Based on the actual circumstances, this mini case illustrates an issue faced by the government operated utilities.

The city electric utility, which a city accounts for its enterprise phones, provides cash rebates to customers who install insulation, storm windows, or energy saving appliances. The payments are intended to reduce the demand for the true city and thereby enabling the CEU to avoid having to add Generating capacity.

Like many governments operated utilities, the see CEU establishes rates based on a number of factors, of which cost is only one. It is the policy of the city, for example, to make substantial transfers each year from the CEU to its general fund. Utility fees or hereby a form of taxation, and the revenue requirements of the general fund are taken into account in setting the rates.

The CEU comptroller has risen the question of whether the rebate should be charged as an expense has paid or be capitalized and charged as an expense over time (I.e. be amortized). Moreover, he then asked what the bases should be for eternity the length of the amortization period.

Write a brief memo in which you recommend to the CEU comptroller how the rebate should be accounted for. Be sure to support your position.