC shall account for a contract with a customer only when all of the following
criteria are met:
(a) ERC & the customer to the contract have approved the contract (in writing, orally or in
accordance with other customary business practices) and are committed to perform
their respective obligations;
(b) ERC can identify customer rights regarding the services to be transferred;
(c) ERC can identify the payment terms for the services to be transferred;
(d) the contract has commercial substance (i.e. the risk, timing or amount of the ERC’s
future cash flows is expected to change as a result of the contract); and
(e) It is probable that the ERC will collect the consideration to which it will be entitled in
exchange for the services that will be transferred to the customer. In evaluating
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whether collectability of an amount of consideration is probable, ERC shall consider

only the customer’s ability and intention to pay that amount of consideration when it
is due. The amount of consideration to which the ERC will be entitled may be less
than the price stated in the contract if the consideration is variable because the ERC
may offer the customer a price concession.
17.5.2. Revenue Recognition
ERC shall recognize revenue when (or as) the corporation satisfies a Performance
obligation by transferring a promised service to a customer.
a) Generally, ERC recognizes revenue to depict the transfer of promised goods or
services to customers in an amount that reflects the consideration to which ERC
expects to be entitled in exchange for those goods or services.
b) Specifically, revenue arising from the rendering of services shall be recognized
provided that all of the following criteria are met;
 the amount of revenue can be measured reliably;
 it is probable that the economic benefits will flow to ERC;
c) The Journal Entry will be:
 When paper ticket is sold
Cash XX
Service Revenue XX
 When prepaid card is sold
Cash XX
Unearned Service Revenue XX
 When the customer consume the prepaid card amount
Unearned Service Revenue XX
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Service Revenue XX
Identify Contract with Customers—Step 1

a. Contract:
 Agreement between two or more parties that creates enforceable rights or
obligations.
 Can be written, oral, or implied from customary business practice.
b. A contract with a customer shall recognized as a contract if all the following
conditions are met:
 the contract has been approved by the parties to the contract;
 each party’s rights in relation to the goods or services to be transferred can be
identified;
 the payment terms for the goods or services to be transferred can be identified;
 the contract has commercial substance; and
 It is probable that the consideration to which ERC is entitled to in exchange for
the goods or services will be collected.
c. Contract Modifications
 Change in contract terms while it is ongoing.
 Companies determine
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 whether a new contract (and performance obligations) results or

 Whether it is a modification of the existing contract.
d. Prospective Modification
 Company should
 Account for effect of change in period of change as well as future periods
if change affects both.
 Not change previously reported results.
Identify Performance Obligations—Step 2
a) A performance obligation is a contract to provide a product or service to a customer.
b) This promise may be explicit, implicit or possibly based on customary business
practice.
c) ERC should assess the goods or services that have been promised to the customer
either:
 a good or service (or bundle of goods or services) that is distinct; or
 A series of distinct goods or services that are substantially the same and that have
the same pattern of transfer to the customer.
 A performance obligation to transfer goods and services is satisfied when the
goods or services are delivered to the customer and the customer thereby obtains
control over the promised goods or services.
Determining Transaction Price—Step 3
a) the transaction price is the amount of consideration in a contract to which an entity
expects to be entitled in exchange for transferring promised goods or services to a
customer.
b) The transaction price can be a fixed amount of customer consideration, but it may
sometimes include variable consideration or consideration in a form other than cash.
c) The transaction price is also adjusted for the effects of the time value of money if the
contract includes a significant financing component and for any consideration payable
to the customer.
136
d) If the consideration is variable, ERC estimates the amount of consideration to which it

will be entitled in exchange for the promised goods or services. The estimated amount
of variable consideration will be included in the transaction price only to the extent that
it is highly probable that a significant reversal in the amount of cumulative revenue
recognized will not occur when the uncertainty associated with the variable
consideration is subsequently resolved.
Allocating Transaction Price to separate performance obligations —Step 4
a) Where a contract has multiple performance obligations, ERC will allocate the
transaction price to the performance obligations in the contract by reference to their
relative standalone selling prices.
b) If a standalone selling price is not directly observable, ERC will need to estimate it by
various methods including:

Recognize Revenue when ERC Satisfies a Performance Obligation—Step 5
a) ERC recognizes revenue when (or as) it satisfies a performance obligation by
transferring a promised good or service to a customer (which is when the customer
obtains control of that good or service).
b) The amount of revenue recognized is the amount allocated to the satisfied
performance obligation.
137
c) A performance obligation may be satisfied at a point in time (typically for promises to

transfer goods to a customer) or over time (typically for promises to transfer services
to a customer).
d) For performance obligations satisfied over time, an entity recognizes revenue over
time by selecting an appropriate method for measuring the entity’s progress towards
complete satisfaction of that performance obligation.
17.5.3. Revenue from Grant
Grant related revenue shall be handled per government grants and assistance policy.
17.5.4. Other Revenue and Gains
a) Other revenue and gains are recognized in the period in which they are earned.
b) Other revenue, which include, but are not limited to:
(i) Consultancy revenue earned from third parties.
(ii) Gains resulting from transactions involving currencies and restatement of
foreign currency denominated assets and liabilities at year-end or at reporting date.
(iii) Other miscellaneous revenue including any other items not specifically covered
above.
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17.5.5. Measurement of revenue
a) Revenue should be measured at the fair value of the consideration received or re-
ceivable.
b) An exchange for goods or services of a similar nature and value is not regarded as a
transaction that generates revenue. However, exchanges for dissimilar items are
regarded as generating revenue.
c) If the inflow of cash or cash equivalents is deferred, the fair value of the considera-
tion receivable is less than the nominal amount of cash and cash equivalents to be
received, and discounting is appropriate.
a) Presentation
 Contracts with customers will be presented in an entity’s statement of financial
position as
 a contract liability,
 A contract asset, or a receivable, depending on the relationship between the
entity’s performance and the customer’s payment.
 Any difference between the initial recognition of a receivable and the corresponding
amount of revenue recognized should also be presented as an expense, for example,
an impairment loss.
b) ERC should disclose: qualitative and quantitative information about the following:
• Contracts with customers.
• Significant judgments.
• Assets recognized from costs incurred to fulfill a contract.
• Reconciliation of contract balances.
• Remaining performance obligations.
• Cost to obtain or fulfill contracts.
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17.5.7. Other qualitative disclosures.
a) accounting policy for recognizing revenue

b) The amount of each significant category of revenue recognized during the period
including revenue arising from:
- The rendering of services;
- The sale of goods;
- Interest
- Dividends and
- Other revenue.
c) Total other revenue and gains are reported as a single line item in the Statement of
Comprehensive income.
d) Other revenue and gains, if material, should be disclosed in the Notes to Financial
17.5.8. Internal controls
a) Sales should be made against issuance of controlled manual or electronic

documents as appropriate.
b) Sales amounts are kept safe and corresponding deposits are made on a daily basis
with banks and are properly controlled.
c) a pre-numbered and sequential cash receipt voucher shall be issued to the
customer;
d) All cash collections during the day shall be deposited at bank on the same day.
Regularly a comparison should be made by comparing the daily cash receipt
vouchers with the daily banking deposit slips. Any discrepancy shall be
investigated and explanations should be obtained for any discrepancies between
the two records;
e) Collections that are made after the bank working hours shall be deposited at bank
on the following working day;
f) No disbursement shall be made from cash sales ;
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Finance & Investment division, Transport division and strategy & business
Development Division,
Finance & Investment division is principally responsible for this Procedure.
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18. Expenditure Procedure
18.1. Purpose
The purpose of this Procedure is to establish guidelines for accounting treatment and
control of Expenditure.

01-Jul-2017 00 new Whole
18.3. Definitions
Expenditure is Payment of cash or cash-equivalent for goods or services, or a charge

against available funds in settlement of an obligation as evidenced by an invoice,
receipt, voucher, or other such document.
A capital expenditure is an amount spent to acquire or improve a long-term asset such
as equipment or buildings. Usually the cost is recorded in an account classified
as Property, Plant and Equipment. The cost (except for the cost of land) will then be
charged to depreciation expense over the useful life of the asset.
Expenses are outflows or other activities using up assets or incurrence of liabilities (or a
combination of both) from delivering goods, rendering services, or carrying out other
activities that constitute the organization’s on-going major or central activities. Expenses
are decreases in economic benefits during the accounting period in the form of outflows
or depletion of assets or incurrence of liabilities that result in decreases in net assets.
18.4. POLICY
Please refer Expenditures Policy Number _____________.
18.5. Procedure
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18.5.1. GENERAL
 An expense is recognized immediately when expenditure produces no future benefit

or when future economic benefits cease to qualify for recognition as assets in the
Statement of Financial Position.
 Expenses are recognized in the income statement when a decrease in future
economic benefit related to a decrease in an asset or an increase in a liability has
arisen that can be measured reliably.
 Expenses are recognized in the income statement on the basis of a direct association
between the costs incurred and the earning of specific items of revenue.
 When economic benefits are expected to arise over several accounting periods and
the association with revenue can only be broadly or indirectly determined, expenses
are recognized on the basis of systematic and rational allocation procedures. (e.g.
depreciation and amortization).
18.5.2. General cash disbursement procedure
 Checks or bank transfer letters shall be issued to effect cash disbursements for
amounts greater than Birr 1,000.
 Finance Director shall keep cheque register with the actual check number
sequences.
 When receiving the check books from the bank, it shall be ascertained that each
cheque book is pre-numbered, has the name of ERC, account number and the
required number of leaflets.
 The necessary precaution and control shall be made for cheque books received from
the bank and for those check books that are under use.
 Before effecting any cheque payment of bank transfer, it shall be certified that it is
supported by accurate and complete payment documents.
 A cheque shall not be prepared when there is no sufficient fund in the bank account.
 More than one cheque book shall not be used for one bank account at the same
time.
143
 ERC shall assign senior staff as principal bank signatories and others who sign only
in the absence of principal signatories and communicate the same to its banks.
 Any bank payment shall be effected by cheque or bank transfer only when signed
by at least two of the approved bank signatories.
 The payment amount shall be written in ink legibly in number and words correctly
in the cheque by closely starting from the printed letter designated to write the
amount and the check shall have the payee and payment date.
 The cheque signatory must not sign on blank check under any circumstances.
 An already prepared cheque shall be kept safely by the Main Cashier until it is
given to the payee after making the payee sign on bank payment voucher or
receiving payee’s legitimate receipt.
 Cheque shall be voided by imprinting the word “VOID” when they are spoiled
during preparation.
 Cheque issued for small purchase and for perdim advance shall be settled and
cleared within one month by presenting the necessary purchase documents.
 Once payment is effected though cheque or bank transfers, it shall be recorded in
the books of accounts immediately.
 For lost check books or cheque, the bank and other concerned bodies shall be
notified immediately to make sure that the lost check book or cheque will not be
used. Also the reason for missing cheque books or checks should be identified to
take the necessary action.
 Bank accounts must be reconciled with the balance in the cashbook monthly within
±7days as soon as the complete bank statements for any month are received from
banks.
Payable Account XX
Cash at Bank XX
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18.5.3. Bank Reconciliation
 Bank reconciliation is undertaken to agree and prove the accuracy of the bank
balance shown in an organization's bank statement, as supplied by the bank, and the
corresponding amount shown in the organization's own accounting records at a
particular point in time.
 The differences between the balance as per cash book and the balance as per the
bank statement may occur, for example, because a cheque or a list of cheques
issued by the organization has not been presented to the bank, a banking
transaction, such as a credit received, or a charge made by the bank, has not yet
been recorded in the organization's books, or either the bank or the organization
itself has made an error.
18.5.4. Handling Petty Cash Funds
 DCEO, Finance and investment Division shall be responsible for determining the
necessity and establishing petty cash funds with the appropriate amounts to
facilitate disbursements of relatively small payment transactions up to Birr 1,000
and economize the use of checks.
 All requests for Petty Cash Funds shall be addressed to the DCEO, Finance and
investment Division contain the approval of the Department Head concerned. The
request shall include:-
 a) Reason for establishing the Fund;
 b) Anticipated volume (amount) of activity;
 c) Name and position of person to whom fund will be entrusted.
 The amount of petty cash fund may be increased or decreased by the DCEO,
Finance and investment Division after reviewing the rationale for making such
changes.
145
 There shall be designated petty cash custodians to whom petty cash checks are
issued and who are responsible for keeping the funds in locked boxes or safe
drawers and handling petty cash payments.
 The petty cash fund shall be operated on the “Imprest” system and there shall be
surprise checks by internal audit staff at reasonable intervals to ascertain
compliance with procedures.
 A serially numbered Petty Cash Payment Voucher (PCPV) shall be used whenever
payments are to be made out of petty cash.
 All payments made out of petty cash shall be supported by certified petty cash
payment. Vouchers, expenditure receipts or documents such as original receipts and
accompany vouchers to support expenditures, except for minor items for which
receipts are not reasonably obtainable.
 Petty cash fund shall be replenished to restore its balance when the cash balance in
the safe box reaches about 10% of the fund. However, at the end of the fiscal year
the petty cash fund must be replenished regardless of the remaining balance in the
safe box in order to be in line with the matching principle.
18.5.5. Administration of Petty Cash Funds
Custodians of Petty Cash Funds are solely responsible for the safety of such fund and
must at all times secure the approval of an authorized employee when effecting
payment or producing records for investigation.
 All records of Petty cash activity shall be Company property and shall not be
considered property of the fund custodian.
 Petty Cash Funds shall not be used for personal expenses or be intermingled with
personal funds.
 Petty Cash Fund shortages, if any, must be reimbursed by the fund custodian unless
otherwise directed by the department head.
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 Any overages in Petty Cash Fund will be considered as Company fund, and under
no circumstances will the custodian be entitled to claim such overage as his/her
personal fund.
 Petty cash reports should not exceed the limit of petty cash fund established at any
point in time.
 All payments from Petty Cash Funds must be supported by official receipts or a
signed receipt from payee.
Accounting Entries for Petty cash management

1. Establishment of Petty Cash Fund
Petty Cash Fund-Custodian Name xxx
Cash at Bank xxx
2. Replenishment of Petty Cash Fund
Various Asset and/or Expense Accounts xxx
Cash at Bank-Bank Name xxx
3. Documentations and Approval
 Supporting documents for expenses or expenditure shall be valid and duly approved
by authorized persons.
 After recording/recognition completed such documents shall be filed and
maintained in proper manner in archives.
 No part of cash receipts shall be used to reimburse or in any way augment the
Corporation’s petty cash or other working funds.
 All payment must be supported by vouchers in the prescribed form and receipts
must be obtained for all cash payments at the time of payment.
 In preparation of Payment Vouchers, the following should be observed:
a) All payment vouchers must be numbered with the payment document number.
b) All payment vouchers should be filed in numerical order immediately after
payment has been made. Under no circumstances should vouchers be left
unfilled in the office.
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c) Payment vouchers should be prepared in ink, ballpoint pen or should be

printed.
d) All payment vouchers should contain full details to explain the reason for the
payment, and to show that the amount is correct and properly chargeable to the
specified heading.
e) Payment vouchers must show some reference to the authority for the
expenditure (e.g. supporting documents, minute, reference, contract number).
f) The originals of Payment Vouchers must be signed by the person preparing the
voucher, authorized in full by the responsible officer, countersigned for
payment by the Finance Manger. The signatures must be in permanent ink or
ballpoint pen.
18.5.6. Internal Control
 ERC establishes limits of authority to:

(a) Ensure ERC employees’ authority is commensurate with their respective
responsibility (i.e. to ensure balance between authority and responsibility);
(b) Properly empower employees to effectively carryout their duties and
responsibilities;
(c) Control expenditure.
 Employees are not allowed to approve expense or activity beyond which they are so
authorized.
 ERC identifies organizational units up to the smallest section level possible and
organizes them in such a way that costs incurred are properly assigned and
accumulated and budget is allocated.
 Petty cash fund is established in the form of cash for handling small and petty
payments.
 All payments for service, products and goods received have to be executed in a
three way matching system, i.e. order, service (assurance of goods or service is
received) and invoice. Payments agreed in an existing duly signed contract (i.e.
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contractual obligation) will be handled exceptionally in accordance with the terms

of the signed contract.
 As much as possible, advance payments are discouraged or the amount of any
advance payment is minimized. Payments shall not be made on the first opportunity
to protect ERC liquidity, but must not be delayed.
 Expenses are expended for the sole benefit of ERC and are properly planned,
budgeted and administered.
 Expense incurred by employees for performing ERC business is paid for or
reimbursed by ERC per the limit of authority.
All corporate finance employees and managerial employees of ERC.
Finance & investment division is primarily responsible for procedure in this section.
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19. Foreign currency exchange rates procedure
19.1. Purpose
The purpose of the effects of changes in foreign currency exchange rates procedure is to
establish guidelines for handling transactions in various currencies.

01-JUL-2017 01 Complete Whole Section
19.3. Definition
Functional currency is the currency of the primary economic environment in which the
entity operates, i.e. Ethiopian Birr in our case.
Presentation currency is the currency in which financial statements of the corporation
are presented.
Closing rate: is the spot exchange rate at the end of the reporting period.
Exchange difference: is the difference resulting from translating a given number of units
of one currency into another currency at different exchange rates.
Exchange rate: is the ratio of exchange for two currencies.
Foreign currency: is a currency other than the functional currency of the entity.
Foreign operation: is an entity that is a subsidiary, associate, joint venture or branch of a
reporting entity, the activities of which are based or conducted in a country or currency
other than those of the reporting entity.
Foreign currency transaction is a transaction that is denominated or requires settlement
in a foreign currency, including transactions arising when an entity:
i. buys or sells goods or services whose price is denominated in a foreign currency
ii. borrows or lends funds when the amounts payable or receivable are denominated
in a foreign currency, or
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iii. Otherwise acquires or disposes of assets, or incurs or settles liabilities,

denominated in a foreign currency.
Net investment in a foreign operation: is the amount of the reporting entity’s
interesting the net assets of that operation.
Spot exchange rate: is the exchange rate for immediate delivery
19.4. Policy
Please refer effects of changes in foreign currency exchange rates policy number _____.
All corporate finance employees and managerial employees of ERC
Finance & investment division is primarily responsible for polices in this section.
19.7. Procedures
19.7.1. Recognition/Recording of Foreign Currency denominated Transaction
19.7.1.1 When ERC involves in purchase of goods or services from international market
whose payment is made in foreign currency (i.e. other than Birr), the foreign
currency denominated transaction shall be converted to its birr equivalent using
the exchange rate on the date of transaction and appropriate journal entries shall
be recorded.
19.7.1.2 If the foreign transaction is related to foreign purchase of goods the value of
goods denominated in foreign currency shall be converted to Birr amount using
the exchange rate on the date of transaction and the journal entry on the date of
transactions shall be
Dr Cr
PPE (Specific account ) xxx
Foreign account payable xxx
To record foreign purchase of goods on account
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19.7.1.3 In this case the foreign payable account shall be revalued each period until
settlement is made using the closing exchange rate on the date of report. The
related foreign exchange gain or loss due to rate fluctuation shall be recognized
in Profit or loss. Such exchange gain or loss should not form the cost element of
purchased goods (except for cases explained in borrowing costs procedure).
The journal entry to be made at each of reporting period would be
a) If there is a loss on exchange rate :
Loss on foreign exchange rate fluctuation XXX
Foreign accounts payable XXX
To record loss on foreign exchange rate due to revaluation of monetary liability
b) If there is gain on exchange rate
Foreign account payable XXX
Gain on foreign exchange rate XXX
To record gain on foreign exchange
19.7.1.4 If the foreign currency transaction is related to acquisition of services, the
foreign currency denominated service value shall be converted to Birr
equivalents using the exchange rate on the date of transaction and the following
entries shall be made.
a) If the service cost qualify for capitalization as cost of asset, the journal entry
would be;
Dr Cr
Asset account xxx
Cash/foreign account payable xxx
b) If the service cost is expensed, the journal entry would be
Dr Cr
Expense account xxx
Cash /foreign account payable xxx
c) If the above transactions are on account basis, the foreign account payable
account shall be revalued each period and the balance shall be adjusted against
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gain or loss on foreign exchange. When there is a gain due to exchange rate
fluctuation, the journal entry would be:
Dr Cr
Gain on foreign currency exchange xxx
d) When there is a loss the journal entry would be:
Dr Cr
Loss on foreign currency xxx
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19.8. Foreign currency Translation
If ERC carries foreign currency denominated assets or liabilities in its balance sheet, the
foreign currency denominated assets or liabilities shall be translated to the functional
currency birr on the reporting date as per the following way;
19.8.1. Monetary assets /liabilities
19.8.1.1. Monetary assets such as cash equivalents, debt securities, accounts receivable
,notes receivable, etc. shall be translated using the closing exchange rate( exchange
rate prevail on the date of balance sheet)
19.8.1.2. Monetary Liabilities such as accounts payable, notes payable, bonds payable,
Leases payable, accruals, deferred tax (usual classification) ,etc.
Shall be translated to functional currency using the closing exchange rate
19.8.2. Non-Monetary assets/liabilities
19.8.2.1. Non-Monetary assets such as prepaid expenses; equity securities, investment
property, Property, plant, and equipment, Intangible assets (e.g. goodwill) shall be
translated in to functional currency using historical exchange rate (the rate that
prevailed on the date of initial recognition).
19.8.2.2. Similarly, non-monetary liabilities such as deferred income; government grant, etc.
shall be translated to functional currency using historical rate.
If the corporation adopts revaluation model for its assets, the foreign currency value shall
be translated using the closing exchange rate on the date of revaluation.
19.9. Recognition of Exchange gains and losses
ERC shall recognize exchange differences /gains and/or losses/ arising on the
settlement of monetary items (receivables, payables, loans, and cash in a foreign
currency) or on translating an entity's monetary items at rates different from those at
which they were translated initially in Statement of Profit or Loss in the period in
which they arise as indicated under 7.1.3
19.10. Translation of foreign operations in to the functional currency of the parent
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19.10.1In cases where ERC has foreign subsidiary or operations whose functional currency
is different from its functional currency, the foreign operation financial report shall
be translated to birr in the following manner;
a) All assets and liabilities are translated to Birr at the closing exchange rate
b) Income and expenses are translated to Birr at the rate on the date of transaction
(or average rate).
19.10.2 All resulting exchange difference shall be reported as a separate component of
equity and subsequently reclassified as Profit or loss up on the disposal of foreign
operations.
19.11. Disclosures
19.11.1The staff responsible for financial statement preparation shall disclose foreign
currency related transactions to the financial statement as per effects of changes in
foreign currency exchange rates.
19.11.2The minimum disclosure shall include:
a) Exchange rate differences included in Profit or Loss (except for financial
instruments measured at Fair value)
Other comprehensive income in accounting policy note discloses that Profit or Loss
items are translated at rate at transaction dates.
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20. Budget PROCEDURE
20.1. Purpose
Therefore, the procedures in this Section are designed to govern and guide the budgeting
process, budget revision, budgetary control and monitoring of performance.

01-JUL-2017 00 new whole
20.3. Definitions
 Budget: A budget is a detailed financial plan that quantifies future expectations and
actions relative to acquiring and using resources.
 Budgeting: Budgeting is a process of preparing financial plan that quantifies future
expectations and actions relative to acquiring and using resources.
 Cash Flow/Cash Budget: The cash budget provides the necessary tool to anticipate
cash receipts and disbursements, along with planned borrowings and repayments.
 Comprehensive budget (master budget): Comprehensive budget (master budget ) is
the aggregation of all lower-level budgets produced by a company's various functional
areas, and also includes budgeted statement of profit and loss, budgeted financial
position a cash flow projection, and a financing plan.
 Capital expenditure budget: Capital expenditure budget presents the estimate of
funds to be used to acquire, construct, or upgrade physical assets such as property,
office equipment, office furniture, buildings, machinery and equipment, etc.
 General & Administration Budget: The general and administrative expense budget
focuses on operating expenses like administrative salaries, depreciation, and office
expenses.
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 Budget Code - is logical grouping of expenses used for proper management of

budgets and corresponding expenses.
 Operating Budget Comparison - is defined as the difference between the original
operating expense budget approved and the actual expense incurred for a given period
of time. It is a tool of budgetary control through evaluation of performance by means
of variances between budgeted amount, planned amount or standard amount and the
actual amount incurred or expended.
20.4. Objectives
The major objectives of budgeting

 To ensure that the annual budgeting process is performed timely and supports ERC’s
operational planning and financial objectives (clarity on financial goals, alignment of
targets to vision and mission, and performance measurement) and processes.
 To integrate and coordinate the activities of the various functional areas within the
corporation.
 To ensure that actual versus budget variance is monitored and that significant variances
are explained and reported.
 To make sure that expenditures made are in line with performance objectives.
 To ensure that budgets are reviewed and revised periodically for relevance.
 To control the activities of various divisions, departments and branches within ERC
The following should be taken into consideration when developing and implementing
budgets.
a. Budget must support the important priorities outlined in the operational and
investment plan and each cost center of the corporation is required to submit a budget
request including a brief narrative of budget highlights.
b. Budgets must streamline workflows, implementation of projects, and other operations
in order to minimize budget overrun and the need to revise budgets
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c. Transfer and use from capital expenditure budget to operating budget is forbidden.
However, particular capital expenditure budget item can be transferred to another
capital expenditure budget item upon approval by ERC’s BOD.
d. It is possible to transfer and use operating budget from one operating budget item to
another where there is a deficiency provided that the transfer follow the reallocation
and transfer policies and procedures.
e. Budget performance shall be monitored on a regular basis, as stated in the budget
monitoring and evaluation procedures
158
20.5. Budget Preparation
 The preparation of the budget shall be based on thorough analysis that includes a clear
identification of the budget’s purpose to the mission, goals and objectives of the
corporation in general and to the departments /services, project offices, strategic
business units and Special Services (Costs) centers in particular.
 A comprehensive assessment of cost centers financial needs is required in order to
fulfill its goals or to revise a plan to increase resources or modify goals and objectives,
if current resources fall short of meeting a unit’s needs.
 Budget preparation shall be based on the plan of action at each level of operation.
 The budget technique used by the corporation shall be both zero based budgeting and
incremental budgeting. Zero based budgeting shall be applied at the interval of every
three years where as incremental budgeting is used for the remaining.
20.6. Budget process
 The budget process is the way an organization goes about building its budget.
 A good budgeting process engages those who are responsible for adhering to the budget
and implementing the organization's objectives in creating the budget.
 All staff should be participating on the process and adequate time should be given for
review, feedback, revisions, etc. before the budget is ready for presentation to the full
board.
 The annual budgeting process should be documented, with tasks, responsibility
assignments and deadlines clearly stated.
 A good budgeting process also incorporates strategic planning initiatives and stipulates
that income is budgeted before expenses.
 Fixed costs are identified and related to reliable revenue.
 Budgeting decisions are driven both by mission priorities and fiscal accountability.
159
Provide
Collect & Assemble
departmental
Draft Budget and
budget worksheets
Narrative from
to department
each departments
heads.
Compare Budget
with Actual & make Send draft budget
corrective action and narrative to
budget committee
members
Budget Committee
Board approves review & make
budget feedback on draft
budget
Circulate proposed Revise budget per

budget with direction of budget
narrative to all Committee.
board members
20.7. Budget Period and Calendar
ERC’s budget period shall run from Hamle 1 to Sene 30.
20.8. Budget Committee
 The corporation shall form a budget committee that reviews and give comments on the
budgets prepared by each working unit and pass to the management committee.
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 The Budget Committee shall have 5 to 6 members and to be appointed by the General
Manager or its delegates.
20.9. Revenue Budget
 Revenue budget shall be prepared by strategic business units and special service (cost)
centers based on the traffic estimation for each type of railways services.
 The revenue budget shall be spitted by location and by type of railways services. Other
revenues shall be budgeted based on past trends and future forecasts.
20.10. Budget Holder
 The overall responsibility to administer the corporation’s budget lies with the general
manager, department/service heads, project offices managers, strategic business units,
special service (cost) centers and division heads.
 General Manager, department/service heads, project offices managers, strategic
business units, special service (cost) centers and division heads are the budget holders
for the approved budget at their level of authority. It is their duty to follow up the
budget allotted to their respective offices and give periodic performance report.
20.11. Budget Transfer and Alteration
 Operational budget transfer from one budget line to another budget line or from one
budget code to another budget code shall be made up on approval by the CEO.
 Capital budget can be transferred or altered with the prior approval of the CEO of the
corporation.
 The total budget figure shall not be altered unless unforeseen circumstances compel
and the revision is approved by the general manager of the corporation.
 Capital budget lines and figures shall be altered after evaluating the financial
consequences to ensure that anticipated benefits are greater than costs.
20.12. Budgetary Performance Evaluation and Monitoring
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 Each budget holder shall be responsible for ensuring that all expenditures are within
the approved budget.
 Budget holders at each level of activities are responsible for monitoring their budget
utilization, prepare and get reports every month.
 Actual financial results shall be compared to the budget on a quarterly basis.
 When actual financial results vary significantly from budgeted amounts,
department/service heads, project offices managers, strategic business units, special
service (cost) centers and division heads and managers in the respective operating
units must determine the cause, evaluate the activity, and take corrective actions on
time.
 Department/service heads, project offices managers, strategic business units, special
service (cost) centers and division heads and managers in the respective operating
units are expected to operate within their budget. Where comparisons with actual
results disclose that expenditures exceed budget, justifications for such excess must be
provided by each budget holder. A formal plan shall also be developed to eliminate
deficits generated.
 Each budget holder shall only submit supplementary budget request, if there are
unforeseen circumstances that necessitate additional budget. The request shall be
submitted to the CEO with justification.
 All budget expenditures must comply with all relevant policies, (procurement policy,
human resource policy etc.) rules and regulations in operation within the corporation.
 Quarterly budget utilization reports shall be submitted to the corporation finance
service and planning and project development department. The report should reach not
later than the 5th day of the 1st month of the following quarter.
 The finance service and planning and project development department should review
and consolidate the quarterly budget utilization report and pass the same to the
management committee together with their comments.
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All corporate finance employees and managerial employees of ERC.
Finance & investment division and business development & strategic division are
primarily responsible for procedure in this section. Finance director, Investment and
project financing director, Branch Accounts Department Director, Branch Finance
directors and Team leaders under department directors that are located at Corporate
Level & Branch Level are also responsible for the procedures in this Section.
163
21. Events after the reporting period procedure
21.1. Purpose
The purpose of the events after the reporting period procedure is to establish guidelines
for handling events came to attention between balance sheet date and issuance of audited
Financial Statement of the Corporation.

21.3. Definition
 Events after the reporting period are those events, favorable and
Unfavorable, that occur between the end of the reporting period and the date when the
financial statements are authorized for issue.
 Adjusting event: An event after the reporting period that provides further evidence of
conditions that existed at the end of the reporting period, including an event that
indicates that the going concern assumption in relation to the whole or part of the en-
terprise is not appropriate.
 Non-adjusting event: An event after the reporting period that is indicative of a
condition that arose after the end of the reporting period.
21.4. Policy
Please refer events after the reporting period date policy number ____.
Finance & Investment division, Transport division and strategy & business
Development Division,
Finance & Investment division is principally responsible Transport division and
strategy & business Development Divisions are also responsible for this Policy.
21.7. Procedures
164
21.7.1. Recognition / Measurement
165
21.7.1.1 Adjusting event after the reporting period

I. Before issuing financial statement for publications, the management shall assess
events after the reporting period and makes necessary adjustments to the amount
recognized in the financial statement if the event qualifies for
recognition/adjustments.
II. Adjusting event after the reporting period may include :
a) The settlement after the reporting period of a court case that confirms that the
Corporation had a present obligation at the end of the reporting period. The
Corporation adjusts any previously recognized provision related to this court
case in accordance with policy on Provisions, Contingencies.
b) The receipt of information after the reporting period indicating that an asset
was impaired at the end of the reporting period, or that the amount of a
previously recognized impairment loss for that asset needs to be adjusted.
c) The determination after the reporting period of the cost of assets purchased, or
the proceeds from assets sold, before the end of the reporting period.
d) The determination after the reporting period of the amount of profit-sharing or
bonus payments, if the Corporation had a present legal or constructive
obligation at the end of the reporting period to make such payments as a result
of events before that date (see IAS 19 Employee Benefits).
e) The discovery of fraud or errors that show that the financial statements are
incorrect.
f) Amounts received or paid in respect of legal or insurance claims which were
in negotiation at the year end.
g) Sale of inventory after the reporting period for less than its carrying value at
the year end.
h) Insolvency of a customer with a balance owing at the year end.
166
III. Thus, when the management is aware of the above incidents or facts are present
as of the reporting date, it shall recognize/make necessary adjustment to the
financial statements
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21.7.1.2 Non adjusting event after the reporting period

IV. Sometimes events may happen after the balance sheet date but do not affect the
fact presented on the date of financial statements. In these circumstances
adjustment to recognized amount is not necessary.
V. The following can be considered as non-adjusting event after the reporting
period:
a) a major business combination after the reporting period (IFRS 3 Business
Combinations requires specific disclosures in such cases) or disposing of a
major subsidiary;
b) announcing a plan to discontinue an operation;
c) major purchases of assets, classification of assets as held for sale in
accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued
Operations, other disposals of assets, or expropriation of major assets by
government;
d) the destruction of a major production plant by a fire after the reporting
period;
e) announcing, or commencing the implementation of, a major restructuring;
f) abnormally large changes after the reporting period in asset prices or foreign
exchange rates;
g) changes in tax rates or tax laws enacted or announced after the reporting
period that have a significant effect on current and deferred tax assets and
liabilities (see IAS 12 Income Taxes);
h) entering into significant commitments or contingent liabilities, for example,
by issuing significant guarantees; and
i) Commencing major litigation arising solely out of events that occurred after
the reporting period.
j) Share transactions after the reporting period.
168
VI. If non-adjusting events after the reporting period are material, non-disclosure
could influence the economic decisions that users make on the basis of the
financial statements. Accordingly, ERC shall disclose the following for each
material category of non-adjusting event after the reporting period:
k) The nature of the event; and
l) An estimate of its financial effect or a statement that such an estimate cannot
be made.
For example if the value of an investment falls between the ends of the reporting period
and the date of the financial statements are authorized for issue. The fall in value
represents circumstances during the current period, not conditions existing at the end of
the previous reporting period, so it is not appropriate to adjust the value of the
investment in the financial statements.
169
22. Cash Flow procedure
22.1. Purpose
Purpose of the Cash Flow procedure is to establish guidelines for preparation of

Statement of Cash Flows.

22.3. Definitions
 Cash Flow Statement is a summary of the actual or anticipated incomings and out
goings of cash in a firm over an accounting period (month, quarter and/or year).
 Cash comprises cash on hand and demand deposits.
 Cash equivalents are short-term, highly liquid investments that are readily convertible
to known amounts of cash and which are subject to an insignificant risk of changes in
value.
 Cash flows are inflows and outflows of cash and cash equivalents.
 Operating activities are the principal revenue-producing activities of the entity and
other activities that are not investing or financing activities.
 Investing activities are the acquisition and disposal of long-term assets and other
investments not included in cash equivalents.
 Financing activities are activities that result in changes in the size and composition of
the contributed equity and borrowings of the corporation.
 Cash and cash equivalents includes: currency, coins, checks received but not yet
deposited, checking accounts, petty cash, savings accounts, and short-term, highly
liquid investments with a maturity of three months or less at the time of purchase such
as Ethiopian treasury bills.
22.4. Policy
Please refer Statement of Cash Flows Policy Number _____________.
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All Divisions and services of Ethiopian Railways Corporation.
The CEO, DCEO Finance & Investment Division and all directors under him are
primarily responsible for procedures in this section
22.7. Procedures
22.7.1. Preparation
 Toprovide users with a mechanism for assessing the ability of the corporation to
generate cash and cash equivalents and the needs of the corporation to utilise
those cash flows, ERC should prepare a statement of cash flows as an integral
part of its financial statements.
 The cash flow statement shall contain the following headings:
a) Cash flow from operating activities
b) Cash flow from investing activities
c) Cash flow from financing activities
21.7.1.3 Cash flow from operating activities
 Cash flow from operating activities represents the principal revenue-producing
activities and other activities that are not investing or financing activities.
Operating cash flows generally result from the transactions and other events that
enter into the determination of profit or loss. These transactions include:
a) Cash receipts from the sale of goods & services;
b) Cash receipts from royalties, fees, commissions and other revenue;
c) Cash payments to suppliers for goods and services;
d) Cash payments for expenses ;
 Changes in working capital
 The overall increase or decrease, in working capital is the excess of the total
sources of funds over the application of funds or vice versa.
171
 The changes in working capital will be reflected by the difference between the
opening and closing balances of each current asset and current liability
classification.
 In the case of stock and debtors, this is the difference between the opening and
closing balance, net of provision
21.7.1.4 Cash flow from investing activities
Investing activities include acquisition and disposal of long-term assets and other
investments not included in cash equivalents. These include:
a) Cash payments to acquire property, plant and equipment, intangibles and other
non-current assets,
b) Cash receipts from sales of property, plant and equipment, intangibles and other
non-current assets.
c) Cash payments to acquire shares or debentures of other entities.
d) Cash receipts from sales of shares or debentures of other entities.
21.7.1.5 Cash flow from financing activities
 Cash flow from financing activities is those that result in changes in the size and
composition of the equity capital and borrowings. These include:
a) Cash proceeds from issuing debentures, loans, notes, bonds, mortgages and
other short or long-term borrowings.
b) Principal repayments of amounts borrowed under finance leases.
 In cash flow preparation, cash flows from interest and dividends received and paid
should each be disclosed separately according to their categories; operating,
investing or financing.
 The responsible staff in charge of preparing cash flow shall analyze the balance sheet
and profit or loss statement and other comprehensive income to draw cash flow
statement for management as well as external users.
 Historical cash flow statements may be prepared as per the frequency of report
required by management. However, cash flow statement shall form annual financial
report of the corporation.
172
 Projected cash flow shall be also prepared and used by ERC for budget & project
evaluation purposes.
22.8. Presentation and Disclosure
22.8.1. Presentation
 Cash flow can be presented in direct method or indirect method.
 ERC shall use the indirect method of cash flow preparation as follows.
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Ethiopian Railways Corporation

Statement of Cash flows
Year Ended July 7, 2017
$m $m
Cash flows from Operating Activities
Profit before taxation xx
Adjustments for:
Depreciation xx
Investment income (xx)
Interest Expense xx
XX
Increase in trade & Other Receivables (xx)
Decrease in inventories xx
Decrease in trade payables (xx)
Cash generated from operations xx
Interest paid (xx)
Income taxes Paid (xx)
Net cash from operating activities XX
Cash flow from investing activities
Purchase of PPE (xx)
Proceeds from sale of equipment xx
Interest received xx
Dividends received xx
Net cash used in investing activities (xx)
Cash flow from financing activities
Proceeds from issue of share Capital xx
Proceeds from long term borrowings xx
Dividends paid (xx)
Net cash used in financing activities (xx)
174
Net increase in cash & cash equivalents xx

Cash and cash equivalents at beginning of period xx
Cash and cash equivalents at the end of period xx
Note that the following items are treated in a way that might seem confusing, but the treatment is
logical when thought in terms of cash.
(a) Increase in inventory is treated as negative (in brackets). This is because it represents a cash
outflow; cash is being spent on inventory.
(b) An increase in receivables would be treated as negative for the same reasons; more
receivable means less cash.
(c) By contrast an increase in payables is positive because cash is being retained and not used to
settle account payable. There is therefore more of it.
22.9. Disclosure
ERC shall make the disclosures as per the requirement of the policy on Statement of Cash
flows
175

ERC IFRS Procedures First Draft

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ERC IFRS Procedures First Draft

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Ethiopian Railways Corporation (ERC)

IFRS Based Financial Procedures Manual

Ref.No:ERC_FID_FPM_IFRS_01 Version No: 01 Page 1 of 175

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2.5. Definitions .......................................................................................................................................23

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5.1. Purpose ............................................................................................................................................46

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11.2. Revision History .........................................................................................................................80

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12.7.12. Subsequent measurement ...................................................................................................100

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15.7.4. De-recognition of financial Assets/liabilities .........................................................................127

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18.5.2. General cash disbursement procedure ....................................................................................143

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20.14. Responsibilities .........................................................................................................................163

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The Accounting procedure manual of Ethiopian Railway Corporation is published by its

A. Objectives of the Accounting procedure manual

B. Access to This procedure manual Document

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D. 1.4 Amendments to This procedure manual Document

E. Procedures to Amend This procedure Document

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F. Approval of the procedure Document

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 Recognition is the process of incorporating in the financial position or the statement of

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1. Property, plant and Equipment procedure

1.2. Revision History

Date Rev No. Change Reference Section

1.3. Persons Affected

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1.6. Recognition and measurement

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Task Location Role Task description

1.7. Subsequent Recognition of PPE

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6.2.4 Expenditures incurred subsequent to initial recognition shall be capitalized if at least

Task Location Role Task description

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1.8. Impairment of PPE

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DR. Impairment losses XXX

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Recoverable amount 122,072

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1.9. Depreciation on PPE

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viii. Plant and machinery, 15% per year

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DR. Depr. expense – PPE A xxxx

1.10. PPE Transfer Process and Procedures

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Task Location Role Task description

1.11. Internal control over PPE

Ref.No:ERC_FID_FPM_IFRS_01 Version No: 01 Page 19 of 175

1.14. Property Log/Register

1.15. Property Tag Number