Question

Illinois Power&Heat just spent $5 million repairing one of its electrical generating stations that was damaged by a tornado. The loss was uninsured. Management has asked the public service commission for approval to treat the $5 million as an asset for rate-making purposes rather than as an allowed expense.

Required: What difference will this make to customers and shareholders?

As part of the answer, explain what “RAP” is, and how/why it might be different from GAAP.

Answer 1

Answer:

1. Rate regulation is the regulation set up by regulatory on utilities service regarding rate to be charge to its customers for utility service provided. The rate regulation include number of rules based on which rate is calculated and if any company does not follow this rate regulation rules then they could be penalized by regulatory organization.

2. Illinois Power & Heat just spent $5 Million repairing one of its electrical generating stations that was damaged by a tornado. The loss was uninsured. Management has asked the public service commission for approval to treat the $5 million as an asset for rate making purposes rather than as an allowed expenses.

3. The uninsured loss can not be considered as allowable expenses.

4. When it comes to investing in a corporation, there are shareholders and stakeholders. While they have similar-sounding names, their investment in a company is quite different.

5. Shareholders are always stakeholders in a corporation, but stakeholders are not always shareholders. A shareholder owns part of a public company through shares of stock, while a stakeholder has an interest in the performance of a company for reasons other than stock performance or appreciation. These reasons often mean that the stakeholder has a greater need for the company to succeed over a longer term.

RAP & GAAP:

The financial crisis facing the united states savings and loan industry has been steadily escalating over the last decade. During this time, accounting traetments concerning various thrift institution transactions have also attached a great deal of attention. The specialized accounting treatments used in the thrift industry, known as Regulatory accounting Practices (RAP) have been blamed as one of the culprits hindering the regulatorys ability to detect serious financial problems with many institutions. Accordingly, RAP was phased out, and all federally insured savings and loan associations began preparing their financial statements in accordance with Generally accepted accounting principles (GAAP). The purpose of this dissertations is to compare the relative predictive values of the two historical cost based accounting conventions (RAP and GAAP) available to savings and loan industry. for the purpose of this dissertation, predictive value is defined as the usfulness in assessing future financila health and viability.