Page 122 - IRSEM_Main Book

Para No. 5.1.2(d) Annexure: 5-A2

Test of Remunerativeness
(Extract of Indian Railways Financial Code, Volume I)

204. Test of Remunerativeness: The net financial gain expected to accrue from a project
may be either by way of savings in expenditure or increase in the net earnings (i. e., gross
earnings less working expenses), or a combination of both. Except in the case of residential
buildings, assisted sidings and rolling stock to which special rules are applicable no proposal
for fresh investment will be considered as financially justified unless it can be shown that the
net gain expected to be realised as a result of the proposed outlay would, after meeting the
working expenses (see Para 217), yield a return of not less than 10 per cent on the initial
estimated cost.

Note: (1) Interest during construction should be added to the cost (excluding that chargeable
to Revenue) of the projects, the construction of which is likely to last for more than
one year.

(2) Depreciation should be calculated on the total cost of the scheme and not only on
the portion chargeable to Capital, unless the contrary procedure can be justified in
any particular case. However, depreciation as an element of working expense is to
be ignored for assessing annual cash flows under the B. C. F. method (See Para 228).

(3) In the case of construction of bridges, maintenance charges should include, besides
the maintenance charges on the bridges proper, the maintenance charges of the
training works also.

Chapter 5: Planning, Estimating & Survey Page 94 of 535