larsen & toubro
Post on 27-Oct-2014
453 Views
Preview:
TRANSCRIPT
PROJECT REPORT
ON
" STUDY OF THE PRINCIPLES AND PROCEDURES
FOLLOWED IN
FINANCIAL ACCOUNTS DEPARTMENT "
AT
LARSEN & TOUBRO LIMITED( MACHINERY & INDUSTRIAL PRODUCTS DIVISION )
KANSBAHAL WORKS
For the Partial fulfilment of the degree of
Master of Business Administration ( M.B.A ) (2009-11)
FACULTY GUIDE:
Prof. Nituj Gupta
PROJECT GUIDE:
Mr. Pitabash Roy
SUBMITTED BY:
Natraj Agrawal.
Sec.: A
Roll No.: 9202001
KIIT SCHOOL OF MANAGEMENT, BHUBANESWAR
ACKNOWLEDGEMENT
To undertake such an important project and to accomplish it, one
needs quite a lot of guidance and support. The time, which I spent in L&T,
Kansbahal, during training, was a wonderful experience in itself and it is a
great pleasure and honour for me to take this opportunity to thank all
those who have helped and provided able guidance all along the project.
I would like to thank MR.V.N. Shrivastava (GM, Finance) for providing
me with an opportunity of carrying out my summer training at this
esteemed organization.
I would like to express my deep sense of gratitude to Mr. P. Roy
(Manager, Finance) whose support and guidance helped me in converting
my conception into visualization and also for the continuous guidance
throughout the project. I would also like to thank Mr. S.S. Sahoo and Mr.
Prashant Patra, who helped me in making me understand about all the
concepts of taxation and their application in the organisation. And also my
deepest sense of gratitude goes to Mr. R. K. Mishra, Mr. Amit Parashar and
Mr. T. N. Biswal. Without their co-operation it would have been difficult for
me to complete the project.
I would like to thank my Faculty guide Prof. Amiya Sahu for his
guidance and co-operation. I would also like to express my deep gratitude
to my parents for providing me with necessary facilities and guidance.
Lastly, I would like to express my gratitude towards our prestigious
institute KIIT School Of Management ( KSOM ), KIIT University,
Bhubaneswar for providing me with this lifetime opportunity.
Natraj Agrawal.
Roll No.: 9202001
KIIT SCHOOL OF MANAGEMENT, BHUBANESWAR
DECLARATION
I Swarup Samal, Student of MBA (2009-11) of KIIT School of
Management, KIIT University, Bhubaneswar do hereby declare that the
Summer Internship project report entitled “STUDY OF THE PRINCIPLES
AND PROCEDURES FOLLOWED IN FINANCIAL ACCOUNTS
DEPARTMENT, at Larsen & Toubro Ltd., Kansbahal” is a true and
original work done by me. It is not duplicated from anywhere else. This
Project Report is my own and is not submitted to any other institution or is
not being published anywhere. This is going to be used for academic
purpose only.
This is being submitted in partial fulfilment of the requirement for
the award of “Master of Business Administration (MBA)”.
Place:
Date:
Swarup Samal
Roll No.:
9202001
KIIT SCHOOL OF MANAGEMENT, BHUBANESWAR
PROJECT OBJECTIVES
To make a thorough study of the accounting principles, procedures
involved and the process of documentation by the various sections in
financial accounts dept. of Larsen and Toubro Limited., Kansbahal works.
The following are the main objectives of the study:
a) To check the feasibility of the project i.e., Calculation of Net present
value and Payback period.
b) Analyse the capital budgeting process.
c) Taxation and their application.
d) Analysis of Working Capital Management
e) Analysis of Operating and Cash cycle
f) Ratio analysis of the different components of working capital
KIIT SCHOOL OF MANAGEMENT, BHUBANESWAR
METHODOLOGY
This Project Report is prepared at L&T, Kansbahal Works with the
help of Data collected from various sources:
I. Collection of data from the people of Finance department and Store
department by discussion.
II. Collection of data from the system maintained by L&T, Kansbahal
Works. i.e. (ERP, People Soft)
III. Collection of data from the Annual Accounts and Annual Report from
2006 to 2010.
IV. Collection of data from the PMS.
V. Collection of data from magazines, Journals of L&T, Kansbahal.
VI. Collection of data through Internet Service.
The collected data are analyzed and prepared, with the help of the
people of Finance Department.
KIIT SCHOOL OF MANAGEMENT, BHUBANESWAR
LARSEN & TOUBRO Ltd.
( COMPANY PROFILE )
KIIT SCHOOL OF MANAGEMENT, BHUBANESWAR
INTRODUCTION TO THE COMPANY
Larsen & Toubro Limited (L&T) is India's largest engineering and
construction conglomerate with additional interests in electrical,
electronics and IT. A strong customer-focus approach and constant quest
for top-class quality have enabled L&T to attain and sustain leadership
over 7 decades.
L&T's international presence is on the rise, with a global spread of
over 30 offices and joint ventures with world leaders. Its large technology
base and pool of experienced personnel enable it to offer integrated
services in world markets. Joint ventures with world leaders have
enhanced its presence. Its large technology base and a pool of
professionally qualified and experienced personnel enable it to offer
integrated services in world market. It is possible for them to remain as
leaders in the business world due to their regular transformation of
resources with changing trends in the business environment. L&T believes
that progress must necessarily be achieved in harmony with the society.
This is evident from the total commitment of L&T in the form of excellent
Corporate Social Responsibility programs (CSR) going on in various parts of
the country.
L&T has integrated its strengths in basic and detailed engineering,
process technology, project management, procurement, fabrication and
erection, construction and commissioning, to offer single point
responsibility under stringent delivery schedules. Strategic alliances with
world leaders enable L&T to access technical know-how and execute
process intensive, large scale turnkey projects to maintain its leadership
position.
L&T enjoys a brand image in India and several countries offshore.
With factories and offices located all over the country and abroad, L&T
KIIT SCHOOL OF MANAGEMENT, BHUBANESWAR
operations are supplemented by a comprehensive distribution network and
nationwide ramifications for customer service and delight!
THE BEGINNING:
Henning Holck Larsen and Soren Kristen Toubro, both Danish
nationals, came to India in 1934, as employees of FL Smidth, Denmark, to
provide engineering services to cement plants in India. During their stay
they became fond of India and its culture. They realized the growing
business potential in this country and laid the foundation of their
partnership firm in the year 1938, christened as Larsen & Toubro.
In the early years, they represented Danish manufacturers of diary
equipment for a modest retainer. But with the start of the Second World
War in 1939, imports were restricted, compelling them to start a small
work-shop to undertake jobs and provide service facilities. Germany’s
invasion of Denmark in 1940 stopped supplies of Danish products. This
crisis forced the partners to stand on their own feet and innovate. They
started manufacturing dairy equipment indigenously. These products
proved to be a success, and L&T came to be recognized as a reliable
fabricator with high standards.
Again the sudden interment of German engineers (because of the
war) who were to put up a soda ash plant for the TATA, gave L&T a chance
to enter the field of installation – an area where their capability became
well respected.
The company had its humble beginning in a tiny room in South
Mumbai near to the corporate headquarters. With time the company took
huge achievement strides and the marshy land in South Mumbai was
transformed to a sprawling enterprise spread over 99 acres, employing
more than 24,000 people and catering to the engineering needs of the
world with a diverse product line.
KIIT SCHOOL OF MANAGEMENT, BHUBANESWAR
Today, the enterprise of the company lies in Engineering and
Construction but it is constantly leveraging its knowledge in other areas
like Information Technology.
In India, it has a visible and vibrant presence. Some of India’s most
sophisticated projects and most complex industrial equipment carry the
L&T insignia of excellence. The adventure that began so humbly surpassed
even the well established companies, the evidence of which is contained in
the following milestones:
1940's:
Engineering Construction Corporation (ECC) was incorporated.
The partners signed a dealership agreement with the Tractor
Company, Caterpillar Inc., USA - one of the largest manufacturers of
earthmoving equipment.
L&T Pvt. Ltd. came into being on February 07, 1946.
L&T acquires 55 acres of land at Powai in 1948.
1950's:
L&T became public limited company on December 1950, with a paid-
up share capital of Rs. 20 lakhs. Sales turnover being Rs. 109lakhs.
Tractor Engineers Limited (TENGL) & Caterpillar Inc., USA were
incorporated as a joint venture of L&T on September 18, 1952.
On 1956, the company moved to IC office at Ballard Estate which is
today known as L&T House, Corporate headquarters.
L&T receives a substantial order from Rourkela Steel Plant for the
erection of 3 blast furnaces and a pig casting machine.
1960's:
L&T emerges as the largest and most outstanding erection
contractor in India.
Switch gear workshop was set up.
KIIT SCHOOL OF MANAGEMENT, BHUBANESWAR
Prestigious contracts include turnkey construction of the Radiological
Laboratories for the Atomic Energy Establishment, Trombay - which
was one of the largest in Asia.
Receives a contract for the erection of an Iron ore plant for
Hindustan Steel Ltd. at Barsua, Orissa.
1970's:
Manufactures India's first indigenous Nuclear Reactor Vessel for
Rajasthan Atomic Power Plant.
Manufactures hydraulic excavators in collaboration with Poclain, S.A.,
France.
Manufactures a high speed bottling plant (Capacity: 24,000 bottles
per year) for the Delhi Milk Scheme.
Supplies and Commissions India's largest indigenous cement plant.
Fabricates and delivers motor casings for Indian Space Research
Organization (ISRO).
1980's:
Manufactures the first multi-wall vessel for ammonia separation for
Hindustan Fertiliser Corporation Limited, Namrup.
Manufactures India's 1st indigenous adjustable throat armour, at
Kansbahal, for the blast furnace at TISCO.
Receives national recognition for its path breaking achievement in
developing the tri-junction welding technique for critical parts of
nuclear reactors.
L&T secures an order from ISRO for the manufacture of rocket motor
casing made from maraging steel for the Polar Satellite Launch
Vehicle (PSLV).
Establishes itself as India's largest manufacturer of low tension
switch-gear, with the widest range.
Sets up cement plants at Awarpur.
Heavy Engineering facilities are set up in 1987 at Hazira near Surat
for the manufacture of heavy and large equipment.
KIIT SCHOOL OF MANAGEMENT, BHUBANESWAR
1990's:
Emerges as India's largest integrated engineering and Construction
Company.
Ventures into Software development.
Fabricated giant oil platforms, including India's biggest marine
structure.
Emerges as the largest producer of cement and sets up plants at
Gujarat, Madhya Pradesh and Andhra Pradesh.
Fabricates India's 1st indigenous hydrocracker reactor.
Fabricates India's largest slab caster for Bokaro Steel Plant.
Builds India's first open-sea jetty.
Today L&T is one of the India’s biggest and best known industrial
organizations with a reputation for technological excellence, high quality of
products and services, and strong customer orientation. It is also taking
steps to grow its international presence. There cannot and must not be an
end. And thus L&T saga continues.
KIIT SCHOOL OF MANAGEMENT, BHUBANESWAR
DIVISIONS
L&T businesses have been broadly grouped into six business divisions viz:
Engineering & Construction Projects (E&C)
Engineering & Construction Corporation (ECC)
Heavy Engineering Division (HED)
Electrical & Electronics Business Group (EBG)
Information Technology (IT)
Machinery & Industrial Products Division (MIPD)
I) ENGINEERING & CONSTRUCTION PROJECTS (E&C) :
Largest business segment
Serves to process technology, basic and detailed engineering, heavy
engineering and modular fabrication, procurement, logistics,
construction, erection, commissioning and project management.
Executes projects on turnkey basis.
Serves the core sectors & infrastructure of the economy, viz., oil
exploration & refinery, sulphur recovery units, diesel hydrotreaters,
hydro power, fertilizer, petrochemical, steel, cement, mining,
aerospace, nuclear power, roads, ports, bridges, telecommunication,
food and pharmaceuticals.
Landmark projects:-
i. Gas and crude distillation unit at Zirku Island in Abu Dhabi.
ii. FCC Regenerator and Combustor (world’s largest) supplied to
Reliance Refinery in India
KIIT SCHOOL OF MANAGEMENT, BHUBANESWAR
iii. The 24,000 tons Giant Gas Injection Platform at L&T’s Modular
Fabrication Facility in Hazira, Gujarat, loaded onto the barge and
ready to sail.
II) ENGINEERING & CONSTRUCTION COMPANY DIVISION
(ECC):
ECC as its Construction Division was conceived as Engineering
Construction Corporation Limited in April 1944. It has today emerged
as India’s leading construction organization.
Prized landmarks: Its exquisite buildings, tallest structures, largest
industrial projects, longest flyovers, and highest viaducts have been
built by ECC. The famous Lotus Temple is built by ECC.
III) HEAVY ENGINEERING DIVISION (HED):
Activities are organized under self-reliant Strategic Business Units
(SBUs).
Cater to the needs of core sector industries.
Supplies equipment to Process Plant Industries and Defence, Nuclear
Power & Aerospace Sectors.
Its pioneer in the field of technology development, equipment
manufacture and site / plant services. It has achieved the prestigious
‘INS Industrial Excellence Award’ for outstanding contribution in the
nuclear sector.
L&T also has had a long and close association with the Indian Space
Research Organization. It developed the Naval Multi- Barrel Rocket
Launcher.
IV) ELECTRICAL & ELECTRONICS BUSINESS GROUP (EBG):-
It’s engaged in the business of low voltage Switchgear products,
Electrical Systems, Energy meters, Medical equipments, Petroleum
dispensing pumps, Automation solutions and Enterprise networking.
KIIT SCHOOL OF MANAGEMENT, BHUBANESWAR
Largest manufacturer of low voltage switchgear and control gear in
India.
EBG products cater to the needs of diverse customers comprising
farmers, urban households and commercial buildings.
Its products are required in health-care equipments as advanced
protection, control and automation in a number of industries.
V) INFORMATION TECHNOLOGY:
L&T InfoTech Limited provides comprehensive, end-to-end software
solutions to clients all over the world.
It focuses on: Manufacturing, Banking, Securities & Insurance,
Utilities and Communications, Embedded systems.
The services provided are package implementation and support,
Application development and Maintenance, Application testing,
Enterprise application engineering, Data Warehousing and Business
Intelligence, Infrastructure Management services, Strategy
Consulting, Value Added services.
VI) MACHINERY & INDUSTRIAL PRODUCTS DIVISION (MIPD):
Caters to the needs of the industrial machinery, construction
equipments and industrial products business segments.
It enjoys market leading capabilities in product design, process
technology, procurement, project management, marketing and
services support including commissioning.
It offers products and services for all business verticals, maintaining
stringent delivery schedules.
KIIT SCHOOL OF MANAGEMENT, BHUBANESWAR
ACHIEVEMENTS
In 2009 -
Mr. A. M. Naik receives Padma Bhushan from the President of
India.
CII honours L&T with Corporate Wellness Award.
L&T wins D&B-Rolta Top Indian Company Award.
L&T-Chiyoda bags ICWAI Award for Excellence in Cost
Management.
L&T Wins Golden Peacock Award for Corporate Social
Responsibility.
Chemtech Business Leader of the Year.
L&T bags FICCI Award for Outstanding Corporate Vision.
L&T bags FICCI Award for Outstanding Corporate Vision.
Technology Block at Hazira wins LEED Platinum Rating.
L&T is ‘Best for Investor Relations’: Asiamoney.
ET Business Leader of the Year for Mr. A. M. Naik.
Mr. A.M. Naik Conferred Gujarat’s Highest State Honour -
‘Gujarat Garima Award’.
In 2008 -
Krishnamurthy Award for Excellence.
Industrial Excellence Award.
E&Y Entrepreneur of the Year Award.
Transformational Leader Award.
All India Engineering Export Award.
KIIT SCHOOL OF MANAGEMENT, BHUBANESWAR
Most Admired Infrastructure Company in India.
The International Trade Awards.
LIST OF SUBSIDIARY COMPANIES
1. Tractor Engineers Limited (TENGL)
2. L&T Komatsu Limited (LTK)
3. L&T-Case Equipment Private Limited
4. L&T Infrastructure Development Projects Limited
5. Larsen & Toubro Electromech LLC
6. HPL Cogeneration Limited
7. L&T-Sargent & Lundy Limited
8. L&T-Chiyoda Limited
9. L&T-Valdel Engineering Pvt. Limited
10. Audco India Limited (AIL)
11. L&T-Demag Plastics Machinery Limited
12. EWAC Alloys Limited
13. L&T Finance Limited
14. L&T International FZE
15. L&T Urban Infrastructure Limited
16. L&T Infrastructure Finance Limited
17. L&T Capital Company ltd. (LTCCL)
KIIT SCHOOL OF MANAGEMENT, BHUBANESWAR
18. L&T Infrastructure Development Projects Ltd. (L&TIDPL)
OVERVIEW ON THE CAPITAL STRUCTURE:
REVENUE : ▲ US$ 8.50 billion (2009)
OPERATING INCOME : ▲ US$ 900 million (2009)
NET INCOME : ▲ US$ 0.58 billion (2009)
TOTAL ASSETS : US$ 9.92 billion (2009)
EMPLOYEES : 35,000
WEBSITE : www.larsentoubro.com
KIIT SCHOOL OF MANAGEMENT, BHUBANESWAR
BOARD OF DIRECTORS
L&T have two types of Directors i.e. Executive Directors and Non-
Executive Directors.
EXECUTIVE DIRECTORS:
1. A.M. Naik (Chairman & Managing Director)
2. J.P. Nayak (Whole-time Director & President Machinery & Industrial
Products)
3. Y.M. Deosthalee (Whole-time Director & Chief Financial Officer)
4. K. Venkataramanan (Whole-time Director & President Engineering &
Construction Projects)
5. R.N. Mukhija (Whole-time Director & President Electrical &
Electronics)
6. K.V. Rangaswami (Whole-time Director & President Construction)
7. V.K. Magapu (Whole-time Director & Senior Executive Vice President
IT & Technology Services)
8. M.V. Kotwal (Whole-time Director & Senior Executive Vice President
Heavy Engineering)
NON-EXECUTIVE DIRECTORS:
1. S. Rajgopal
2. S. N. Talwar
3. M. M. Chitale
4. Lt. Gen. Surinder Nath (Retd.)
5. U. Sundararajan
6. Thomas Mathew
KIIT SCHOOL OF MANAGEMENT, BHUBANESWAR
7. N. Mohan Raj
8. Subodh Bhargava
LARSEN & TOUBRO Ltd.
( KANSBAHAL WORKS )
KIIT SCHOOL OF MANAGEMENT, BHUBANESWAR
L & T - KANSBAHAL WORKS
( PROFILE )
Kansbahal works is located near Rourkela (Orissa), is state’s largest
heavy engineering unit. Kansbahal Works, a unit under the Machinery &
Industrial Products Division of L&T, is a world class Integrated Machine
Building Centre with facilities for Casting, Fabrication, Machining and
Assembly, complimented by excellent design, engineering, quality control
and logistics support.
Set up in 1962 as an Indo-German Venture, under the name of Utkal
Machinery Limited (UTMAL) to serve the steel and paper industries to
substitute imports. On inception it had four partners viz., GHH, VOITH,
KOOPERS and L&T. In the year 1982, it finally came under the umbrella of
L&T group after full acquisition of shares. It however remained a cost
centre for L&T serving several business divisions of the company and in
October 1999, it was structured as a Strategic Business Unit (SBU).
L&T, Kansbahal works is situated in sylvan surroundings of
Kansbahal, Orissa. It is 25 km away from Rourkela and 15 km from
Rajgangpur in the district of Sundergarh, Orissa. It is well connected by
roads and railways.
Kansbahal works is one of the oldest factories in the arsenal of L&T’s
manufacturing bases. It has licensed annual capacity of 12000 tones. It is
an ISO 9001 certified works. It has evolved into a world class integrated
manufacturing centre with facilities for Fabrication, Machining, Assembly
and Casting. This is complemented by excellent design, engineering,
KIIT SCHOOL OF MANAGEMENT, BHUBANESWAR
quality control and logistic expertise. Kansbahal works manufactures and
supplies Heavy machinery, Crushing equipments, Paper machinery and
Foundry equipments for Power plants and Windmill.
The commitments to quality and customer satisfaction are the
driving forces for all its activities. The concern for environment is an
integral part of the company's vision.
It manufactures a range of steel, Iron and Alloy Iron including
spheroidised graphite iron castings as well as paper drying cylinders in
vertical pits up to 2000-mm dia and 7500 mm length. Approved by Lloyd’s
register of hipping, London, for manufacture of various grades of ferrous
castings, the foundry can manufacture a single piece casting of maximum
14 tons in steel, 22 tons in cast iron and 18 tons in spherodized graphite
iron. The fabrication shop has a built-up area of 9525 sq.m and can handle
a single unit of maximum 100tons.
The L&T Kansbahal Works has four main shops and they are:
1. Foundry Shop
2. Machine Shop
3. Fabrication Shop
4. Assembly Shop
Products:
1. Paper and pulp machineries
2. Crushing equipments for mining, limestone and minerals
3. Various Foundry Castings
4. Steel plant equipment
5. Surface Minor
6. Hub Casting and Fabrication items for Windmill power sector
KIIT SCHOOL OF MANAGEMENT, BHUBANESWAR
VISION
L&T shall be
A professionally-managed Indian
Multinational, committed to total customer
Satisfaction and enhancing shareholders value.
L&T–ites shall be
An innovative, entrepreneurial and
Empowered team, constantly creating value
And attaining global benchmarks.
L&T shall
Foster a culture of caring, trust and
Continuous learning while meeting
Exceptions of employees,
KIIT SCHOOL OF MANAGEMENT, BHUBANESWAR
Stakeholders and society.
LARSEN & TOUBRO LIMITED
ORGANIZATION STRUCTURE
KIIT SCHOOL OF MANAGEMENT, BHUBANESWAR
T.N. BISWAL ( C.L )
ORGANIZATION STRUCTURE OF FINANCE & ACCOUNTS DEPARTMENT ( KANSBAHAL )
KIIT SCHOOL OF MANAGEMENT, BHUBANESWAR
V.N SRIVASTAVA( General Manager )
B.B. DAS( MANAGER )
[ Costing system, Inventory Valuation
and Control, Auditing, Sales Accounting, Customer Ledger ]
S.C. MOHANTY( E3 )
[ Suppliers Payment ]
N. AGRAWAL( MANAGER )
[ Excise, Service tax,
VAT, CST,
General ledger, Final A/c's,
Capital budget ]
P.K. PANI( E2 )
[ Employee related Payment Provident
Fund ]
B.C.RANA( EXECUTIVE )
K. PARIJA( OFFICER )
P.C. ROUT( OFFICER )
M.M. SINGH( OFFICER )
S.K. DAS( C.L )
R.L. PRADHAN( OFFICER )
P. ROY( OFFICER ) A.K. PRASAD
( OFFICER )
S.S. SAHOO( OFFICER )
CAPITAL BUDGETING
KIIT SCHOOL OF MANAGEMENT, BHUBANESWAR
D.K. SWAIN( OFFICER )
P. PODDAR( OFFICER )
S. BEURA( C.L )P.K. PATRA
( OFFICER )
CAPITAL BUDGETING
Capital budgeting is the planning process used to determine
whether a firm's long term investments such as new machinery,
replacement machinery, new plants, new products, and research
development projects are worth pursuing. It is the budget for major capital,
or investment, expenditures.
Capital Budgeting is the process in which a business determines
whether projects such as building a new plant or investing in a long-term
venture are worth pursuing. Oftentimes, a prospective project's lifetime
cash inflows and outflows are assessed in order to determine whether the
returns generated meet a sufficient target benchmark.
Capital Budgeting of an organisation includes the budgeting of all the
capital expenditures incurred in it. A capital expenditure is an expenditure
that is shown as an asset on the balance sheet. This asset, except in the
case of a non-depreciable asset like land, is depreciated over its life.
Capital expenditures have long term consequences.
Capital Expenditures include purchase of fixed assets.
Fixed Assets have 2 characteristics:
They are acquired for use over relatively long periods for carrying on
the operations of the firm and
They are not ordinarily meant for sale.
These fixed assets that are used at L&T are:
a) Factory Building
b) Non Factory Building
c) Plant and Machinery
d) Computer items
e) Furniture and Fixtures
f) Office Equipment
KIIT SCHOOL OF MANAGEMENT, BHUBANESWAR
g) Air Conditioning and Refrigeration
h) Photographic Equipment
i) Laboratory equipment
j) Vehicles
GUIDELINES FOR PREPARATION OF CAPITAL EXPENDITURES AND
INVESTMENT BUDGET :
A) CLASSIFICATION:
The Capital Expenditure (CAPEX) Budget will be analysed in the
following categories:
Real Estate i.e., Land (Free hold or Lease hold )
Real Estate i.e., Buildings ( Factory or Office / Commercial or
Residential Flats )
Plant and Machinery - General or specific
Information Technology (IT) related items - PC's, Laptops, Servers,
Photo copiers / Printers, Softwares, etc.
Special items - Transit houses and holiday homes, Vehicles,
Equipment for Medical/Welfare centres, Cars under employee car
scheme, Personal computers for employees under the company's
scheme, Aircraft, Others
Other office equipment
Furniture and Fixtures
The proposals should be entered in the appropriate subcategories under
respective categories.
The proposals for Real Estate and Plant & Machinery should contain
detailed item wise justification.
All proposals should be substantiated and collaborated with the complete
plan.
Specific plant and machinery items refer to:
a) New investments,
KIIT SCHOOL OF MANAGEMENT, BHUBANESWAR
b) Expansion and
c) Items bought for targeted jobs
The specific and general P/M are budgeted under the aforesaid three
sub-categories with a detailed rationale covering all norms, such as Net
Present Value (NPV), Payback period, Project Internal Rate of Return (IRR).
The above norms should be justified with respect to probability of
award of job and its expected use and residual value post completion of
the job.
B) BUDGET PROPOSALS:
A detailed justification for the purchase of the new asset should be
submitted. The increase in revenues, contribution and cost savings
that will be achieved should also be given, wherever applicable.
The proposals should be comprehensive and must include cost of
consequential proposals such as stamp duty, registration charges,
material handling equipment, stores, land / site clearing, etc.
In case of proposal for general P&M costing Rs.150 lakhs or more &
specific P&M budgeted under new investments or expansion,
Payback Period, Net Present Value ( NPV ), and Project Internal Rate
of Return (IRR ) calculations should be furnished. NPV should be
arrived at using Weighted Average Cost of Capital (WACC).
Proposals for acquiring Plant & Machinery in anticipation of customer
orders should indicate the customer orders, the probability of getting
these orders and the redeployment plan for these assets after
execution of the orders.
For real estate proposals covering “construction", breakup of cost
into civil, electrical and air conditioning along with area and rate per
sq. meter should be provided. Cost of land, if applicable, should also
be separately disclosed along with likely stamp duty, registration
charges, land development expenses, etc.
Proposals for replacement of asset:
KIIT SCHOOL OF MANAGEMENT, BHUBANESWAR
Details of existing asset:
a) Type of equipment
b) Year of purchase
c) Original cost, Written Down Value (WDV )
d) Present Capacity Utilization
e) Breakdown hours
f) Annual maintenance cost trend
g) Any major cost to be incurred
h) Estimated net realizable value
Proposed replacement:
a) Improvements expected including additional production
anticipated, cost saving, efficiency improvements, etc.
b) Cost of replacement
C) CARRY OVER PROPOSALS:
There will be no automatic carryover of proposals sanctioned for
the current year.
Carryover of proposals will be allowed only for partly committed
jobs / sanctions and the carry over proposals should be budgeted
based on the latest prices / costs.
In case of items where the cost is likely to exceed the amount
already sanctioned, a detailed justification should be given for
amounts exceeding 5% of the original estimate or Rs. 10 lakhs
(whichever is more).
D) HIRE OR LEASE OF ASSETS:
At times capital assets are taken on a long term hire, which is
similar to leasing of the assets. It is suggested that these
KIIT SCHOOL OF MANAGEMENT, BHUBANESWAR
proposals should also be submitted to the finance dept. where the
annual outgo of rentals on account of such assets exceeds Rs. 20
lakhs. Such assets should form part of the proposals for the capital
sanction.
E) COSTS:
The amount to be indicated against each proposal should include
all taxes, duties, cost of accessories, spares, installation charges,
etc.
The cost of office space should include cost of modification,
transfer expenses, stamp duty, registration charges, etc.
F) PROPOSAL EVALUATION:
The CAPEX budget would be approved based on the Company's
cash flow position for the budget year.
All capital expenditure proposals are evaluated and sanctioned on
the basis of information given along with the Budget proposals. It
is therefore necessary that complete description and justification
of the proposals are given to facilitate sanction.
Further, it may be noted that a proposal sanctioned towards a
particular asset cannot be utilized for any other asset . In case for
requirement for substitution prior approval of the H.O Finance
dept. will be necessary.
G) MONTHLY REPORTING OF CAPITAL EXPENDITURE:
Budgeting units should ensure that they report to the H.O Finance
dept. on a monthly basis, about the item wise commitments and
cash flows for the sanctioned projects through utilization
statements.
KIIT SCHOOL OF MANAGEMENT, BHUBANESWAR
CAPITAL BUDGETING PROCESS:
Capital Budgeting is a complex process which may be divided into
the following phases:
Identification of potential investment opportunities:
The capital budgeting process begins with the identification of
potential investment opportunities. Typically, the planning body develops
estimates of future sales which serve as the basis for setting production
targets. This information, in turn, is helpful in identifying required
investments in plant & machinery and equipment.
Assembling of Investment Proposals:
Investment proposals identified by the production department and
other department are routed through several persons. The purpose of
routing a proposal through several persons is primarily to ensure that the
proposal is viewed from different angles. It also helps in creating a climate
for bringing about coordination of interrelated activities. Then the
proposals are usually submitted in a standardised capital investment
proposal form.
Project Classification:
Normally projects are classified into different categories to have a
detailed analysis. Project analysis entails time and effort. The costs
KIIT SCHOOL OF MANAGEMENT, BHUBANESWAR
incurred in this exercise must be justified by the benefits from it.
a) Mandatory Investments: These are expenditures required to
comply with statutory requirements such as pollution control
equipment, medical dispensary, fire fitting equipment and so on.
These are often non revenue producing investments. In analysing
such investments the focus is mainly on finding the most cost-
effective way of fulfilling a given statutory need.
b) Replacement Projects: The Company routinely invest in
equipments meant to replace obsolete and inefficient
equipments, even though they may be in a serviceable condition.
The objective of such investments is to reduce costs of labour,
raw material, and power. And also to increase yield and improve
quality.
c) Expansion Projects: These investments are meant to increase
capacity and widen the distribution network. Such investments
call for an explicit forecast of growth. Since this can be risky and
complex, expansion projects normally warrant more careful
analysis. Decisions relating to such projects are taken by the top
management.
d) Diversification Projects: These investments are aimed at
producing new products or services. Often diversification projects
entail substantial risks, involve large outlays and require
considerable managerial effort and attention. Given their
strategic importance, such projects call for a very thorough
evaluation, both quantitative and qualitative. Further they require
a significant involvement of the board of directors.
e) Research and Development Projects: R&D projects are
characterised by numerous uncertainties and typically involve
sequential decision making. Such projects are decided on the
basis of managerial judgement.
f) Miscellaneous Projects: This is a catch-all category that
includes items like interior decoration, recreational facilities,
landscaped gardens, and so on. There is no standard approach
KIIT SCHOOL OF MANAGEMENT, BHUBANESWAR
for evaluating these projects and decisions regarding them are
based on personal preferences of top management.
Investment Criteria:
Investments in most of the projects should fulfil some criteria's so
that the project is accepted or else the project will be rejected. The
investment criteria that are followed at L&T, Kansbahal works are Net
Present Value (NPV) and Payback Period.
ANALYSIS OF CAPITAL BUDGETING PROCESS FOR THE
INSTALLATION OF VERTICAL LATHE M/C IN MACHINE SHOP AT
L&T, KANSBAHAL WORKS
Machine shop is a vital link that concretizes and fructifies the parts
which are to be assembled in the assembly shop.
The machine shop can be divided into :
1) Lathe shop
a) Centre lathe
b) Vertical lathe
c) Facing lathe
2) Boring group
a) Table borer
b) Floor borer
c) CNC borer
3) Central group
a) Marking
b) Miscellaneous machines
KIIT SCHOOL OF MANAGEMENT, BHUBANESWAR
The operations that can be performed in Lathe shop are:
OD and ID Turning
Taper Turning
External threading
Internal Threading
Parting
Grooving
Chamfering, etc.
There were 4 vertical lathe machines available in the machine shop:
a) M/C No. - 021
b) M/C No. - 037
c) M/C No. - 032
d) M/C No. - 033
M/C No. - 033 was windmill component machinery.
Chuck dial - 4770 mm.
Height - 4 m.
Weight carrying capacity - 80 tons
But due to a major order from Bokaro Steel Plant, the Chuck Dial required
for the specified job was 5300 mm.
Hence the new Vertical Lathe was proposed to be bought, so as for the
completion of the order and to work out more no. of such orders. The
estimated total expenditure of the Vertical Lathe M/C was calculated to be
600 lakhs. Availing of the new machinery will result in:
1. Improving productivity
2. Increasing existing capacity
3. Creating new capacity and
4. Getting more no. of specific sales order
KIIT SCHOOL OF MANAGEMENT, BHUBANESWAR
This particular investment was categorised as an Expansion project
and the Net present value (NPV) and Payback period were calculated to
check the feasibility of the project.
a) Net Present Value (NPV):
The Net present value of a project is the sum of the present values of
all the cash flows that are expected to occur over the life of the project.
Net present value of an investment/project is the difference between
present value of cash inflows and cash outflows. The present values of
cash flows are obtained at a discount rate equivalent to the cost of capital.
The decision rule associated with the net present value criterion is: Accept
the project if NPV is positive and reject the project if NPV is negative. If
NPV is zero, it is a matter of indifference.
The vertical lathe's present value of cash inflows is equal to Rs.
2191.19 lakhs which is much greater than Rs. 600 lakhs. Thus it generates
a positive net present value of Rs.1591.18 lakhs. Hence, this project adds
to the wealth of owners; therefore, it should be accepted.
b) Payback Period:
Payback period is the time duration required to recoup the
investment committed to a project. It is the length of time required to
recover the initial cash outlay on the project. According to the payback
criterion, the shorter the payback period, the more desirable is the project.
Firms using this criterion generally specify the maximum acceptable
payback period. If this is 'n' years, projects with a payback period of 'n'
years or less are deemed worthwhile and projects with a payback period
exceeding 'n' years are considered unworthy.
Preparation of Capital Expenditure Budget Proposals:
According to the requirement of materials by the different
departments of the unit, the Head of the Dept. writes a letter to the
Accounts Dept. mentioning the description, quantity and justification for
KIIT SCHOOL OF MANAGEMENT, BHUBANESWAR
the purchase of those. Then the A/c's dept. prepares a budget proposal in
the mentioned format:
Cash Outflow
Sl. No.
Description
Qty.
Amount ( in
lakhs )Dept.
1st qtr.
2nd
qtr.
3rd qtr.
4th
qtr.
Justification
1Vertical Lathe
Machine1 600
Machine shop
0 0 600 0
For a specific & repetitive order
Increase in capacity
Submission of Budget:
Then the Budget proposals that are prepared in the unit are
submitted to the Head Office, Mumbai on the CAPEX System operating
on the intranet (http://172.25.11.2/capex/Login.aspx). This system will be
the platform for the submission of the CAPEX requests, release of
sanctions, monitoring of actual commitment and cash outflow. All the
requests are submitted through this proposal only. After the acceptance
from the head office the H.O. sends a letter of Capital sanction.
Capital Sanction:
The Head office then analyzes the proposal sent by its units and
sanctions capital accordingly. This is then sent to the individual units A/c's
dept... The A/c's department of the units then informs the individual units
whether their budgets are sanctioned or not.
Capital Sanction Format:
Sanctio
n No.
Projec
t No.Description
Capital
Sanctioned
( in lakhs )
Categor
yDept.
KIIT SCHOOL OF MANAGEMENT, BHUBANESWAR
04378 56453
Vertical
Lathe
Machine
600 P/M Machine
shop
Capital Job Requisition:
This is prepared by the individual departments of the unit after the
project sanction and also according to the amount sanctioned; mentioning
the description, quantity, expected time for its use and the justification of
the requirement. For ex: To improve productivity, to increase existing
capacity or Replacement. And is then sent to the concerned heads such as
A/c's Head and Vice-President of Management for approval.
Capital Job Requisition ( CJR ) Format:
Initiated by Date
For Department-Machine shop
For Cost Centre- KBL Works
Asset Group Description - Vertical Lathe Machine
Quantity - 1
Supplier
When Reqd.
Expected Delivery
Execution
Departmental Contract
Indigenous Import
Estimated } Landed Cost Cash Outlay
Estimated
Checked
Cost } Installation Month Month
}Total(GrossValue) In
Month Month
Justification
1Improving Productivity 5
StatutoryObligation
2Increasingexistingcapacity 6
Welfare of Workmen/Community
3 Creating new capacity 7Replacement(state disposal of old assets)
4Specific sales order No. 8 Others(specify)
Extra Man PowerExtra Space
No. of Shifts
Horse Power
Any Incidental capital
Single outlay required
KIIT SCHOOL OF MANAGEMENT, BHUBANESWAR
Grade : Area Sq m. (Specify)
Double
No: Location Treble Is the item included in your approved Budget: Is the estimated cost within the
YES NO approved budget ? YES NO
if NO ; Reason for this proposal if No reason for Excess
Departmental Head Divisional Head
(ACCOUNTS) (BUDGET)
1. Is this item approved in the Capital budget ?
1. Cash flow Certified 2. Is the Estimate within budget allocation?
2 3. Is budget over-run for any other item for Dept./CC?
3 4. Other Comments
(Date) (Accounts Department) (Date) (Budget Section)
(MANAGEMENT) (BUDGET)
1. Approved. 1. Appropriation noted Yes
2. Rejected. 2. Project No. :
3. Postponed 3. Head of account
4. Accounts advised on
(Date) ( Vice - President) (Date)
(Budget Section)
Purchase Requisition:
After the approval of the Capital Job Requisition ( CJR ) by the
Department heads, a Purchase Requisition ( PR ) is prepared and is sent to
the Purchase dept. for the purchase of the required materials mentioning
the quantity of those, the suppliers and the date of requirement.
Requisition Date: Estimated Value:
Larsen and Toubro Ltd., Kansbahal worksProject:
Cost Centre: 401 Group:EO Number: A/C No.: 7402 Line no.
Item No.
Description Quantity Unit Cost
Required Date
Total Cost
KIIT SCHOOL OF MANAGEMENT, BHUBANESWAR
Delivery Instructions:
Purchase Order:
Now Purchase order is placed by the Purchase dept. to the Suppliers
for those items.
Larsen &Toubro Ltd., Machinery & Industrial Products
Division, Kansbahal Works, Kansbahal-770034,
Dist.: Sundergarh
Purchase Order No.:
Date:
AMD No.:
Vendor's Name & Address Vendor's Reference
Terms of payment:
Item no.
Material Stock
code/ Description
Deliver
y Qty.
Delivery
Schedule Unit rate Total price
Capital Work In Progress (CWIP ):
CWIP is done on quarterly basis. and as the order is received, the
product is installed and commissioned and is then put into Capital Work In
Progress (CWIP ).
CWIP list as on 16-03-2010
Project
No. Description Category
Dept
.
Original
Capital
Sanctione
d
Amoun
t as on
Jan 1st
Deletion
during
Jan 1st
to Mar
31st
Addition
during
Jan 1st to
Mar 31st
CWIP
as on
Feb
16th
KIIT SCHOOL OF MANAGEMENT, BHUBANESWAR
Job Closure Report:
Larsen & Toubro Limited, Kansbahal Works
JOB CLOSURE REPORT
ISSUED TO : DEPT : ISSUED : DATE
CODE
WARD CC ORDER NO :
PROJECTNO:
ACCOUNTS JOB :
GR. DRG. ITEM NO :
DATE OF FINISH :
DELIVERED TO :
NET WEIGHT :
APPX. DIMENSION :
ITEM PURCHASED :
( SIGNITURE )
Capitalization:
It is a process in which a product or a sanctioned budget is
capitalized or converted into a fixed asset from the amount available in
Capital Work In Progress ( CWIP ).
CWIP to Fixed Asset:
i. Asset schedule for Land and Plant & Machinery:
Asset Schedule for the period April 2008 to March 2009
Asset No.
Original cost
Book
value
(1st
DEPSLM
WDV ( March31
st)
REPVALU
E
REPWD
VOPN
BOOK
DEPN
REPWD
VCLO
REVRESOPN
RECUPE
MENT
REVRESCLO
KIIT SCHOOL OF MANAGEMENT, BHUBANESWAR
April )
ii. Asset schedule for Furniture& Fixtures, Office
equipment and Vehicles:
Asset Schedule for the period April 2008 to March 2009
Asse
t No.
Descriptio
n
Further
Particular
s
Dt. Of
Purchase
Qty
.
Origina
l Value
WDV
OPN
(April
1st)
Dep.
SLM
WDVCL
( 31st
March )
Thus the Asset is converted from CWIP to a fixed asset of the
company and the process is termed as Capitalization where a fixed
amount is depreciated each year.
Fixed Assets Register:
After the asset is capitalized, a Fixed Asset Register is maintained to
keep a record of all the assets of the organization. Here all the details of
the asset are recorded to keep a track on those.
Dept
.
code
Descriptio
n
Instal
l
ation
date
Asset
categor
y
Quantit
y
Original
value
Dep.
Rate
WDV
OPN
DEP
SLM
D
WDV
CLO
REP
VALU
E
KIIT SCHOOL OF MANAGEMENT, BHUBANESWAR
Depreciation:
L&T, Kansbahal follows two types of depreciation methods:
Straight Line Method ( SLM ) - used for Book depreciation.
Written Down Value ( WDV ) - used for IT depreciation.
Depreciation on revalued assets is calculated on Straight Line basis on the
values and at the rates given by the valuers. The difference between
depreciation on the assets based on revaluation and that on original cost is
transferred from Revaluation A/c to Profit-Loss A/c.
a) Tangible Assets: Rate of Depreciation
I) Building:
Residential Purpose - 2.5%
Non Residential Purpose - 5%
Temporary Erections - 50%
II) Furniture & Fixtures :
General ( including electrical fittings ) - 5%
Colleges & other educational
Institutions, Library,
Welfare centres, City malls - 5%
III) Plant & Machinery:
General installed in the factory
Premises - 7.5%
KIIT SCHOOL OF MANAGEMENT, BHUBANESWAR
Motor cars & other vehicles - 7.5%
Air pollution control equipment - 50%
Water pollution control equipment - 50%
Computers - 30%
Energy saving devices - 40%
Renewable energy devices - 40%
Furnace - 40%
Railway sidings - 7.5%
Ships - 10%
Laboratory equipments - 12.5%
Canteen equipment - 12.5%
Air conditioning & Refrigeration - 8.33%
Office equipment - 6.67%
b) Intangible assets:
Computer software - 30%
Other intangible assets - 12.5%
Depreciation Statement for an assessment year:
Depreciation Statement ( WDV method )
( Assessment Year 2008-09 )
[ Previous year ended 31-03-2008 ]
Asset descriptio
nOpening
WDV
Additions during
the year
Sale during
the year
WDVbefore dep.
Normal rate of
dep.
Dep. allowabl
e
WDV as on 31-03-2009
Grinder
1,78,63,7
76 27,670 -
17,891,4
46 5 %
894,57
2
16,996,8
74
KIIT SCHOOL OF MANAGEMENT, BHUBANESWAR
Sale of Fixed assets:
After a use for a defined time-period, when an asset is no longer in
use the unit decides to sell the asset.
Sale of Fixed Assets during Oct-09 to Dec-09
Asset no. Description
Installation Date
Qty.
OriginalValue
Dep. Rate
WDVOPN
Sale Date
Dep SLM
WDVCLO
Sale value
Profit/Loss
Sold to
TAXATION
KIIT SCHOOL OF MANAGEMENT, BHUBANESWAR
Tax
A Tax is a payment made by the person who has earned income
during a year to the government. Tax is nothing but it is a charge made by
the government on the goods, travelling, medicine, etc. that is a sort of
income to the government and this money is used for developing purpose.
Tax is a major source of revenue to the government. Tax is the price which
we pay for a civilised society. Broadly, Tax is divided into 2 categories:
A) Direct Tax:
Direct taxes are those which the taxpayer pays directly from his
income/ wealth/ estate, etc... Direct taxes are those which are paid after
the income reaches the hands of the tax-payer.
Income Tax:
An income tax is a tax levied on the financial income of persons,
corporations, or other legal entities. As per section-14, income of a person
is computed under the following heads:
1) Salaries :
The term salary includes:
a) Wagesb) Any annuity or pensionc) Gratuity
KIIT SCHOOL OF MANAGEMENT, BHUBANESWAR
d) Any fees, commissions, perquisites or profits in lieu of or in addition to any salary or wages
e) Any advance of salaryf) Leave encashmentg) Annual accretion to the credit balance in a recognised provident
fund
2) Income from house property:
Rent received from building or land appurtenant (i.e., land attached to
the building)
3) Profits and gains of business or profession:
a) Income derived by a trade or profession
b) Compensation or other payment received
c) Profit on sale of a licence granted under the imports order
d) Cash assistance received against exports
e) Value of any benefits or perquisites arising from a business or the
exercise of a profession
f) Interest, salary, bonus, commission or remuneration due to or
received by a partner of a firm
4) Capital gains:
Any profit or gain arising from the sale or transfer of a capital asset.
Capital asset is defined to include property of any kind, whether fixed or
circulating, movable or immovable, tangible or intangible.
Short term capital assets are:
a) Equity or preference shares
b) Securities like debentures or government securities
c) Units of UTI
d) Units of Mutual fund
e) Zero coupon bonds
An asset other than a short term capital asset is regarded as long term
capital asset.
KIIT SCHOOL OF MANAGEMENT, BHUBANESWAR
5) Income from other sources:
Incomes from other sources include:
a) Dividends
b) Income from subletting
c) Interests on bank deposits and loans
d) Income from royalty
e) Director's fees
f) Director's commission
g) Ground rent
h) Agricultural income
i) Examination fees received by a teacher
j) Insurance commission
k) Winning from lotteries, etc.
Tax Rates that are currently applicable are:
For Resident woman ( who is below 65 years):
Net income range ( Rs.) Income tax rate ( % ) Education cess Secondary and Higher education cess
<= 1,90,000 Nil Nil Nil
1,90,000 - 5,00,000 10% 2% of income tax 1% of income tax
5,00,000 - 8,00,000 20% 2% of income tax 1% of income tax
>= 8,00,000 30% 2% of income tax 1% of income tax
For Resident senior citizen ( who is 65 years or
more ):
Net income range ( Rs.) Income tax rate ( % ) Education cess Secondary and Higher education cess
<= 2,40,000 Nil Nil Nil
2,40,000 - 5,00,000 10% 2% of income tax 1% of income tax
5,00,000 - 8,00,000 20% 2% of income tax 1% of income tax
KIIT SCHOOL OF MANAGEMENT, BHUBANESWAR
>= 8,00,000 30% 2% of income tax 1% of income tax
For any other individual:
Net income range ( Rs.) Income tax rate ( % ) Education cess Secondary and Higher education cess
<= 1,60,000 Nil Nil Nil
1,60,000 - 5,00,000 10% 2% of income tax 1% of income tax
5,00,000 - 8,00,000 20% 2% of income tax 1% of income tax
>= 8,00,000 30% 2% of income tax 1% of income tax
B) Indirect Tax:
Indirect taxes are those which the tax-payer pays indirectly i.e.,
while purchasing goods and commodities, paying for services, etc...
Indirect taxes are paid before the goods or a service reaches the tax
payer.
a) Central Excise Duty or Central Value Added Tax ( CENVAT ):
Central Excise is a tax on act of manufacture or production. Central
Excise Duty is imposed and collected on excisable goods ( that are
movable and marketable ) which are manufactured or produced in India.
Excisable goods are those that are included in Central Excise Tariff Act,
1985. It is collected by Central Govt. of India.
Basic Excise Duty - 10%
Education Cess - 2% on Basic excise duty (w.e.f. 9-7-
2004)
Secondary & Higher Education Cess - 1% on Basic excise duty (w.e.f.
1-3-2007)
For example:
KIIT SCHOOL OF MANAGEMENT, BHUBANESWAR
Line Filter is a product that is manufactured and supplied by L&T,
Kansbahal. Total cost of the machine is Rs. 33,040/-and after addition of
excise duty amount the total value went up to Rs.36, 443.12. The excise
duty is charged as the product is been manufactured here.
Item CSH No. Description Quantity Rate(Rs.) Amount(Rs.)
880339 84314990 Line Filter 4 8,260.00 33,040.00
Assessable Value 33,040.00Excise Duty (%)
Excise Duty
Amount
E-Cess Rate (%)
E-Cess Amount
SHE-Cess Rate (%)
SHE-Cess Amount
10% 3,304.00 2% 66.1 1% 33.04 Total Excise Duty
3,403.12
Net Amount 36,443.12
Source: L&T Tax Invoice (Reference: Annexure)
b) Value Added Tax ( VAT ):
It is an act to provide for the imposition and collection of tax on the
sale or purchase of goods in the state. It extends to the whole of the state
of Orissa. It is collected by State Government. VAT is applicable on a
product after excise duty is imposed on it. It is a consumption tax as it is
paid by the final customer. All business transactions carried on within a
state by individuals, partnerships, companies, etc. will be covered under
VAT. Annual turnover of Rs. 2, 00,000/- or more will be covered under VAT.
Under the VAT system, 550 goods are covered.
Tax rates under VAT:
Zero Rate: Exempted goods such as flood relief goods.
1%: Part I of the schedule.
4%: Part II of the schedule covering 210 items such as
medicines and drugs, all agricultural and industrial inputs,
capital goods and declared goods.
12.5%: Part III of the schedule covering all remaining goods.
Item CSH No. Descriptio Quantit Rate(Rs.) Amount(Rs.)
KIIT SCHOOL OF MANAGEMENT, BHUBANESWAR
n y
880339 84314990 Line Filter 4 8,260.00 33,040.00
Assessable Value 33,040.00
Excise Duty (%)
Excise Duty
Amount
E-Cess Rate (%)
E-Cess Amount
SHE-Cess Rate (%)
SHE-Cess
Amount
10% 3,304.00 2% 66.1 1% 33.04Total Excise Duty
3,403.12
Amount on which VAT is payable 36,443.12
VAT @ 12.5% 4,555.39
Net Value 40,998.51
Source: L&T Tax Invoice (Reference: Annexure)
VAT is a multipoint tax system with provision for input tax credit /
setoff tax paid on purchase at each point of sale.VAT liability of the dealer
is calculated by deducting input tax credit from tax collected on sales
during the payment period (say, a month).
c) Entry Tax:
An act to provide for the levy and collection of tax on the
entry of goods into the local areas of the state of Orissa for
consumption, use or sale therein and matters incidental thereto
and connected therewith. It is a tax collected for local
development.
A local area means the areas within the limits of any:
i) Municipal corporation
ii) Municipality
iii) Notified area council
iv) Gram panchayat
v) Industrial township
vi) Other local authority by whatever name called, constituted or
continued in any law for the time being in force.
KIIT SCHOOL OF MANAGEMENT, BHUBANESWAR
Rate of tax:
The tax payable by a dealer or any other person under the act shall
be at the following rates:
i) Subject to the provisions, the goods specified in Part I of the
schedule (116 items) to the act shall be charged at the rate of 1% of
the purchase value.
L&T Products:
Coal & coke
Cotton yarn
Iron and steel
Furnace oil
Kerosene
Sheets & rods
Bricks & roofing tiles
Paper
LPG & Natural gases
Telephone & accessories
Petrol, Diesel and lubricants
Cement & asbestos
Doors and shutters
Plywood
Sheet glass
Computer & Softwares
Office stationary
ii) Subject to the provisions, the goods specified in Part II of the
schedule ( 43 items ) to the act shall be charged at the rate of 2% of
the purchase value.
L&T Products:
Electrical goods including
motors, conductors & cables
Electrical appliances
Voltage stabiliser
Machinery and equipments and
spare parts
Furniture including steel,
plastic and aluminium
Elevator and lift
Generator and transformer
Copier, Xerox machine, Fax
TV, VCD, DVD, Camera
All motor vehicles
Marbles and Tiles
Air conditioners, Refrigerators
Air coolers
Ferro alloys
KIIT SCHOOL OF MANAGEMENT, BHUBANESWAR
Entry Tax Procedure:
Item CSH No. Description
Quantity Rate(Rs.) Amount(Rs.)
880339 84314990 Line Filter 4 8,260.00 33,040.00
Assessable Value 33,040.00
Excise Duty (%)
Excise Duty Amount
E-Cess Rate (%)
E-Cess Amount
SHE-Cess
Rate (%)
SHE-Cess Amount
10% 3,304.00 2% 66.1 1% 33.04Total Excise Duty
3,403.12
Amount on which VAT is payable 36,443.12
VAT @ 12.5% 4,555.39
Net Value 40,998.51
Entry Tax @ 2% 819.97
Net Payable 41,818.00
Source: L&T Tax Invoice (Reference: Annexure)
Entry tax in case of intra state transactions (i.e., within a state), the
tax is given by the buyer to the seller of the goods and it is mentioned in
the invoice. After the buyer collects the tax he deposits it to the Govt. But
in case of interstate transactions (i.e., one state to another), the tax is
given by the buyer to the Govt. directly and it is not mentioned in the
invoice.
d) Central Sales Tax ( CST ):
It is an act to formulate principles for determining when a sale or
purchase of goods takes place in the course of inter-state trade or
commerce or outside a state or in the course of import into or export from
India, to provide for the levy, collection and distribution of taxes on sale of
goods in the course of interstate trade or commerce and to declare certain
goods to be of special importance in interstate trade or commerce and
specify the restrictions and conditions to which state laws imposing taxes
KIIT SCHOOL OF MANAGEMENT, BHUBANESWAR
on the sale or purchase of such goods of special importance shall be
subject.
Rate of Central Sales Tax (CST) is 2%. It extends to the whole of India.
Item CSH No. Description Quantity Rate(Rs.) Amount(Rs.)
880339 84314990 Line Filter 4 8,260.00 33,040.00
Assessable Value 33,040.00
Excise Duty(%)
Excise Duty Amount
E-Cess Rate(%)
E-Cess Amount
SHE-Cess Rate(%)
SHE-Cess Amount
10% 3,304.00 2% 66.1 1% 33.04Total Excise Duty
3,403.12
Amount on which CST is payable 36,443.12
CST @ 2% 728.86
Net Value 37,171.98
Entry Tax 0
Net Payable 37,171.98
In case of Central Sales Tax (CST), ), the Entry tax is given by the
buyer to the Govt. directly and it is not mentioned in the invoice.
e) Service Tax:
Service tax is a form of indirect tax imposed on specified services
called "taxable services". Service tax cannot be levied on any service
which is not included in the list of taxable services. Service tax is levied on
the value of such taxable service that shall be equivalent to the gross
amount charged by the service provider to provide similar service to any
other person in the ordinary course of trade and the gross amount charged
KIIT SCHOOL OF MANAGEMENT, BHUBANESWAR
is the sole consideration. Over the last few years, service tax has been
expanded to cover new services. The intention of the government is to
gradually increase the list of taxable services until most services fall within
the scope of service tax. Till now 100 services have been made taxable.
The common services that are included are:
Advertisement services
Asset management services
Auction services
ATM operation & management
services
Banking & other financial
services
Broadcasting services
Business support services
Cargo and port handling
services
Cleaning services
Construction services
Courier services
Insurance services
Internet telephony services
Stock broking services
Presently the rate of service tax that is levied is:
Basic Service Tax - 10%
Education Cess - 2% on Basic excise duty (w.e.f. 9-7-
2004)
Secondary & Higher Education Cess - 1% on Basic excise duty (w.e.f.
1-3-2007)
Item CSH No. Description Quantity Rate(Rs.) Amount(Rs.)
880339 84314990Commissioning of Line Filter 4 8,260.00 33,040.00
Assessable Value 33,040.00
Service Tax (%)
Service Tax
Amount
E-Cess Rate (%)
E-Cess Amount
SHE-Cess
Rate (%)
SHE-Cess Amount
10% 3,304.00 2% 66.1 1% 33.04 Total Service tax
3,403.12
Net Amount Payable 36,443.12
KIIT SCHOOL OF MANAGEMENT, BHUBANESWAR
WORKING
CAPITAL
MANAGEMENT
WORKING CAPITAL MANAGEMENT INTRODUCTION
Proper management of working capital is very important for the
success of an enterprise. It aims at protecting the purchasing power of
assets and maximizing the return on investment. Constant management is
required to maintain appropriate levels in the various working capital
components. Sales expansion, dividend declaration, plant expansion, new
product line, increased salaries and wages, rising price levels etc. put
added strain on working capital maintenance.
KIIT SCHOOL OF MANAGEMENT, BHUBANESWAR
Business concerns need funds for carrying on the business. These
funds are acquired either from equity or on borrowed basis. Concern
utilizes a part of the funds for acquiring fixed assets and other for long
term purposes. Apart from financing for investing in fixed asset, every
business concern also require funds on a continual basis for carrying on its
day-to-day operations. These include amount incurred for purchase of raw
materials, for processing them, constructions work, etc.. Working capital
refers to the sources of financing required to by business on continual
basis for meeting these needs.
MEANING OF WORKING CAPITAL:
Working capital typically means the firm’s holding of current or
short-term assets such as cash, cash receivables, inventory, and
marketable securities. Working capital focuses on the efficient
management of the individual current assets in the day-to-day operation of
the business. Working capital is that part of firm’s current assets which are
financed by long term funds when we take working capital as excess of
current assets over current liabilities. The net working capital provides an
accurate assessment of the liquidity position of the firm. With the liquidity
and profitability dilemma solidly authenticated in the financial scheme of
management, concerned efforts are made to ensure the ability of the firm
to meet the obligations, which mature within twelve month period.
Management must always ensure the solvency and viability of the firm.
The definition of working capital is fairly simple; it is the difference
between an organization's current assets and its current liabilities. Of more
importance, is it's function which is primarily to support the day-to-day
financial operations of an organization, including the purchase of stock, the
payment of salaries, wages and other business expenses, and the
financing of credit sales.
Working capital comprises a number of different items and its
management is difficult since these are often linked. Hence altering one
item may impact adversely upon other areas of the business. For example,
a reduction in the level of stock will see a fall in storage costs and reduce
the danger of goods becoming obsolete. It will also reduce the level of
KIIT SCHOOL OF MANAGEMENT, BHUBANESWAR
resources that an organization has tied up in stock. However, such an
action may damage an organization's relationship with its customers as
they are forced to wait for new stock to be delivered, or worse still may
result in lost sales as customers go elsewhere.
NEED OF WORKING CAPITAL MANAGEMENT:
The working capital management refers to “Management of working
capital ", or, to be more precise “The management of current assets". A
firm’s working capital consists of its investment in current assets which
include short term assets such as cash and bank balance, inventories,
receivable and marketable securities, etc. So the working capital refers to
the management of the level of all these individual current assets. The
need for working capital management arises from two considerations:
i. Firstly, existence of working capital is imperative in any firm. The
fixed assets, which usually require a large chunk of total funds, can
be used as an optimal level of only if supported by sufficient working
capital, and
ii. Secondly, the working involves investment of funds of the firm. If the
working capital level is not properly maintained and managed, then
it may result in unnecessary blocking of scarce resources of the firm.
The insufficient working capital, on the other hand, put different
hindrances in smooth working of the firm. Therefore, the working
capital management needs attention of all financial managers”.
Proper management of Working Capital is very important for the
success of an enterprise. It aims at protecting the purchasing power of
assets and maximizing the return on investment. Constant management is
required to maintain appropriate levels in the various working capital
components.
It has been found that the major portion of a financial manager’s
time is utilized in the management of working capital. Current assets are a
large portion of the total investment of a firm. In some of the industries,
current assets account for a very large portion of the total investment of a
firm. In some of the industrial current assets on an average represent over
KIIT SCHOOL OF MANAGEMENT, BHUBANESWAR
three-fifth of the total assets. In the case of trading concerns they account
for about 80 percent.
CONCEPTS OF WORKING CAPITAL:
There are two concepts regarding the meaning of Working Capital:
Gross Working Capital
Net Working Capital.
i. Gross Working Capital includes investment of a firm only in
current assets. Current assets are those which can be converted into
cash within an accounting year. They are cash, Sundry debtors,
Inventories and Short term securities, etc.. Current assets are of
circulating nature so it should be considered as working capital.
There would be an automatic increase in the Working Capital with
every increase in the funds of the company.
Gross Working Capital = Current Assets
GROSS WORKING CAPITAL OF L&T, KANSBAHAL WORKS FOR LAST
FIVE YEARS. (2005-2009)
CURRENT ASSETS:
As On 31-03-2010
As On 31-03-2009
As On 31-03-2008
As On 31-03-2007
As On 31-03-2006
INVENTORY:
60,93,96,591 90,37,34,909 77,24,35,692 62,66,18,535 67,10,58,974
Raw Materials
24,39,09,257 27,34,76,341 27,74,11,232 19,64,69,859 21,24,39,125
Work-In-Progress
26,41,31,520 49,80,05,436 33,76,71,000 32,71,20,950 34,96,27,890
Components 5,71,13,408 9,98,69,097 10,97,03,495 5,01,78,739 8,12,46,579
KIIT SCHOOL OF MANAGEMENT, BHUBANESWAR
Stores and Spares
3,51,89,225 2,15,96,355 1,24,03,765 79,30,291 85,08,020
Finished Goods
90,53,182 1,07,87,680 3,52,46,200 4,49,18,696 1,92,37,360
SUNDRY DEBTORS
79,19,16,010 75,18,68,597 90,56,40,467 76,32,29,126 43,99,44,793
CASH AND BANK
BALANCE37,325 46,629 31,82,292 -10,89,505 -34,790
LOANS AND ADVANCES
19,46,36,758 13,34,51,167 14,20,21,170 14,67,04,521 11,03,89,478
WIP SUSPENSE
- 20,53,89,590 - - -
TOTAL CURRENT
ASSETS
1,59,59,86,683
1,99,44,90,892
1,82,32,79,621
1,53,54,62,677
1,22,13,58,455
Source-Financial records, L&T, Kansbahal Works
From the above table it is clear that the Gross Working Capital is
increasing in a very smooth way. It means the company’s liquidity position
is well.
ii. Net Working Capital refers to the excess of current assets over
current liabilities. Current liabilities are claims of outsiders expected
to mature within an accounting year. It includes Bills payable, Sundry
Creditors, Bank overdraft, Outstanding Expenses.etc. This concept of
Working Capital enables the shareholders to judge the financial
soundness of the concern and the extent of protection affordable to
them. It is particularly because with an increase in short term-
borrowings the, Working Capital does not increase. It is increase only
by following the policy by ploughing back of profits or conversion of
fixed assets into liquid assets or by procuring fresh capital from
Shareholders.
KIIT SCHOOL OF MANAGEMENT, BHUBANESWAR
Net Working Capital = Current Assets – Current Liabilities.
NET WORKING CAPITAL OF L&T, KANSBAHAL WORKS FOR LAST FIVE
YEARS (2005-2009)
CURRENT ASSETS:
As On 31-03-2010
As On 31-03-2009
As On 31-03-2008
As On 31-03-2007
As On 31-03-2006
INVENTORY: 60,93,96,591 90,37,34,90
977,24,35,692 62,66,18,535 67,10,58,974
Raw Materials 24,39,09,257 27,34,76,341 27,74,11,232 19,64,69,859 21,24,39,125
Work-In-Progress
26,41,31,520 49,80,05,436 33,76,71,000 32,71,20,950 34,96,27,890
Components 5,71,13,408 9,98,69,097 10,97,03,495 5,01,78,739 8,12,46,579
Stores and Spares
3,51,89,225 2,15,96,355 1,24,03,765 79,30,291 85,08,020
Finished Goods 90,53,182 1,07,87,680 3,52,46,200 4,49,18,696 1,92,37,360
SUNDRY DEBTORS
79,19,16,010 75,18,68,597 90,56,40,467 76,32,29,126 43,99,44,793
CASH AND BANK
BALANCE37,325 46,629 31,82,292 -10,89,505 -34,790
LOANS AND ADVANCES
19,46,36,758 13,34,51,167 14,20,21,170 14,67,04,521 11,03,89,478
WIP SUSPENSE
- 20,53,89,590 - - -
TOTAL CURRENT
ASSETS
1,59,59,86,683
1,99,44,90,892
1,82,32,79,621
1,53,54,62,677
1,22,13,58,455
CURRENT LIABILITIES:
ACCEPTANCE 49,22,756 4,87,02,959 7,02,10,424 4,54,92,432 4,56,04,223
SUNDRY CREDITORS
69,46,83,732 66,69,63,221 58,32,79,469 46,80,24,418 27,96,14,624
KIIT SCHOOL OF MANAGEMENT, BHUBANESWAR
ADVANCE FROM
CUSTOMER19,20,17,663 31,95,86,708 25,18,07,664 16,02,57,352 19,89,65,696
PROVISIONS - 35,77,635 36,09,716 30,90,608 41,50,660
TOTAL CURRENT
LIABILITIES89,16,24,150
1,03,88,30,523
90,89,07,273 67,68,64,810 52,83,35,183
NET WORKING CAPITAL
70,43,62,533 95,56,60,369 91,43,72,348 85,85,97,867 69,30,23,272
Source-Financial records, L&T, Kansbahal Works
From the above table it can be seen that the amount of net working
capital for the company for the previous five years is fluctuating. The net
working capital is high in the year 2008-09. The net working capital is
always positive in nature i.e. current assets are always more than current
liabilities. The greater the amount of net working capital, the greater the
liquidity of the company.
MANAGING OF WORKING CAPITAL
Working Capital Management is the process of planning and
controlling the level of mix of current assets of the firm as well as financing
these assets. Specifically, Working Capital management requires financial
managers to decide what quantities of cash, other liquid assets, Accounts
receivables & inventories; the firm will hold at any point of time.
Management must always ensure the solvency and viability of the firm.
Management will use a combination of policies and techniques for
the management of working capital. These policies aim at managing the
current assets (generally cash and cash equivalents, inventories and
debtors) and the short term financing, such that cash flows and returns are
acceptable.
Cash and liquidity management: Identify the cash balance which
allows for the business to meet day to day expenses, but reduces cash
holding costs.
KIIT SCHOOL OF MANAGEMENT, BHUBANESWAR
Inventory management: Identify the level of inventory which
allows for uninterrupted production but reduces the investment in raw
materials and minimizes reordering costs and hence increases cash flow.
Credit management: Identify the appropriate credit policy, i.e.
credit terms which will attract customers, such that any impact on cash
flows and the cash conversion cycle will be offset by increased revenue
and hence Return on Capital (or vice versa).
The objective of working capital management is to maintain the
optimum balance of each of the working capital components. This includes
making sure that funds are held as cash in bank deposits for as long as
and in the largest amounts possible, thereby maximizing the interest
earned. However, such cash may more appropriately be "invested" in
other assets or in reducing other liabilities.
Working capital management is not an end in itself. It is an integral
part of the department's overall management. The needs of efficient
working capital management must be considered in relation to other
aspects of the department's financial and non-financial performance.
Elements of Working Capital are:
1. Cash
2. Marketable Investments
3. Receivables
4. Inventories
5. Creditors
Factors influencing the Working Capital requirement of L&T,
Kansbahal Works:
1. Scale of Operation.
2. Technology.
3. Volume of Order in hand
4. Market condition
5. Working Capital Cycle.
6. Credit policies.
IMPORTANCE OF GOOD WORKING CAPITAL MANAGEMENT :
KIIT SCHOOL OF MANAGEMENT, BHUBANESWAR
From a company's point of view, excess working capital means
operating inefficiencies. Money that is tied up in inventory or money that
customers still owe to the company cannot be used to pay off any of the
company's obligations. So, if a company is not operating in the most
efficient manner (slow collection), it will show up as an increase in the
working capital. This can be seen by comparing the working capital from
one period to another; slow collection may signal an underlying problem in
the company's operations.
A large investment in current assets under certainty would mean a
low rate of return on investment for the firm, as excess investment in
current assets will not earn enough return. The two important aim of the
working capital management are: Profitability and Solvency. Solvency
refers to the firm’s continuous ability to meet maturing obligations. To
ensure solvency, the firm should be very liquid, which means larger
current assets holdings.
Interpreting the level of the Current Assets to Fixed Assets
Ratio:
The level of the Current Assets can be measured by relating Current
Assets to Fixed Assets. Dividing Current Assets by Net Fixed Assets gives
CA/FA ratio. Assuming a constant level of fixed assets, a higher CA/FA ratio
indicates a conservative Current Assets policy and a lower CA/FA ratio
means an aggressive Current Assets policy assuming other factor to be
constant. A "conservative policy implies greater liquidity and lower risk”;
while "an aggressive policy indicates higher risk and poor liquidity".
Moderate current assets policy fall in the middle of conservative and
aggressive policies.
Current Assets to Fixed Assets of L&T, Kansbahal Works.
Year Current Assets Net Fixed Assets Ratio
2009-10 1,595,986,683 1,725,796,584 0.92
KIIT SCHOOL OF MANAGEMENT, BHUBANESWAR
2008-09 1,994,490,892 655,784,255 3.04
2007-08 1,823,279,621 439,803,577 4.15
2006-07 1,535,462,677 310,744,935 4.94
2005-06 1,221,358,455 294,351,357 4.15
Source-Financial records, L&T, Kansbahal Works
As per the above data, it can be clearly seen that L&T, Kansbahal
Works follows a Aggressive Current Assets policy in the financial year
2009-10 than in the other years. The management believes on the
Liquidity and lower risk rather than Profitability with higher risk.
OPERATING
CYCLE
KIIT SCHOOL OF MANAGEMENT, BHUBANESWAR
OPERATING CYCLEThe Working Capital Cycle or Operating Cycle is the length of time
between a company paying for materials entering into stock and receiving
the inflow of cash from sales. Investment in working capital is influenced
by 4 key events in the production and sales cycle of the firm:
i) Purchase of raw materials
ii) Payment for raw materials
iii) Sale of finished goods
iv) Collection of cash from sales
RMCP WIPCP
RCP FGCP
The firm begins with the purchase of raw materials which are paid
for after a delay which represents the accounts payable period. The firm
converts the raw materials into finished goods and then sells the same.
The time lag between the purchase of raw materials and the sale of
finished goods is the inventory period. Customers pay their bills sometime
after the sales. The period that elapses between the date of sales and the
date of collection of receivables is the accounts payable period (debt
period).
Order placed Stock arrives Cash Received
KIIT SCHOOL OF MANAGEMENT, BHUBANESWAR
Inventory period Accounts Receivable periodAccounts
payable periodFirm receives
invoiceCash paid for
materials
The time that elapses between the purchase of raw materials and
the collection of cash for sales is referred to as the operating cycle,
whereas the time length between the payment for raw material purchases
and the collection of cash for sales is referred to as the cash cycle. The
operating cycle is the sum of the inventory period and the accounts
receivable period, whereas the cash cycle is equal to the operating cycle
less the accounts payable period.
Longer the working capital cycle period, larger the requirement of
working capital. The determination of operating cycle is helpful for control
purposes with a view to improve previous working capital ratios.
Determination of the length of Operating & Cash Cycle:
The length of Operating cycle of a manufacturing firm is the sum of:
Operating Cycle = Inventory Conversion Period + Receivables conversion Period
= RMCP + WIPCP + FGCP + RCP
I) Inventory Conversion Period:
It is the total time needed for producing and selling the product.
Typically, it includes:
a) Raw material Conversion Period( RMCP ):
It is the average time period taken to convert material into work in
process. RMCP depends on:
Raw material consumption per day and
Raw material inventory.
KIIT SCHOOL OF MANAGEMENT, BHUBANESWAR
Operating cycle
Cash cycle
Raw material consumption per day is given by the total raw material
consumption divided by the number of days in a year ( 365 days).
Hence, RMCP = Raw Material Conversion Period.
= Average Stock of Raw Material Material Consumption Per day
b) Work-in-Process Conversion Period( WIPCP ):
It is the average time taken to complete the semi-finished or
work in process.
Hence, WIPCP = Work-In-Progress Conversion Period.
= Average Stock of Work – In - Progress Total Cost of Production per Day
c) Finished goods Conversion Period (FGCP):
It is the average time taken to sell the finished goods.
Hence, FGCP = Finished Goods Conversion Period.
= Average Stock of Finished Goods Total Cost of Goods Sold Per Day
II) Receivables or Debtors Conversion Period (RCP) :
It is the average time taken to convert debtors into cash. RCP
represents the average collection period. It is the time required to collect
the outstanding amount from the customers.
Hence, RCP = Receivable Conversion Period.
= Average Accounts Receivables Net Credit Sales Per day
CASH CYCLE:
It is the difference between operating cycle and payables deferral
period.
KIIT SCHOOL OF MANAGEMENT, BHUBANESWAR
Cash Cycle = Operating Cycle – PDP
Payables or Creditors Deferral Period (PDP):
It is the average time taken by the firm in paying its suppliers or
creditors.
Hence, PDP = Payable Defferal Period
= Average Accounts Payable Net Credit purchase Per Day
Comparative Analysis of Operating & Cash Cycle from 2006-07 to 2009-10:
Year 2006-07 2007-08 2008-09 2009-10
Raw material conversion period
(days)
254613589 / 365 =
68.39
399515428 / 365
=
94.53
394916641 / 365
=
86.62
3,191 14,739 / 365 =
79.02
WIP conversion period (days)
327121009 / 365 =
56.83
337624141 / 365
=
51.04
498027872 / 365
=
65.22
259226887 / 365 =
35.19
FG conversion period (days)
44919345 / 365 =
8.47
35221414 / 365
=
5.99
10824229 / 365
=
1.63
9127854 / 365 =
1.19
Inventory Period (days)
133.69 151.57 153.47 115.4
KIIT SCHOOL OF MANAGEMENT, BHUBANESWAR
Debtors conversion period
(days)
763225294 / 365 =
110.22
905628543 / 365
=
115.81
751831880 / 365
=
86.08
808934929 / 365 =
84.52
Operating Cycle (days)
243.91 267.38 239.55 199.92
Creditors conversion period
(days)
321313115 / 365 =
89.42
379416878 / 365
=
82.05
401516597 / 365
=
88.30
385013981 / 365 =
100.52
Cash Cycle (days)
154.49 185.33 151.25 99.4
Source: PMS, L&T, Kansbahal
The table shows that Operating & Cash Cycle for the year 2007-08
was maximum and hence forth it is decreasing which is good for the
company. This indicates efficient utilization of working capital within the
organization.
RATIO
ANALYSIS
KIIT SCHOOL OF MANAGEMENT, BHUBANESWAR
RATIO ANALYSISAccounting ratios is used to describe significant relationships which
exist between figures shown on a balance sheet, in a profit & loss account,
in a budgetary control system or in any other part of the accounting
organisation. Ratios are simply a means of highlighting in arithmetical
terms the relationship between figures drawn from financial statements.
Ratio Analysis is the technique of analysis and interpretation of the
financial statements. Ratio Analysis facilitates the presentation of
information of financial statements in simplified and concise and
summarized form. It is the process of establishing and interpreting various
ratios for making certain decisions.
Nature of Ratio Analysis:
Ratios, by themselves, are not an end but only one of the means of
understanding the financial health of a business entity. Ratio analysis is
not capable of providing precise answers to all the problems faced by any
business unit. Ratio analysis is basically a technique of:
(i) Establishing meaningful relationship between significant variables
of financial statements; and
(ii) Interpreting the relationship to form judgement regarding the
financial affairs of the unit.
KIIT SCHOOL OF MANAGEMENT, BHUBANESWAR
LIQUIDITY RATIOS
Liquidity ratios measure the ability of the firm to meet its current
obligations as they fall due. Liquidity is the case with which assets may be
converted into cash without loss. The failure of a company to meets its
obligation due to lack of sufficient liquidity, will result in a poor credit
worthiness, loss of creditor's confidence. Liquidity ratios usually consist of
Current ratio, Quick ratio, Cash ratio etc.
A)Current Ratio:
This ratio expresses the relationship between current assets and
current liabilities. This ratio is an indication of the company’s ability to
meet its short term liabilities. It is the ratio of current assets and current
liabilities. The most ideal current ratio of a company is 2:1. This means
every current liability should be covered by at least twice the amount of
current assets. Here the current liabilities also consider the bank
borrowings i.e., secured loans mentioned in the balance sheet.
Current Ratio = Current AssetCurrent Liabilities
Current Ratio
Year Current Assets Current Liabilities Ratio
2009-10 1,595,986,683 860,675,005 1.852008-09 1,994,490,892 1,022,286,575 1.95
2007-08 1,823,279,621 863,491,435 2.11
2006-07 1,535,462,677 681,312,393 2.25
2005-06 1,221,358,455 539,325,732 2.26
Source-Financial records, L&T, Kansbahal Works
L&T has a current ratio of 1.85:1 and 1.95:1 for the financial year
2009-10 and 2008-09 respectively. This is interpreted to be insufficiently
liquid but the previous years have maintained high liquidity. The current
KIIT SCHOOL OF MANAGEMENT, BHUBANESWAR
ratio of L&T, Kansbahal reveals that the obligations of the company can be
met on time.
B)Quick ratio or Acid-test ratio or Liquid ratio:
This is the ratio of quick assets or liquid assets to current liabilities.
Quick assets are defined as current assets excluding inventories. An asset
is liquid if it can be converted into cash within a short period without loss
of value. Inventory by nature cannot be converted into ready cash
abruptly. The term liquid assets does not include inventory. Here the
current liabilities also consider the bank borrowings i.e., secured loans
mentioned in the balance sheet. A ratio of 1:1 is considered as ideal.
Quick Ratio = Liquid Asset Current Liabilities
Current Ratio
Year Liquid Assets Current Liabilities Ratio
2009-10 986,590,092 860,675,005 1.15
2008-09 1,090,755,983 1,022,286,575 1.07
2007-08 1,050,843,929 863,491,435 1.22
2006-07 908,844,142 681,312,393 1.33
2005-06 550,299,481 539,325,732 1.02
Source-Financial records, L&T, Kansbahal Works
The company has been maintaining a little more than necessary
quick ratio of 1:1. Thus, if the L&T’s inventories do not sell and it has to
pay all current liabilities it can easily meet its obligations because its quick
assets are 1.15 times of current liabilities. High Quick ratio indicates the
liquidity position of the firm. The quick ratio of the company reveals
satisfactory liquidity position since it also has considerably fast moving
debtors.
C) Activity / Efficiency / Turnover Ratios:
KIIT SCHOOL OF MANAGEMENT, BHUBANESWAR
"Activity" ratios are concerned with measuring the efficiency in
assets management. "Efficiency" implies effective utilization of available
resources. "Turnover" refers to the utilization of a resource or an asset in
the process of business activity. The ratios of this kind, attempt to find out
the efficient utilization of asset by relating the same to sales/cost of goods
sold.
Inventory / Stock Turnover Ratio
Inventory turnover ratio indicates the velocity with which stock of
finished goods is sold i.e., replaced. Generally it is expressed as number of
times the average stock has been turned over or rotated during the year.
Inventory turnover ratio measures the velocity of conversion of stock
into sales. It would indicate whether inventory has been efficiently used or
not. Inventory turnover ratio indicates the number of times the stock has
been turned over during the period and evaluates the efficiency with which
a firm is able to manage its inventory.
Inventory Turnover Ratio = Net Sales Inventory
Inventory Turnover Ratio
Year Net Sales Inventory Ratio
2009-10 3,38,49,58,254 60,93,96,591 5.55
2008-09 2,97,83,53,765 90,37,34,909 3.30
2007-08 2,58,72,04,708 77,24,35,692 3.35
2006-07 2,31,50,28,433 62,66,18,535 3.69
2005-06 1,70,92,98,528 67,10,58,974 2.55
Source-Financial records, L&T, Kansbahal Works
This shows that L&T is turning its inventory into sales 5.5 times in
the year 2009-10 which is more as compared to the previous years which
indicates there is an efficient management of Inventory. In 2005-06 the
ratio is very low i.e. 2.55 times. It indicates there is an inefficient
KIIT SCHOOL OF MANAGEMENT, BHUBANESWAR
management of Inventory. A low ratio implies over-investment in
inventories, possibility of stock comprising of obsolete items, slow moving
products & poor selling policy; whereas a high ratio implies efficient
inventory control, sound sales policies, trading in quality goods, better
competitive capacity & less money required to finance the inventory.
Days of Inventory Holdings (DIH):
Days of Inventory Holdings (DIH) = Days in a year Inventory turnover ratio
Days of Inventory Holdings (DIH)
Year Days in a yearInventory Turnover
RatioDIH ( in days )
2009-10 365 5.55 65.77
2008-09 365 3.3 110.61
2007-08 365 3.35 108.96
2006-07 365 3.69 98.92
2005-06 365 2.55 143.14
L&T holds average inventory of 66 days in the year 2009-10 which is
the minimum than in comparison to the previous years which is good for
the company.
Debtors / Receivables Turnover Ratio
Debtor is an important constituent of current assets. Perhaps no
business can afford to make sales only thus extending credit to the
customers is a necessary evil. But care must be taken to collect book
debts quickly and within the period of credit allowed. Therefore the quality
of debtors to a greater extent determines the company’s liquidity and
efficiency. This is one of the ratios used by financial analysis to judge the
efficiency of the company.
KIIT SCHOOL OF MANAGEMENT, BHUBANESWAR
The debtor turnover ratio indicates the velocity of debt collection of
firm. It indicates the number of times of the average that debtor’s turnover
each year. Generally higher the value of debtor turnover, the more the
efficiency is the credit management.
Debtors Turnover Ratio = Net Sales Debtors
Debtors Turnover Ratio
Year Net Sales Debtors Ratio(times)
2009-10 3,38,49,58,254 79,19,16,010 4.27
2008-09 2,97,83,53,765 75,18,68,597 3.96
2007-08 2,58,72,04,708 90,56,40,467 2.86
2006-07 2,31,50,28,433 76,32,29,126 3.03
2005-06 1,70,92,98,528 43,99,44,793 3.89
Source-Financial records, L&T, Kansbahal Works
Debtor turnover is high in the year 2009-10. i.e. 4.27 times in a year
than in the other years which implies that Efficiency of management of
debtors is good in the year than other. There is consistency maintained by
L&T, Kansbahal and has an average of 3.60 times. The lowest ratio
indicates the poor management of debtors.
Average Collection Period:
The ACP measures the quality of debtors since it indicates the speed
of their collection. The shorter the ACP, the better the quality of debtors,
since a short collection period implies the prompt payments by debtors.
Average Collection Period (ACP)
Year Days in a year Debtors Turnover Ratio ACP (in days)
2009-10 365 4.27 85.48
2008-09 365 3.96 92.17
2007-08 365 2.86 127.62
2006-07 365 3.03 120.46
KIIT SCHOOL OF MANAGEMENT, BHUBANESWAR
2005-06 365 3.89 93.83
L&T is able to turnover its debtors 4.27 times in a year. In other
words, its debtor remains outstanding for 86 days. But in the previous
years, its debtor remains outstanding for more number of days. This shows
the efficient utilization of debtors.
Creditors / Payable Turnover Ratio
It indicates the speed with which the payments are made to the
trade creditors. It establishes relationship between net credit annual
purchases and average accounts payables. Accounts payables include
trade creditors.
Creditors Turnover Ratio = Net Purchases Creditors
Creditors Turnover Ratio
Year Purchases Creditors Ratio(times)
2009-10 1,66,05,50,137 88,67,01,395 1.87
2008-09 1,78,99,98,563 98,65,49,929 1.81
2007-08 1,70,28,31,690 83,50,87,133 2.04
2006-07 1,32,97,00,660 62,82,81,770 2.12
2005-06 94,70,09,225 47,79,47,196 1.98
Higher payable turnover ratio indicate less period of credit enjoyed
by the business; it may be due to the fact that either business has better
liquidity position; believes in availing cash discount and consequently
enjoys better credit standing in the market or business credit rating among
suppliers is not good and therefore they do not allow reasonable period of
credit.
Working capital Turnover Ratio
KIIT SCHOOL OF MANAGEMENT, BHUBANESWAR
The turnover ratio indicates the turnover of working capital or net
current assets of the company. This indicates whether or not working
capital has been effectively used. It expresses the number of times the
unit invested in working capital produces sale. It is calculated by simply
dividing the net sales by net current assets. It helps in measuring the
efficiency of the employment of working capital. Generally speaking
the higher the turnover, the greater the efficiency and larger the
profits. However a very high ratio may signify a potentially dangerous
situation of the shortage of working capital. Working capital turnover ratio
gives us a better and whole picture of efficiency and inefficiency than stock
or inventory turnover ratio.
Working Capital Turnover Ratio = Net Sales
Net Current Assets
Working Capital Ratio
Year SalesNet Current
AssetsRatio(times)
Reciprocal of the ratios
2009-10 3,38,49,58,254 70,43,62,533 4.81 0.21
2008-09 2,97,83,53,765 95,56,60,369 3.12 0.32
2007-08 2,58,72,04,708 91,43,72,348 2.83 0.35
2006-07 2,31,50,28,433 85,85,97,867 2.7 0.37
2005-06 1,70,92,98,528 69,30,23,272 2.47 0.40
Source-Financial records, L&T, Kansbahal Works
The highest turnover is achieved in 2009-10. i.e. 4.81 and the lowest
is in 2005-06. i.e. 2.47. A higher ratio indicates efficiency utilization of
working capital in L&T, Kansbahal. The ratio can be used by making of
comparative and trend analysis for different companies in the same
industry and for various periods.
KIIT SCHOOL OF MANAGEMENT, BHUBANESWAR
The reciprocal of the ratios indicates that for one rupee of sales, the
company needs Rs. 0.21 of net current assets. This gap will be met from
bank borrowings and long term sources of funds.
Assets Turnover Ratios
Assets are used to generate sales. Therefore a firm should
manage its assets efficiently to maximize sales. The relationship
between sales and assets is called assets turnover. Several assets
turnover ratios can be calculated:
a) Net Assets Turnover : The firm can compute net assets turnover
simply by dividing net sales by net assets.
Net assets turnover = Net Sales Net assets
Net assets include net fixed assets and net current assets i.e., current
assets minus current liabilities. Since net assets equal capital employed,
net assets turnover may also be called capital employed turnover.
Net Assets Turnover Ratio
Year Net Sales Net Assets Ratio(times)
2009-10
3,384,958,254 2,430,159,116 1.39
2008-09
2,978,353,765 1,611,444,624 1.85
2007-08
2,587,204,708 1,354,175,925 1.91
2006-07
2,315,028,433 1,169,342,802 1.98
2005-06
1,709,298,528 987,374,629 1.73
A firm’s ability to produce a large volume of sales for a given amount
of net assets is the most important aspect of its operating performance.
The net assets turnover in the year 2009-10 is 1.39 times which
implies that L&T is producing Rs. 1.39 of sales for one rupee of capital
KIIT SCHOOL OF MANAGEMENT, BHUBANESWAR
employed in net assets. Net assets turnover in the year 2006-07 was good
and hence forth it is declining.
b) Total assets turnover:
This ratio shows the firm’s ability in generating sales from all
financing resources committed to total assets. Thus,
Total assets turnover = Net Sales Total assets
Total assets include net fixed assets and current assets.
Total Assets Turnover Ratio
Year Net Sales Total Assets Ratio(times)
2009-10
3,384,958,254 3,321,783,267 1.02
2008-09
2,978,353,765 2,650,275,147 1.12
2007-08
2,587,204,708 2,263,083,198 1.14
2006-07
2,315,028,433 1,846,207,612 1.25
2005-06
1,709,298,528 1,515,709,812 1.13
The total assets turnover of 1.02 times in the year 2009-10 implies
that L&T generates a sale of Rs. 1.02 for one rupee investment in fixed and
current assets together.
c) Fixed and Current Assets Turnover Ratio
This ratio measures sales per rupee of investment in fixed and
current assets. This ratio establishes the relationship between sales and
fixed & current assets. The purpose is to judge whether the firm is
generating adequate sales for the investment in fixed & current assets of
the firm.
The term fixed assets include land and buildings, plant and
machinery, furniture, etc., after the depreciation. Net fixed assets
includes net block of both tangible as well as intangible assets. This
KIIT SCHOOL OF MANAGEMENT, BHUBANESWAR
ratio is supposed to measure the efficiency with which fixed assets
are employed. A high ratio indicates a high degree of efficiency in
asset utilization and a low ratio reflects inefficient use of assets.
Fixed Assets Turnover Ratio = Net Sales Net fixed assets
Fixed Assets Turnover Ratio
Year Net SalesNet Fixed
AssetsRatio(time
s)Reciprocal of
the ratios2009-
10
3,384,958,25
4
1,725,796,5
84 1.96 0.5102042008-
09
2,978,353,76
5 655,784,255 4.54 0.2202642007-
08
2,587,204,70
8 439,803,577 5.88 0.1700682006-
07
2,315,028,43
3 310,744,935 7.45 0.1342282005-
06
1,709,298,52
8 294,351,357 5.81 0.172117
Interpreting the reciprocals of the ratios, it can be said that in the
year 2009-10, for generating a sale of one rupee, the company needs
respectively Rs. 0.51 investment in the fixed assets.
The term current assets include inventories, sundry debtors,
cash and bank balances and loans and advances.
Current Assets Turnover Ratio = Net Sales Current assets
Current Assets Turnover Ratio
Year Net Sales Current Assets
Ratio(times)
Reciprocal of the ratios
2009-
10
3,384,958,2
54
1,595,986,68
32.12 0.471698
2008-
09
2,978,353,7
65
1,994,490,89
21.49 0.671141
KIIT SCHOOL OF MANAGEMENT, BHUBANESWAR
2007-
08
2,587,204,7
08
1,823,279,62
11.42 0.704225
2006-
07
2,315,028,4
33
1,535,462,67
71.51 0.662252
2005-
06
1,709,298,5
28
1,221,358,45
51.4 0.714286
Interpreting the reciprocals of the ratios, it can be said that in the year
2009-10, for generating a sale of one rupee, the company needs
respectively Rs. 0.47 investment in the fixed assets.
In the year 2009-10, L&T turned over its current assets faster than
fixed assets but in the previous years 2005-06 to 2008-09 L&T turned over
its fixed assets faster than current assets.
INVENTORY
MANAGEMENT
KIIT SCHOOL OF MANAGEMENT, BHUBANESWAR
INVENTORY MANAGEMENTInventories are stock of the product of a company is manufacturing
for sale and components that make up the product. The various forms in
which inventories exist in a manufacturing company are:
a) Raw materials - are materials and components that are inputs in
making the final product.
b) Stock-in-process - refers to goods in the intermediate stages of
production and,
c) Finished goods - consists of the final products that are ready for sale.
Inventories constitute the most significant part of current assets of a
company. On an average, Inventories are approximately 60 percent of the
current assets in public limited companies in India. Inventories represent
the second largest asset category for manufacturing companies, next only
to plant and equipment. There are three general motives for holding
inventories:
Transactions motive,
Precautionary motive &
Speculative motive.
The investment in inventory is very high in most of the undertakings
engaged in manufacturing. The amount of investment is sometimes more
in inventory than in other assets. About 90 percent part of working capital
is invested in inventories. It is necessary for every management to give
proper attention to inventory management. An efficient system of
inventory management will determine:
KIIT SCHOOL OF MANAGEMENT, BHUBANESWAR
What to purchase?
How much to purchase?
Where to purchase?
Where to store?
Cost associated with Inventory:
There are two types of cost associated with inventory at L&T, Kansbahal.
They are:
i. Ordering cost are cost incurred for acquiring of raw materials. It
includes Requisitioning, Order Placing, Transportation, Receiving,
storing, inspecting and clerical and staff.
ii. Cost incurred for maintaining a given level of inventory is called
Carrying cost. They include warehousing, handling, clerical and
staff, insurance, obsolescence and taxes. Carrying costs generally
are about 25% of the value of inventories held.
iii. Shortage costs arise when inventories are short of requirement for
meeting the needs of production or the demand of customers.
Inventory shortages may result in high costs concomitant with
'crash' procurement, less efficient and uneconomic production
schedules, and customer dissatisfaction and loss of sales.
INVENTORY MANAGEMENT AT L&T, KANSBAHAL
There are two types of inventory considered in L&T, Kansbahal. They are:
General Inventories
Projected Inventories.
L&T, Kansbahal Works is not a process industry where only general
inventories are required. They purchase the Raw Materials and stored as
per their order. Those raw materials can be used only against certain
order. So they purchase raw materials as per their order and against a
specific job. These Inventories are projected inventories. The maximum
investment by L&T, Kansbahal in inventories are of projected Inventories
type.
Some of the common materials which can be used in other job also
are general Inventories. These Inventories required proper stock and the
KIIT SCHOOL OF MANAGEMENT, BHUBANESWAR
methods to control and manage these inventories. They are: EOQ,
maximum level, minimum level and re-ordering level.
L&T, Kansbahal uses ERP (People Soft), which help them to find out
the EOQ, maximum level, minimum level and re-ordering level. The data
regarding the Stock can be found out with the help of ERP system. This
system makes the control system very easy, because, at any point of time
we can get the inventory status. It helps for planning and controlling of
inventory.
The percentage of inventory over current assets for last five
years:
Year Inventory Current Assets Ratio (%)
2009-10 60,93,96,591 1,59,59,86,683 38.18
2008-09 90,37,34,909 1,99,44,90,892 45.31
2007-08 77,24,35,692 1,82,32,79,621 42.37
2006-07 62,66,18,535 1,53,54,62,677 40.81
2005-06 67,10,58,974 1,22,13,58,455 54.94
Source-Financial records, L&T, Kansbahal Works
The average portion of inventory in current asset is about 45% in the last 5
years. So in L&T inventory plays a vital role in current assets.
Inventory Turnover Ratio
Inventory turnover ratio measures the velocity of conversion of stock
into sales. It would indicate whether inventory has been efficiently used or
not. Inventory turnover ratio indicates the number of times the stock has
been turned over during the period and evaluates the efficiency with which
a firm is able to manage its inventory.
Inventory Turnover Ratio = Net Sales Inventories at cost
KIIT SCHOOL OF MANAGEMENT, BHUBANESWAR
Inventory Turnover Ratio
Year Net Sales Inventory Ratio(times)
2009-10 3,38,49,58,254 60,93,96,591 5.55
2008-09 2,97,83,53,765 90,37,34,909 3.30
2007-08 2,58,72,04,708 77,24,35,692 3.35
2006-07 2,31,50,28,433 62,66,18,535 3.69
2005-06 1,70,92,98,528 67,10,58,974 2.55
Source-Financial records, L&T, Kansbahal Works
A low ratio implies over-investment in inventories whereas a high
ratio implies less money required to finance the inventory. From the above
table, it is found that, there is an improvement in ratio which indicates the
improvement in the management of inventory.
The table shows that L&T is turning its inventory into sales 5.5
times in the year 2009-10 which is more as compared to the
previous years which indicates there is an efficient management of
Inventory. In 2005-06 the ratio is very low i.e. 2.55 times. It indicates
there is an inefficient management of Inventory.
A low ratio implies over-investment in inventories, possibility of
stock comprising of obsolete items, slow moving products & poor
selling policy; whereas a high ratio implies efficient inventory control,
sound sales policies, trading in quality goods, better competitive
capacity & less money required to finance the inventory.
Days of Inventory Holdings (DIH):
Days of Inventory Holdings (DIH) = Days in a year Inventory turnover ratio
Days of Inventory Holdings (DIH)
Year Days in a yearInventory Turnover
RatioDIH ( in days )
KIIT SCHOOL OF MANAGEMENT, BHUBANESWAR
2009-10 365 5.55 65.77
2008-09 365 3.3 110.61
2007-08 365 3.35 108.96
2006-07 365 3.69 98.92
2005-06 365 2.55 143.14
L&T holds average inventory of 66 days in the year 2009-10 which is
the minimum than in comparison to the previous years which is good for
the company.
\\\
RESEARCH FINDINGS During my entire tenure of two months, I came to know the various
theoretical concepts are used in practise. The kind of practical exposure
that I have got here and the guidance given by my project guide has made
me aware of theories, concepts and their applications in real industry
environment which cannot be learnt in regular classroom teachings.
Concepts like Capital Budgeting, Working Capital Management, Ratio
KIIT SCHOOL OF MANAGEMENT, BHUBANESWAR
Analysis, NPV, Payback period IRR and several other concepts has now
become very easy to understand.
L&T is a manufacturing concern where I got ample opportunity to
know about the working conditions and procedures applied, which helped
me a lot in achieving my objective viz., to begin my career as a financial
analyst. Apart from above
CONCLUSION
KIIT SCHOOL OF MANAGEMENT, BHUBANESWAR
BIBLIOGRAPHY
Annual Accounts (2005-06 to 2009-10)
Annual Reports (2005-06 to 2009-10)
Magazines (published by L&T,Kansbahal)
Financial Management (I M Pandey)
Financial Management ( P Chandra)
Financial Management ( Shashi K.Gupta)
www.lntkbl.com
www.larsentoubro.com
www.lntenc.com
KIIT SCHOOL OF MANAGEMENT, BHUBANESWAR
BALANCE SHEET
( 2005-06 to 2009-10 )
BALANCE SHEET AS AT MARCH 31, 2010
KIIT SCHOOL OF MANAGEMENT, BHUBANESWAR
PARTICULARS As at 31.03.2010
Schedule
s Rupees RupeesA) SOURCES OF FUNDS: i) Shareholders funds:
Reserves & Surplus B496,538,0
10
496,538,01
0ii) Loan funds:
Secured loans C
-30,949,14
5
-
30,949,145
Inter operating division balance 196457025
1
TOTAL 243015911
6
B) APPLICATION OF FUNDS: i) Fixed Assets Tangible Assets E(i)
Gross Block 25545755
98
Less: Depreciation & Impairment 10211932
27
Net Block 15333823
71
15333823
71
Capital WIP(net of impairment) 18939663
9
172277901
0 Intangible Assets E(ii)
Gross Block 17377977 Less: Amortization & Impairment 14360403
Net Block 3017574 3017574
ii) Current Assets Loans & Advances G
Inventories 60939659
1
Sundry Debtors 79191601
0 Cash & Bank Balances 37325
Loans & Advances 19463675
8
15959866
83 Less: Current Liabilities & Provisions H
KIIT SCHOOL OF MANAGEMENT, BHUBANESWAR
Liabilities 89162415
0 Provisions -
89162415
0 Net current assets 704362533
Miscellaneous Expenditure I - -
TOTAL 2430159,1
16Contingent Liabilities J
Significant Accounting Policies Q
BALANCE SHEET AS AT MARCH 31, 2009
PARTICULARS As at 31.03.2009
Schedule
s Rupees RupeesA) SOURCES OF FUNDS: i) Shareholders funds:
Reserves & Surplus B44777054
9
44777054
9ii) Loan funds:
Secured loans C -16543948 -16543948
Inter operating division balance 11809696
98
TOTAL 16121962
99
B) APPLICATION OF FUNDS: i) Fixed Assets Tangible Assets E(i)
Gross Block 14275942
73
Less: Depreciation & Impairment 94180434
8
Net Block 48578992
5
48578992
5
Capital WIP(net of impairment) 16637365
8
65216358
3 Intangible Assets E(ii)
Gross Block 15328674
KIIT SCHOOL OF MANAGEMENT, BHUBANESWAR
Less: Amortization & Impairment 11708002 Net Block 3620672
3620672ii) Current Assets Loans & Advances G
Inventories 90373490
9
Sundry Debtors 75186859
7 Cash & Bank Balances 46629
Loans & Advances 13345116
7
WIP Suspense 20538959
0
19944908
92 Less: Current Liabilities & Provisions H
Liabilities 10352528
88 Provisions 3577635
10388305
23
Net current assets 95566036
9Miscellaneous Expenditure I 751675
TOTAL 16121962
99Contingent Liabilities J
Significant Accounting Policies Q
BALANCE SHEET AS AT MARCH 31, 2008
PARTICULARS As at 31.03.2008
Schedule
s Rupees RupeesA) SOURCES OF FUNDS: i) Shareholders funds:
Reserves & Surplus B36075785
0 360757850
ii) Loan funds: Secured loans C -45415838
-45415838
Inter operating division balance 104033726
6
TOTAL 135567927
8
B) APPLICATION OF FUNDS:
KIIT SCHOOL OF MANAGEMENT, BHUBANESWAR
i) Fixed Assets Tangible Assets E(i)
Gross Block 12514961
56
Less: Depreciation & Impairment 89241681
4
Net Block 35907934
2
35907934
2 Capital WIP(net of impairment) 77571774
436651116 Intangible Assets E(ii)
Gross Block 12917206 Less: Amortization & Impairment 9764745
Net Block 3152461 3152461
ii) Current Assets Loans & Advances G
Inventories 77243569
2
Sundry Debtors 90564046
7 Cash & Bank Balances 3182292
Loans & Advances 14202117
0
18232796
21 Less: Current Liabilities & Provisions H
Liabilities 90529755
7 Provisions 3609716
90890727
3 Net current assets 914372348
Miscellaneous Expenditure I 1503353
TOTAL 13556792
78Contingent Liabilities J
Significant Accounting Policies Q
BALANCE SHEET AS AT MARCH 31, 2007
PARTICULARS As at 31.03.2007
Schedule
s Rupees RupeesA) SOURCES OF FUNDS: i) Shareholders funds:
Reserves & Surplus B30022217
1
KIIT SCHOOL OF MANAGEMENT, BHUBANESWAR
300222171ii) Loan funds:
Secured loans C 4447583 4447583
Inter operating division balance 869816423
TOTAL 117448617
7B) APPLICATION OF FUNDS: i) Fixed Assets Tangible Assets E(i)
Gross Block 11490217
93
Less: Depreciation & Impairment 86844928
6
Net Block 28057250
7
28057250
7 Capital WIP(net of impairment) 27720332
308292839 Intangible Assets E(ii)
Gross Block 9900819 Less: Amortization & Impairment 7448723
Net Block 2452096 2452096
ii) Current Assets Loans & Advances G
Inventories 62661853
5
Sundry Debtors 76322912
6 Cash & Bank Balances -1089505
Loans & Advances 14670452
1
15354626
77 Less: Current Liabilities & Provisions H
Liabilities 67390828
4 Provisions 2956526
67686481
0 Net current assets 858597867
Miscellaneous Expenditure I 5143377
TOTAL 11744861
79Contingent Liabilities J
Significant Accounting Policies Q
KIIT SCHOOL OF MANAGEMENT, BHUBANESWAR
BALANCE SHEET AS AT MARCH 31, 2006
PARTICULARS As at 31.03.2006
Schedule
s Rupees RupeesA) SOURCES OF FUNDS: i) Shareholders funds:
Reserves & Surplus B14495131
0 144951310
ii) Loan funds: Secured loans C 10990549
Un-Secured loans D 683835 11674384
Inter operating division balance 841540692TOTAL 998166386
B) APPLICATION OF FUNDS: i) Fixed Assets Tangible Assets E(i)
Gross Block 11127083
97
Less: Depreciation & Impairment 82562692
7
Net Block 28708147
0
28708147
0 Capital WIP(net of impairment) 3841428
290922898 Intangible Assets E(ii)
Gross Block 7896761 Less: Amortization & Impairment 4468302
Net Block 3428459 3428459
ii) Current Assets Loans & Advances G
Inventories 67105897
4
Sundry Debtors 43994479
3 Cash & Bank Balances -34790
Loans & Advances 11038947
8
12213584
55 Less: Current Liabilities & Provisions H
Liabilities 52418452
3 Provisions 4150660
KIIT SCHOOL OF MANAGEMENT, BHUBANESWAR
52833518
3 Net current assets 693023272
Miscellaneous Expenditure I 10791757
TOTAL 99816638
6Contingent Liabilities J
Significant Accounting Policies Q
PROFIT AND LOSS A/C FOR THE PERIOD ENDED MARCH 31, 2010
PARTICULARS 01.04.2009 to 31.03.2010
Schedule
s Rupees RupeesA) INCOME:
Sales & Service(Gross) K 3534651997
Less: Excise Duty 149693743
Sales & Service(Net) 3384958254
Other Income L(ii) 2898475
Interest Income L(iii) -11569542
3376287186B) EXPENDITURE
Mfg Construction & Operating expenses M 2386604263
Staff Expenses N 376954805 Sales Administration & Other
Expenses O 119966357
Interest & Brokerage P 3635983 Depreciation, obsolescence &
Impairment 84554446
Amortization of intangible assets 2652401
2974368255 Less: Overheads charged to Fixed
Assets 84423639
2889944616Profit before transfer from revaluation
reserve 486342570Add: Transfer from revaluation
reserve 2229343Profit before tax before extra ordinary
items 488571913
Provision for Fringe Benefit Tax -
KIIT SCHOOL OF MANAGEMENT, BHUBANESWAR
- -Profit after tax before extra ordinary
items 488571913Profit after tax after extra ordinary
items 488571913
Profit after tax after Minority Interest 488571913
Profit available for appropriation 488571913
Profit available for distribution 488571913
Balance carried to Balance Sheet 488571913
PROFIT AND LOSS A/C FOR THE PERIOD ENDED MARCH 31, 2009
PARTICULARS 01.04.2008 to 31.03.2009
Schedule
s Rupees RupeesA) INCOME:
Sales & Service(Gross) K31902291
57
Less: Excise Duty 21187539
2
Sales & Service(Net) 29783537
65
Other Income L(ii) 5196993
Interest Income L(iii) 1151516
29837022
74B) EXPENDITURE
Mfg Construction & Operating expenses M
2013471320
Staff Expenses N35287752
7 Sales Administration & Other
Expenses O16881425
7
Interest & Brokerage P 658562 Depreciation, obsolescence &
Impairment 49825894
Amortization of intangible assets 1943257
25875908
17 Less: Overheads charged to Fixed
Assets 42020019
25455707
98
KIIT SCHOOL OF MANAGEMENT, BHUBANESWAR
Profit before transfer from revaluation reserve
439131476
Add: Transfer from revaluation reserve 2021268
Profit before tax before extra ordinary items
441152744
Provision for Fringe Benefit Tax 3577635
3577635Profit after tax before extra ordinary
items 43757510
9Profit after tax after extra ordinary
items 43757510
9
Profit after tax after Minority Interest 43757510
9
Profit available for appropriation43757510
9
Profit available for distribution 43757510
9
Balance carried to Balance Sheet 43757510
9
PROFIT AND LOSS A/C FOR THE PERIOD ENDED MARCH 31, 2008
PARTICULARS 01.04.2007 to 31.03.2008
Schedule
s Rupees RupeesA) INCOME:
Sales & Service(Gross) K 2854005574
Less: Excise Duty 266800866
Sales & Service(Net) 2587204708
Other Income L(ii) 53258160
Interest Income L(iii) 1692693
2642155561
B) EXPENDITURE Mfg Construction & Operating
expenses M 1822365888
Staff Expenses N 328025833 Sales Administration & Other
Expenses O 102137136
Interest & Brokerage P 164119 Depreciation, obsolescence &
Impairment 44229714
Amortization of intangible assets 2316022
KIIT SCHOOL OF MANAGEMENT, BHUBANESWAR
2299238713 Less: Overheads charged to Fixed
Assets 7225595
2292013118Profit before transfer from revaluation
reserve 350142442Add: Transfer from revaluation
reserve 2008417Profit before tax before extra ordinary
items 352150859
Provision for Fringe Benefit Tax 3609716
3609716Profit after tax before extra ordinary
items 348541143Profit after tax after extra ordinary
items 348541143
Profit after tax after Minority Interest 348541143
Profit available for appropriation 348541143
Profit available for distribution 348541143
Balance carried to Balance Sheet 348541143
PROFIT AND LOSS A/C FOR THE PERIOD ENDED MARCH 31, 2007
PARTICULARS 01.04.2006 to 31.03.2007
Schedule
s Rupees RupeesA) INCOME:
Sales & Service(Gross) K 2529356302
Less: Excise Duty 214327869
Sales & Service(Net) 2315028433
Other Income L(ii) 5770183
Interest Income L(iii) 943466
2321742082B) EXPENDITURE
Mfg Construction & Operating expenses M 1613630126
Staff Expenses N 267879316 Sales Administration & Other
Expenses O 105029401
Interest & Brokerage P 1632041
KIIT SCHOOL OF MANAGEMENT, BHUBANESWAR
Depreciation, obsolescence & Impairment 46384185
Amortization of intangible assets 2980421
20375355490 Less: Overheads charged to Fixed
Assets 2776011
2034759479
Profit before transfer from revaluation reserve 286982603
Add: Transfer from revaluation reserve 1970970
Profit before tax before extra ordinary items 288953573
Provision for Fringe Benefit Tax 2956526
2956526
Profit after tax before extra ordinary items 285997047
Profit after tax after extra ordinary items 285997047
Profit after tax after Minority Interest 285997047
Profit available for appropriation 285997047
Profit available for distribution 285997047
Balance carried to Balance Sheet 285997047
PROFIT AND LOSS A/C FOR THE PERIOD ENDED MARCH 31, 2006
PARTICULARS 01.04.2005 to 31.03.2006
Schedule
s Rupees Rupees
A) INCOME:
Sales & Service(Gross) K 1869960759
Less: Excise Duty 160662231
Sales & Service(Net) 1709298528
Other Income L(ii) 16999842
Interest Income L(iii) 0
1726298370
B) EXPENDITURE Mfg Construction & Operating
expenses M 1203835844
KIIT SCHOOL OF MANAGEMENT, BHUBANESWAR
Staff Expenses N 232615117 Sales Administration & Other
Expenses O 111819499
Interest & Brokerage P -425743 Depreciation, obsolescence &
Impairment 47997793
Amortization of intangible assets 2646410
1598488920 Less: Overheads charged to Fixed
Assets 3152464
1595336456
Profit before transfer from revaluation reserve 130961914
Add: Transfer from revaluation reserve 1943962
Profit before tax before extra ordinary items 132905876
Provision for Fringe Benefit Tax 4150660
Profit after tax (PAT) 128755216
Profit available for appropriation 128755216
Profit available for distribution 128755216
Balance carried to Balance Sheet 128755216
ANNEXURE
KIIT SCHOOL OF MANAGEMENT, BHUBANESWAR
NET PRESENT VALUE (NPV)
CAPITAL EXPENDITURE EVALUATION - NPV
FOR CAPACITY INCREASE / NEW PRODUCTS
DESCRIPTION
NEW VERTICAL LATHEVALUE(RS IN LACKS)
600
REASONS FOR A SPECIFIC AND REPETITIVE ORDER
CASH FLOW (Rs IN LACKS) 2007-082008-
092009-
102010-
112011-
122012-
132013-
14
1.CAPITAL INVESTMENT 600
MATERIAL 0.00 0.00 0.00 0.00 0.00 0.00
LABOUR 7.20 7.20 7.20 7.20 7.20 7.20
REPAIR & 30.00 30.50 31.00 31.50 32.00 32.50
2. OPERATING MAINTANANCE
EXPENSES SUPPLIES 5.00 5.00 5.00 5.00 5.00 5.00
& TOOLING
POWER 6.71 6.71 6.71 6.71 6.71 6.71
TOTAL 48.91 49.41 49.91 50.41 50.91 51.41
3. QUANTITY OF PROD. (HRS) 69.00 69.00 69.00 69.00 69.00 69.00
4.SHOP RATE/HR ( in Rs.x100) 10.00 10.00 10.00 10.00 10.00 10.00
5.RECOVERY(3)X(4) 690.00 690.00 690.00 690.00 690.00 690.00
6.SALVAGE VALUE 100.00
7.BOOK VALUE 540.00 486.00 437.40 393.66 354.29 318.86
8.TAX SAVING = T((7)-(6)) 181.76 163.59 147.23 132.51 119.26 73.67
9.DEPRECIATION 60.00 54.00 48.60 43.74 39.37 35.43
KIIT SCHOOL OF MANAGEMENT, BHUBANESWAR
10.TAX = T((5)-(2)+(9)) 235.99 233.80 231.81 230.01 228.37 226.87
11.TOTAL INFLOW = (5)+(6)+(8) 871.76 853.59 837.23 822.51 809.26 863.67
12.TOTAL OUTFLOW 600.00 284.90 283.21 281.72 280.42 279.28 278.28
13.NET INFLOW = ((11)-(12)) -600.00 586.87 570.38 555.51 542.09 529.98 585.38
14.DISCOUNT FACTOR @ (14%WACC) 1.00 0.877 0.769 0.675 0.592 0.519 0.456
15.DISCOUNTED NET INFLOW = (13)X(14)
-600.00 514.68 438.62 374.97 320.92 275.06 266.94
16.TOTAL NET PRESENT VALUE 1591.18 RETURN ON INVESTMENT
T=TAX RATE = 33.66% WACC @ 14%
SIGNATURE:DATE:
PAYBACK PERIOD
CAPEX EVALUATION - PAYBACK PERIOD FORM CEB-6
FOR CAPACITY INCREASE / NEW PRODUCTS SBU KBL WORKS
ASSET DESCRIPTION VALUE EXISTING LOADPAYBACK
PERIOD
VERTICAL LATHE M/CRS. Lacs
QUANTITY OR HOURS = 6 YEARS
600
BASIS TOTAL EXISTING CAPACITYCAPACITY INCREASE CAPACITY INCREASED CAPACITY
OF SIMILAR FACILITIES REQD. TO REMOVEOF
PROPOSED AFTER THE PROPOSEDTOTAL LOAD x
100% BOTTLENECK FACILITY ADDITION
HOURS TOTAL CAPACITY QTY. OR HOURSQTY. OR HOURS QTY. OR HOURS
TWO SHIFT
THREE SHIFT 4600 5400 4600 9200
YEAR FACILITIES AFTER PROPOSED ADDITION OTHER BALANCING FACILITIES REQUIRED
LOAD FORECAST CAPACITY FACILITY VALUE WHEN REQD.QTY OR HOURS UTILISATION (MT) RS. Lacs
(MT)TWO
SHIFTTHREE SHIFT
BASIS BASIS
BUDGET YR2007-08
BUDGET YR+1 10000 78002008-09
BUDGET YR+2 12000 93602009-10
BUDGET YR+3 14000 109202010-11
BUDGET YR+4 16000 12480
KIIT SCHOOL OF MANAGEMENT, BHUBANESWAR
2011-12
BUDGET YR+4 18000 140402012-13
MAINTENANCE INFRASTRUCTURE, SPARES ,TOOLING
RAW MATERIAL,SPARES
1. IS IN-HOUSE EXPERIENCE AVAILABLE?
1. COST (RS. Lacs) 1. IS IT AVAILABLE LOCALLY?
YES NO
YES NOCOST
OFEQUIPMENT
2. IF NOT, HOW ELSE?
2. IF NOT, HOW ELSE? YES NO
Some imported spares would be required.CONSTRAINTS / LIMITATIONS (KNOWN /LIKELY)
KIIT SCHOOL OF MANAGEMENT, BHUBANESWAR
KIIT SCHOOL OF MANAGEMENT, BHUBANESWAR
top related