niks final
TRANSCRIPT
-
8/8/2019 NIKS Final
1/85
Report
on
MANAGEMENT OF ASSETS ANDLIABILITIES
At
INDIAN OIL CORPORATION LIMITED
GUJARAT REFINERY(Where growth is essence of life)
Prepared byNIKUNJ THAKKAR
Registration No:09PG238
Under the Guidance ofProf. ZOHRA BI
In partial fulfillment of the Course: Students Internship Programme (SIP)
In Term IV of the Post Graduate Programme in Management
(Batch: 2009 2011)
1
-
8/8/2019 NIKS Final
2/85
Bangalore
Post Graduate Programme
Post Graduate Diploma in Management:2009-11
Term IV: Students Internship Programme(SIP)
Declaration
This is to declare that the Report entitled MANAGEMENT OF ASSETS AND
LIABILITIES has been made for the partial fulfillment of the Course: Students Internship
Programme (SIP) in Term IV (Batch: 2009-2011) by me at INDIAN OIL CORPORAION
Ltd., GUJARAT REFINERY, VADODARA GUJARAT under the guidance of Prof.
ZOHRA BI.
I confirm that this Report truly represents my work undertaken as a part of my Students
Internship Programme (SIP). This work is not a replication of work done previously by any
other person. I also confirm that the contents of the report and the views contained therein
have been discussed and deliberated with the Faculty Guide.
Signature of the Student :
Name of the Student (in Capital Letters) : NIKUNJTHAKKAR
Registration No : 09PG238
2
-
8/8/2019 NIKS Final
3/85
Bangalore
Post Graduate Programme
Post Graduate Diploma in Management:2009-11
Certificate
This is to certify that Mr. NIKUNJ THAKKAR Regn. No.09PG238 has completed the
Report entitled MANAGEMENT OF ASSETS AND LIABILITIES under my guidance
for the partial fulfillment of the Course: Students Internship Programme (SIP) in Term IV of
the Post Graduate Programme in Management (Batch: 2009 2011).
Signature of Faculty Guide
__________________________
Prof. ZOHRA BI
3
-
8/8/2019 NIKS Final
4/85
TABLE OF CONTENTS
Sr. No. Content Page Number
PREFACE 5
ACKNOWLEDGEMENT 6
EXECUTIVE SUMMARY 7
1 OIL SECTOR AT WORLDLEVEL
8
2 ABOUT IOCL 22
3 FINANCE DEPARTMENT 42
3.1 Introduction and objectives 44
3.2 Project profile 46
3.3 Objectives and limitations 46
4 OBSERVATION/ANALYSIS 485 LEARNING
OUTCOME/FINDINGS88
6 RECOMMENDATIONS ANDCONCLUSION
89
BIBLIOGRAPHY 91
4
-
8/8/2019 NIKS Final
5/85
PREFACE
In developing economy, students exposure has been gaining increasingly significant.
Students are looked upon as an especially talented person capable of assuming risk,
marshalling the necessary resources & above all having the insight to go in for innovations &
adopting to fast changing circumstances. In 21st century, the world is kept on changing very
fast. We are across many theories and implementation of machinery.
I have visited the industry in order to set the practical knowledge about which I have studied
in classroom so that as a student of management I can know the picture of industry and
operation in training age.
The myth that leaders are not born and not made has been effectively erased. Today, we
dont just plan & present program for student general but go a step further and talk about over
all exposure to the organization.
I have prepared this report so far as best of my knowledge. This report reflects of what
so I come to know industry during the training at IOCL.
5
-
8/8/2019 NIKS Final
6/85
ACKNOWLEDGEMENT
Training is a part of our study which gives practical knowledge to us. From training
student will learn about different function carried out by different departments of the
organization. With this student also knows the actual problem that they have to face in near
future.
A project study of this nature involves the co-operation, well wishes and also sacrifices
of a number of people. I would hereby like to appreciate and thank them all for their
invaluable contribution.
My debt to those who have helped me in one way or the other is heavily I need while I
take this opportunity to thank all of them. They are too numerous to be mentioned in this
brief preface. I would like to acknowledge my deep sense of gratitude to authority to
granting me the permission to undergo summer training at Gujarat refinery.
I wish to reiterate my debt of Gujarat refinery for giving a wonderful training
experience, & also providing all the necessary information & data despite of their busy
schedule.
I am very much thankful to Mr.V.K.Jain (CFM), who has given me the golden
opportunity to undergo training at finance department.
I would like to give special thanks to Mr. N.V.BHATT(DFM).As he gave us cooperation
at fullest extent during my training span and taught practical problems in corporate. His
friendly nature is also appreciable.
I would also like to thank Prof. ZOHRA BI for her esteemed guidance during this
Internship programme. I am highly grateful to her for her Co-operative efforts in making this
internship a successful learning experience.
NIKUNJ THAKKAR
6
-
8/8/2019 NIKS Final
7/85
EXECUTIVE SUMMARY
Asset management
is the process of guiding the acquisition, use and disposal of assetsto make the most of their service delivery potential and manage the related risks and costs
over their entire life.
In this project on Management of Assets and Liabilities at IOCL, I have covered all
the accounting policies and practices followed by the company for the management of assets
and liabilities. This project covers information on the depreciation practices followed at IOCL
and the accounting for depreciation. It also covers various different practices of the company
relating to the transfer and disposal of assets, impairment of assets, amortization etc. This
project also covers the management of fixed assets (tangible and intangible) and current
assets. It also describes the Inventory Management policies at IOCL and the need to hold
inventory.
This project also covers the codification of assets in IOCL based on the characteristics
whether it is an insured or non insured, inventory control or non inventory control, critical or
non critical item etc. It also explains the Additional Facility AF proposal process followed by
the company. It compares the important accounting policies applied at IOCL with many
different players in the same industry like Reliance, Hpcl etc. It also covers the policies for
the management of Short term and Long term Liabilities at IOCL.
The above data has been collected from the companys website, some financial
websites such as studyfinance.com. I took help from previous reports prepared on the same
topic and much more information was collected from the continuous interaction with the
company employees and the Industry guide.
7
-
8/8/2019 NIKS Final
8/85
CHAPTER 1
INDUSTRY OVERVIEW
8
-
8/8/2019 NIKS Final
9/85
1) OIL SECTOR AT WORLD LEVEL
Technically speaking, oil can be both refined and unrefined. Refined oil is
transformed into familiar products such as gasoline, kerosene, diesel fuel, motor oil,
etc. Unrefined oil is known simply as crude oil due to the presence of various amounts
of impurities that have mixed with the oil deep down in the earth.
Crude oil typically ranges from black to brown to green in color and can have a
waxy feel to it. It also has a strong scent. When oil is produced from wells it is known
as crude oil until that time when it is delivered to a refinery and is processed into some
of the refined products mentioned above.
But, there are other terms for oil. The most common term not mentioned already is
petroleum (the literal oil definition: Petra = rock, oleum = oil). Petroleum is a
name pretty much synonymous with oil but differs primarily in that petroleum can be
a gas (i.e., vapor), a liquid, a solid, and a semi-solid. These different forms are known
as phases.
Therefore, crude oil is a liquid phase of petroleum.
Some of the other terms for petroleum are called natural gas, and bitumen (i.e.,
asphalt, and tar).
9
-
8/8/2019 NIKS Final
10/85
HISTORY OF OIL SECTOR
The two oldest of the major oil companies were created at the end of the 19th
century, The
American, Standard Oil belonging to Rockefeller, and the Anglo-Dutch, Royal Dutch/Shell.
Very rapidly, the American majors invested abroad, attracted by the enormous profits
generated by low-cost oil (Middle East), sold at the same price as Venezuelan or Texan crude
that was more expensive to produce. In July 1928, BP, Shell, Exxon, Mobil and the CFP
signed the Red Line Agreements. This was an agreement to pool their prospecting facilities
and to share by mutual agreement the oil resources discovered.
In the 1950s, the producer countries share of petroleum revenues increased
significantly, but the profits of the majors were almost unaffected, thanks to fiscal advantages
granted by their governments.
The two decades following the turning point of the first petrol crisis are marked for the
oil companies by income levels forced upwards by price increases and, at the same time,
downwards by the continued increase in the producer states share of petroleum revenues. The
progressive abandonment of the system of concessions resulted in large losses of money for
the majors, compensated for, overall, by the increase in the barrel price and the development
of trading activities (trading of crude and petroleum products).
The oil companies continue to earn large profits. This money could be used in part to
finance energy re-conversion in developed countries.
10
-
8/8/2019 NIKS Final
11/85
GLOBAL SCENARIO:
Oil accounts for 40% of the worlds total primary energy demand and economic conditions
are governed to a large degree by its availability.
The major sources of oil in the world include the Arabian countries, North Africa and some
countries of Asia and South America.
According to the current research by Campbell, in approximately ten years, there will be an
onset of global long-term shortage when the Middle East will be required to supply at least
50%of the worlds oil and that it will not be able to meet this requirement.
The study further indicated that given an equal distribution of reserves, static consumption
and production levels, there might be 100 years of consumption left.
With 65% of the worlds oil reserves located in the Middle East, it is apparent that global
distribution of oil is not equitable and the graph below indicates that consumption and
production are also widely disparate and bear little relationship to the presence of reserves.
11
-
8/8/2019 NIKS Final
12/85
North America, Far East and Oceania and Western Europe consume 77.5% of the
worlds oil, produce 44.4% but actually only contain 12.5% of the worlds oil
reserves. For these areas, 100 years is an unrealistically long period. The Middle East,
in contrast, although containing 65% of the worlds oil reserves only produces about
30% and consumes about 6% of the worlds supply.
The amount of oil we can take from the ground each year is about to reach a limit
that cannot be increased by ingenuity or determination. That limit will then decrease
forever, with short plateaus and little upward bumps on the way down. A similar limit
for natural gas will follows in a few years.
How does oil pricing work
12
-
8/8/2019 NIKS Final
13/85
Crude oil's value is based on its refined use. The primary use dictated by current
global demand is for fuels like gasoline, diesel, heating oil, and jet fuel to run the
equipment that support our ways of life.
The various characteristics/properties of crude from around the world - referred to
euphemistically in industry jargon as light, sweet, intermediate, sour, heavy, etc. -
contain differing amounts of the various hydrocarbons and impurities. Their locations
around the globe also speak to the costs of getting the oil to local refineries and
markets - thereby establishing their relative value for the products in demand.
UP & DOWN STREAM IN OIL SECTOR
The oil sector is usually divided into three major components: upstream,
midstream and downstream. Midstream operations are usually included in the
downstream category.
Up stream:
The upstream oil sector is a term commonly used to refer to the searching for and
the recovery andproduction of crude oil and natural gas. The upstream oil sector is
also known as the exploration and production (E&P) sector.
The upstream sector includes the searching for potential underground or
underwater oil and gas fields, drilling of exploratory wells, and subsequently operating
the wells that recover and bring the crude oil and/or raw natural gas to the surface.
Mid stream:
To refer to the refining ofcrude oil, and the selling and distribution ofnatural gas
and products derived from crude oil. Such products include liquefied petroleum gas
13
http://en.wikipedia.org/wiki/Upstream_(oil_industry)http://en.wikipedia.org/wiki/Downstream_(oil_industry)http://en.wikipedia.org/wiki/Extraction_of_petroleumhttp://en.wikipedia.org/wiki/Crude_oilhttp://en.wikipedia.org/wiki/Natural_gashttp://en.wikipedia.org/wiki/Petroleumhttp://en.wikipedia.org/wiki/Natural_gashttp://en.wikipedia.org/wiki/Refininghttp://en.wikipedia.org/wiki/Petroleumhttp://en.wikipedia.org/wiki/Natural_gashttp://en.wikipedia.org/wiki/Liquified_petroleum_gashttp://en.wikipedia.org/wiki/Upstream_(oil_industry)http://en.wikipedia.org/wiki/Downstream_(oil_industry)http://en.wikipedia.org/wiki/Extraction_of_petroleumhttp://en.wikipedia.org/wiki/Crude_oilhttp://en.wikipedia.org/wiki/Natural_gashttp://en.wikipedia.org/wiki/Petroleumhttp://en.wikipedia.org/wiki/Natural_gashttp://en.wikipedia.org/wiki/Refininghttp://en.wikipedia.org/wiki/Petroleumhttp://en.wikipedia.org/wiki/Natural_gashttp://en.wikipedia.org/wiki/Liquified_petroleum_gas -
8/8/2019 NIKS Final
14/85
(LPG), gasoline or petrol, jet fuel, diesel oil, other fuel oils, asphalt and petroleum
coke.
The midstream industry processes, stores, markets and transports commodities
such as crude oil, natural gas, natural gas liquids (LNGs, mainly ethane, propane and
butane) and sulphur.
Downstream:
The downstream oil sector is a term commonly used
The downstream sector includes oil refineries, petrochemical plants, petroleum
product distribution, retail outlets and natural gas distribution companies.
The downstream industry touches consumers through thousands of products such
as petrol, diesel, jet fuel, heating oil, asphalt, lubricants, synthetic rubber, plastics,
fertilizers, antifreeze,pesticides, pharmaceuticals, natural gas and propane
Oil companies ranking
Oil Company Rankings occur all of the time. Often, when one considers oil companies, they
think of the various gas stations they drive by and visit on their way to and from work or some
14
http://en.wikipedia.org/wiki/Liquified_petroleum_gashttp://en.wikipedia.org/wiki/Gasolinehttp://en.wikipedia.org/wiki/Diesel_oilhttp://en.wikipedia.org/wiki/Fuel_oilhttp://en.wikipedia.org/wiki/Asphalthttp://en.wikipedia.org/wiki/Petroleum_cokehttp://en.wikipedia.org/wiki/Petroleum_cokehttp://en.wikipedia.org/wiki/Oil_refineryhttp://en.wikipedia.org/wiki/Petrochemicalhttp://en.wikipedia.org/wiki/Heating_oilhttp://en.wikipedia.org/wiki/Lubricanthttp://en.wikipedia.org/wiki/Plastichttp://en.wikipedia.org/wiki/Pesticidehttp://en.wikipedia.org/wiki/Liquified_petroleum_gashttp://en.wikipedia.org/wiki/Gasolinehttp://en.wikipedia.org/wiki/Diesel_oilhttp://en.wikipedia.org/wiki/Fuel_oilhttp://en.wikipedia.org/wiki/Asphalthttp://en.wikipedia.org/wiki/Petroleum_cokehttp://en.wikipedia.org/wiki/Petroleum_cokehttp://en.wikipedia.org/wiki/Oil_refineryhttp://en.wikipedia.org/wiki/Petrochemicalhttp://en.wikipedia.org/wiki/Heating_oilhttp://en.wikipedia.org/wiki/Lubricanthttp://en.wikipedia.org/wiki/Plastichttp://en.wikipedia.org/wiki/Pesticide -
8/8/2019 NIKS Final
15/85
other destination. They even form opinions of the companies based on the quality of service they
receive from the attendants.
Of course, oil companies are much more than their service station arms - although marketing is
essential. Each company has goals and objectives established by their directors which give them
each their own particular character.
Even governments run their own oil companies and dictate the terms of private operations within
their countries!
Oil companies around the world - especially those who are not owned by their government -
compete with each other to find oil, produce it, and grow their market share.
Oil company rankings, then, are essential to understanding this global industry.
Oil primer ranks the top major oil companies amongst each other based on basic industry
metrics: assets, revenue, net income, and oil and gas production and reserves.
1.1) PETROLEUM SECTOR AT WORLD LEVEL
15
-
8/8/2019 NIKS Final
16/85
OVERVIEW
More than six years have passed since the occupation of Iraq and its petroleum industry still
has not recovered to the level of the pre-invasion period.
Billions of US dollars have been sunk into the industry without an apparent result to be
compared with the difficult years of the embargo which preceded the occupation.
Although this is an improvement over previous years, there are signs of deterioration in the
production of the state-owned South Oil Co. (SOC)
Where a decline of almost 200,000 b/d was seen in the last few months compared to
previous years.
Changes in management and fast-track remedies to salvage the situation are unlikely to bring
a quick fix as long as the divisive and unstable general conditions in the country are still there.
In the downstream sector the situation is not much different.
The refineries and gas processing plants are working at about 65% of capacity at a time
when the country is importing enormous quantities of liquid fuels.
Although there was a noticeable improvement in 2008 over previous years, local production
of light fuels (LPG, gasoline and middle distillates) at the overall level of 225,000 b/d is still
25% below the average level in 2001-02
The situation has been helped by a drastic reduction in demand for light fuels as it has fallen
by almost 18% since 2005.
This has forced the electricity industry to use more liquid fuels as a substitute including
crude oil where in 2007 the average use amounted to 70,000 b/d in power stations that would
have benefited so much from the cleaner natural gas.
"To get out of this gloomy situation is not easy in the circumstances where the [central]
administration is lacking in direction and the ability to make the hard decisions required
moving forward.
16
-
8/8/2019 NIKS Final
17/85
The solution may lie outside the realm of the oil industry and the country has to rid itself of
the occupation and the culture that came with it.
AT INDIA LEVEL
OIL DEMAND BY END USE - INDIA
This chart shows the demand end use by the India. The maximum use of oil is done by the
transport business. The household is the second big customer of the oil in India.
Then the industries, agriculture, feedstock, specialties and very small portion is consumed
by the commercial sector.
Major companies in Oil and Gas
Indian Companies
1. Indian Oil Corporation Ltd
2. ONGC Ltd
3. Bharat Petroleum Ltd
4. Reliance Petroleum Ltd
17
H ous eho l
1 9 %C om m e rc i
1 %
I n d u s t r y1 1 %
Fe e ds t o c8 %
T ra n spo r
4 6 %
A g r i c u l t u r 9 %
S pe c ia l i t ie
6 %
-
8/8/2019 NIKS Final
18/85
5. Essar Oil Ltd
6. Gas Authority Of India
7. Hindustan Petroleum Corporation Ltd
8. Aban
9. Oil India Ltd
10. Tata Petrodyne
PETROLEUM INDUSTRY
OVER VIEW
Key Findings of the Definitional Mission Over the past decade, Indias domestic oil
production has remained essentially unchanged from year to year, while the countrys demand for
petroleum products has almost doubled. This has caused Indias reliance on foreign oil to grow to
the point where more than two-thirds of the countrys petroleum supplies are now acquired from
abroad. The foreign exchange cost of the imported petroleum is in access of $10 billion per year.
While Indias hydrocarbon resource base is estimated at 29 billion tons of oil and
oil-equivalent gas (215 billion barrels), about two-thirds of its potential hydrocarbon producing
areas remains either poorly explored or totally unexplored. Consequently, only 6.8 billion tons of
reserves have been established through exploration.
In response to the underdevelopment of domestic hydrocarbon reserves in the face of
a growing dependence on petroleum imports, the Government of India is encouraging both
domestic and international private investors to increase exploration and production efforts in the
country with the implementation of a new exploration licensing policy (NELP).
Since January 1999, a total of 21 entities - 10 foreign companies, 6 Indian private
companies and 5 public-sector enterprises have participated in the NELP bidding process.
However, to the governments disappointment, no major international oil companies have
joined in the recent bidding.
18
http://petroleum.nic.in/index.htmhttp://petroleum.nic.in/index.htm -
8/8/2019 NIKS Final
19/85
It has been one and a half years since the government dismantled Administered
Price Mechanism (APM). Earlier, under the tight control of APM, the Indian oil and gas sector
had four major petroleum products: Petrol, diesel, kerosene and LPG.
These subsidies were compensated by higher prices charged on petrol and diesel.
But the higher prices were not sufficient to cover the subsidies as a result of which the
government was facing losses in the form of oil pool deficit.
But the prices of petroleum products in India are less compared to the international level.
To match the international prices, the government has allowed PSUs to change their prices.
With the entry of private players, petroleum products are priced at international levelsresulting in the increase of the price volatility in the market and as a result of which the
government has lost control over prices.
Petroleum Industry is considered to be the back bone of an economy because this is
the main source of energy till date. Any economy around the world would fail to precede a single
step in the absence of Petroleum Industry.
The most important part of the Petroleum Industry is the Petroleum Refining
Industry which refines the crude oil to convert it to the usable fuel. It also derives many derivative
products out of the crude petroleum like natural gas, naphtha, etc which can be used in various
ways
Petroleum is not a domestic product and any kind of shortage in the same has serious
ramifications on all possible industries along with the economies all over the world.
Petroleum Industry always needs to perform exploration research all over the world for
finding more petroleum sites which also become instrumental in the setting up Petroleum
Industry Trends around the world.
Future of Indian petroleum industry
19
-
8/8/2019 NIKS Final
20/85
The future of Indian petroleum industry has good potential but it needs developmental
activities in this sector to strengthen itself.
The world at present is experiencing a lot of changes of mammoth proportions. The
Petroleum Industry in India is one of the harbingers of huge economic growth. The arena for
business has now gone global since trade boundaries are fast dissolving. These developments
present India with tremendous opportunities in the future to be one of the major players in the
export of petrochemical intermediaries.
Today, India imports more than 70% of its oil requirements. The search for more oil led
India to sift through the international markets comprising of the emerging energy-trading
countries - China, Russia, and Iran.
India has made new partnerships with Venezuela, Burma, Middle East nations, and
Pakistan.
The long-term energy strategies of India have to emphasize on the methods of using energy
effectively and efficiently, and to enhance energy self-sufficiency.
To lift the Indian economy to enhanced economic standards innovation, diplomacy,
creativity, and vision are the need of the hour. India has to compete for conventional energy
sources and for that there must be developmental activities for energy efficient buildings and
vehicles.
The main problems with the Petroleum Industry in India are related to infrastructural
developments. The lack of proper storage facilities, enhancements in refining capacities, and
fluctuating import prices plays important role in the development of the sector.
THE KEY FINDINGS OF PETROLEUM SECTOR:
Demand for petroleum is growing in leaps and bounds
Shifting focus to more production of olefin - ethylene, propylene, butadiene,
Price and availability of crude oil and gas as feedstock would still be critical factors
The demand of the end products would affect the demand of the intermediary products
20
-
8/8/2019 NIKS Final
21/85
21
-
8/8/2019 NIKS Final
22/85
CHAPTER 2
COMPANY PROFILEAND
OVERVIEW
2) ABOUT IOCL
OVER VIEW
Indian Oil Corporation Limited is India's largest commercial enterprise, with a
sales turnover of Rs.2,40000 crore and profits of Rs.7,999 crore for fiscal 2007.IndianOil is alsothe highest ranked Indian company in the prestigious Fortune Global 500 listing, having
22
-
8/8/2019 NIKS Final
23/85
moved up 19 places to the 116th position this year based on fiscal 2008 performance. It is also the
20th largest petroleum company in the world.
The Indian Oil Group of companies owns and operates 10 of Indias 19 refineries
with a combined refining capacity of 60.2 million metric tones per annum (MMTPA i.e. 1.2
million barrels per day).
The Corporation's cross country crude oil and product pipeline network spanning
about 9,300 km, the largest in the country, meets the vital energy needs of the consumers in an
efficient, economical and environment friendly manner.
HISTORY
Indian Oil was incorporated on June 30, 1959 under the name and style of Indian Oil
Company Ltd. Upon merger with Indian Refineries Ltd.
On September 1, 1964, the name of the company was changed to Indian Oil
Corporation Limited.
Guwahati Refinery, the first public sector refinery of the country, was built with
Romanian collaboration and was inaugurated by the first Prime Minister of India, Pandit
Jawaharlal Nehru, on 1st January 1962.
Indian Oil refineries registered a record throughput of 35.3 million tones during thefinancial year surpassing the previous best of 33.8 million tones in 2001-2002.
Indian Oil commissioned India's first product pipeline, the Guwahati - Siliguri
pipeline, in 1965. This 435-Km pipeline connecting Guwahati Refinery to different installations
was designed to carry about 0.818 MMT of oil per year.
From a small beginning with a sale of 0.032 million kilolitres, Indian Oil achieved
sales of 10 million kilolitres with a turnover of Rs. 635 crore* and profit Rs. 22.5 crore by the late
60's.
23
-
8/8/2019 NIKS Final
24/85
From then on, the company has grown from strength to strength and for the fiscal 2007,
the Indian Oil group sold 59.29 million tones of petroleum products, including 1.74 million tones
of natural gas, and exported 3.33 million tones of petroleum products.
Indian Oil is investing Rs. 43,393 crore (US $10.8 billion) during the period 2007-12 in
augmentation of refining and pipeline capacities, expansion of marketing infrastructure and
product quality up gradation as well as in integration and diversification projects
International rankings:
Indian Oil is the highest ranked Indian company in the prestigious Fortune Global 500
listing, the 116th position (in 2008) based on fiscal 2007 performance.
It is also the 18th largest petroleum company in the world and the number one petroleum
trading company among the National Oil Companies in the Asia-Pacific region.
IOCL was featured on the 2008 Forbes Global 2000 at position 303.
Competitors:
Indian Oil Corporation has two major domestic competitors, Bharat Petroleum and
Hindustan Petroleum.
Both are state-controlled, like Indian Oil Corporation. There are two private competitors,
Reliance Petroleum and Essar Oil.
Achievements:
No. 1 Company in Oil Trading in Asia Pacific Region
Indian Oil among top global stock picks: Deutsche Bank
24
http://en.wikipedia.org/wiki/Fortune_Global_500http://en.wikipedia.org/wiki/Forbes_Global_2000http://en.wikipedia.org/wiki/Fortune_Global_500http://en.wikipedia.org/wiki/Forbes_Global_2000 -
8/8/2019 NIKS Final
25/85
Plats World Energy Rankings 2005
Indian Oil retains the #1 spot by sales in ET500 listing
Ranked as India's most valuable brand
Most trusted petrol pump brand: ET Brand Equity Survey
Ranked fourth in TNS Corporate Reputation Study
Among top ten 'Best Employers in India' for second year
No.1 Company in business listing.
Objectives
To serve the national interests in oil and related sectors in accordance and consistent
with Government policies.
To ensure maintenance of continuous and smooth supplies of petroleum products by
way of crude oil refining, transportation and marketing activities and to provide appropriate
assistance to consumers to conserve and use petroleum products efficiently.
To enhance the country's self-sufficiency in crude oil refining and build expertise in
laying of crude oil and petroleum product pipelines. To further enhance marketing infrastructure and reseller network for providing assured
service to customers throughout the country.
To create a strong research development base in refinery processes, product
formulations, pipeline transportation and alternative fuels with a view to
minimizing/eliminating imports and to have next generation products.
To optimize utilization of refining capacity and maximize distillate yield and gross
refining margin.
25
-
8/8/2019 NIKS Final
26/85
To maximize utilization of the existing facilities for improving efficiency and
increasing productivity.
To minimize fuel consumption and hydrocarbon loss in refineries and stock loss in
marketing operations to effect energy conservation.
To earn a reasonable rate of return on investment.
To avail of all viable opportunities, both national and global, arising out of the
Government of Indias policy of liberalization and reforms.
Obligations
Towards customers and dealers: - To provide prompt, courteous and efficient
service and quality products at competitive prices.
Towards suppliers: - To ensure prompt dealings with integrity, impartiality and
courtesy and help promote ancillary industries.
Towards employees: - To develop their capabilities and facilitate their advancement
through appropriate training and career planning. To have fair dealings with recognized
representatives of employees in pursuance of healthy industrial relations practices and sound
personnel policies.
Towards community: - To develop techno-
economically viable and environment-friendly products. To maintain the highest standards in
respect of safety, environment protection and occupational health at all production units.
26
-
8/8/2019 NIKS Final
27/85
Towards Defense Services: - To maintain
adequate supplies to Defense and other Para-military services during normal as well as
emergency situations.
Vision
A major diversified,trans-national, integrated energy company, with national leadership and
a strong environment conscience, playing a national role in oil security & public distribution.
Mission
To achieve international standards of excellence in all aspects of energy and diversified
business with focus on customer delight through value of products and services, and cost
reduction. To maximize creation of wealth, value and satisfaction for the stakeholders.
To attain leadership in developing, adopting and assimilating state-of-the-art technology
for competitive advantage.
To provide technology and services through sustained Research and Development.
To foster a culture of participation and innovation for employee growth and
contribution.
To cultivate high standards of business ethics and Total Quality Management for a
strong corporate identity and brand equity.
To help enrich the quality of life of the community and preserve ecological balance and
heritage through a strong environment conscience.
MAJOR DIVISONS OF IOCL
27
INDIAN OIL CORPORATION
LIMITED
REFINERIES PIPELINE MARKETING R & D IBP
-
8/8/2019 NIKS Final
28/85
-
8/8/2019 NIKS Final
29/85
From a fledgling company with a net worth of just Rs. 45.18 crore and sales of 1.38
million tones valued at Rs. 78 crore in the year 1965, Indian Oil has since grown over 3000
times with a sales turnover of Rs. 285,337 crore, the highestever for an Indian company, and a
net profit of Rs. 2,950 crore for 2008-09.
Set up with the mandate of achieving self-sufficiency in refining and marketing operations
for a nascent nation set on the path of economic growth and prosperity, Indian Oil today
accounts for nearly half of Indias petroleum consumption, reaching precious petroleum
products to millions of people everyday through a countrywide network of around 35,000 sales
points.
They are backed for supplies by 167 bulk storage terminals and depots, 101 aviation fuel
stations and 89 Indene LPG bottling plants.
For the year 2008-09, Indian Oil sold 62.6 million tones of petroleum products,
including 1.7 million tones of natural gas.
Indian Oil celebrated its Golden Jubilee during 30th June - 1st September 2009.
Established as an oil marketing entity on 30th June 1959, Indian Oil Company Ltd. was
renamed Indian Oil Corporation Ltd. on 1st September 1964 following the merger of Indian
Refineries Ltd. (established in August 1958).
The integrated refining & marketing entity has since grown into the countrys largest
commercial enterprise and Indias No.1 Company in the prestigious Fortune Global 500
listing of the worlds largest corporates, currently at the 116thposition.
THE KEY FINDINGS RELATED TO IOCL:
29
-
8/8/2019 NIKS Final
30/85
In spite of deregulation of the oil sector and stiff competition from private
players, Indian Oil has maintained its position as India's flagship national oil company. Indian
Oil People have been in the forefront in adapting to the changing environment and enhancing
the organizations capabilities in providing innovative and value-added offerings to the
customers.
Against the backdrop of a rapidly changing business environment, Indian Oil is focusing
on certain key issues for sustained growth in the deregulated market. These are: prudent
finance and projects management, optimum capacity utilization of refineries and pipelines
network, competitive business strategies, customer-focused innovations in product and service
offerings, streamlining of business processes, and achieving greater synergy with group
companies for enhanced efficiency and effectiveness in the marketplace.
The rising customer aspirations for quality products and services, at par with
international standards, have also thrown up myriad opportunities. Indian Oil is making the
most of them mainly in expanding its existing customer base, customizing products for
specific market segments, streamlining distribution infrastructure, etc.
As part of the Marketing Transformation Programmed to move closer to the
customers, Indian Oil has bifurcated its marketing function vertically into exclusive retail and
direct consumer groups, transferred powers from the four regional offices to 16 marketing
offices in State capitals, and set up exclusive groups for process & systems optimization,
brand management and bio-fuels.
The ambitious Project Manthan IT re-engineering project has enabled the organization to
assimilate IT and web-based business solutions for real time, integrated transactions and ITsolutions for supply chain optimization.
Pictorial Representation of Present Business Process Flow
30
CrudePurchase
-
8/8/2019 NIKS Final
31/85
DIFFERENT BRANDS OF IOCL
31
Retailing
Distribution
Blending
Refining
Distribution
-
8/8/2019 NIKS Final
32/85
BRANDS IN DETAIL
AutoGas:
AutoGas (LPG) is a clean, high octane, abundant and eco-friendly fuel. It is obtained
from natural gas through fractionation and from crude oil through refining. It is a mixture of
petroleum gases like propane and butane. The higher energy content in this fuel results in a
10% reduction of CO2 emission as compared to MS
AutoGas is a gas at atmospheric pressure and normal temperatures, but it can be liquefied
when moderate pressure is applied or when the temperature is sufficiently reduced.
The use of LPG as an automotive fuel has become legal in India with effect from April 24,
2000, albeit within the prescribed safety terms and conditions.
The fuel is marketed by Indian Oil under the brand name AutoGas
32
-
8/8/2019 NIKS Final
33/85
.
AutoGas impacts greenhouse emissions less than any other fossil fuel when
measured through the total fuel cycle. Conversion of petrol to AutoGas helps substantially
reduce air pollution caused by vehicular emissions.
The saving on account of conversion to AutoGas in comparison to petrol is about 28%.
Low filling times and the 28% saving is a reason enough for a consumer to convert his vehicle
to AutoGas.
Aviation Turbine Fuel Service:
Indian Oil Aviation Service is a leading aviation fuel solution provider in India and the
most-preferred supplier of jet fuel to major international and domestic airlines. Between one
sunrise and the next, Indian Oil Aviation Service refuels over 1500 flights from the bustling
metros to the remote airports linking the vast Indian landscape, from the icy heights of Leh
(the highest airport in the world at 10,682 ft) to the distant islands of Andaman & Nicobar.
Jet fuel is a colorless, combustible, straight-run petroleum distillate liquid. Its principal
uses are as jet engine fuel. The most common jet fuel worldwide is a kerosene-based fuel
classified as JET A-1.The governing specifications in India are IS 1571: 2001 (7th Rev).
Indian Oil is India's first ISO-9002 certified oil company conforming to stringent
global quality requirements of aviation fuel storage & handling. Indian Oil Aviation group
regularly organizes International Aviation conferences that act as a vital information
facilitator with participation from leading international and all domestic airlines, allied
industries, statutory aviation authorities and government agencies from over 35 countries.
Indian Oil is the only oil company in India to market the widest possible range of
fuels used by the aviation industry in India- JP-5, Avgas 100LL, Methanol Water Mixture, Jet
A-1 and aviation lubricants, etc.
High Speed Diesel:
Diesel is used in diesel engines, a type of internal combustion engine. Rudolf Dieseloriginally designed the diesel engine to use coal dust as a fuel, but oil proved more effective.
33
-
8/8/2019 NIKS Final
34/85
Diesel engines are used in cars, motorcycles, boats and locomotives. Automotive diesel fuel
serves to power trains, buses, trucks, and automobiles, to run construction, petroleum drilling
and other off-road equipment and to be the prime mover in a wide range of power generation
& pumping applications. The diesel engine is high compression, self-ignition engine.
The Indian Standard governing the properties of diesel fuels are IS 1460:2005 (5th
Rev). Important characteristics are ignition characteristics, handling at low temperature, flash
point.
XTRAMILE:
Indian Oils XTRAMILE Super Diesel, the leader in the branded diesel
segment is blended with world-class Multi Functional Fuel Additives (MFA A growing
section of customers who own diesel automobiles, both in the lifestyle and passenger
category, prefer XTRAMILE as a fuel for its added and enhanced performance. XTRAMILE
has brought in a huge savings in the high mileage commercial vehicle segment. Transport
fleets that operate a large number of trucks crisscrossing the country are using XTRAMILE to
not only obtain a higher mileage but also for low maintenance costs.
Indane Gas:
Indane is today one of the largest packed-LPG brands in the world. Indian Oil pioneered the
launch of LPG in India in the 1970s and transformed the lives of millions of people with the
introduction of the clean, efficient and safe cooking fuel. LPG also led to a substantial
improvement in the health of women in rural areas by replacing smoky and unhealthy
chullahs with Indane. It is today a fuel synonymous with safety, reliability and convenience.
LPG is a blend of Butane and Propane readily liquefied under moderate pressure.
LPG vapor is heavier than air; thus it normally settles down in low-lying places. Since LPG
has only a faint scent, a mercaptan odorant is added to help in its detection.
34
-
8/8/2019 NIKS Final
35/85
In the event of an LPG leak, the vaporization of liquid cools the atmosphere and
condenses the water vapor contained in it to form a whitish fog, which is easy to observe.
LPG in fairly large concentrations displaces oxygen leading to a nauseous or suffocating
feeling.
To prevent diversion, the Indane brand is being backed by RFID technology, a new concept
that helps track the movement of LPG cylinders.
Initial trials are currently going on, after which it will be implemented on a countryside basis.
SERVO lubricants & greases:
Indian Oils SERVOrange of lubricants reigns as the undisputed market leader in the
Indian lubricants market. Known for its cutting-edge technology and high-quality products,
SERVO backed by Indian Oils pioneering R&D, extensive blending and distribution
network, sustained brand enhancement and new generation packaging is a one-stop shop for
complete lubrication solutions in the automotive, industrial and marine segments.
In the retailing segment, besides Indian Oil petrol stations, SERVO range of
lubricants is available through a network of SERVO press stations, bazaar outlets and
thousands of auto spare parts shops across the country. The SERVO range includes over 500
lubricants and 1200 formulations encompassing literally every lubricant requirement.
The SERVO Xpress is a one-stop shop for quick, easy and convenient auto care,
providing customers with a refreshing experience. The SERVO Xpress stations have facilities
for oil change, tyre /battery checkups, A/C service, vacuum cleaning, perfuming, upholstery
cleaning, and polishing and lamination installation too.
Superior Kerosene Oil:
35
-
8/8/2019 NIKS Final
36/85
Kerosenes are distillate fractions of crude oil in the boiling range of 150-250C. They are
treated mainly for reducing aromatic content to increase their smoke point (height of a
smokeless flame) and hydrofining to reduce sulphur content and to improve odour, color &
burning qualities (char value).
Kerosene is used as a domestic fuel for heating / lighting and also for manufacture of
insecticides /herbicides /fungicides to control pest, weeds and fungi. Since kerosene is less
volatile than gasoline, increase in its evaporation rate in domestic burners is achieved by
increasing surface area of the oil to be burned and by increasing its temperature. The two
types of burners which achieve this fall into two categories namely vaporizers & atomizers.
The Indian Standard governing the property of kerosene is IS 1459:1974 (2nd Rev). .
About Gujarat Refinery
The Gujarat Refinery at Koyali in Gujarat in Western India is Indian Oils largest refinery.
Foundation stone laid by Pandit Jawaharlal Nehru, the then Prime Minister of India in May,
1963.Commissioned in Dec 1965.Largest refinery of Indian Oil with crude processing
capacity of 13.7 MMTPA.
The refinery was commissioned in 1965. Its facilities include five atmospheric crude
distillation units. The major units include CRU, FCCU and the first Hydro cracking unit of
the country. Through a product pipeline to Ahmedabad and a recently commissioned product
pipeline connecting to BKPL product pipeline and also by rail wagons/trucks, the refinery
primarily serves the demand for petroleum products in western and northern India
When commissioned, the Gujarat refinery had a design capacity of 3.0 MMTPA. It was
subsequently increased to 4.3 MMTPA by the revamping of three distillation units. In 1978,
its processing capacity was further increased to 7.30 MMTPA by the addition of a crude
distillation unit. A fluidized catalytic cracking unit was added to the refinery in 1981 to
increase production of middle distillates, such as diesel and LPG.
36
-
8/8/2019 NIKS Final
37/85
The capacity of the refinery was further increased to 9.5 MMTPA by 1990 through low cost
revamping / de-bottlenecking and addition of a hydro cracker in 1992 for maximization of
middle distillates.
Subsequently the crude capacity was increased to 12.5 MMTPA in 1999 by addition
of new Atmospheric Unit of 3 MMTPA along with revamp of FCC Unit. The capacity has
since been increased to its present capacity of 13.70 MMTPA by low cost debottlenecking.
The company has already commissioned the facilities for MTBE and Butene-1 production.
The refinery also produces a wide range of specialty pro ducts like Benzene, Toluene,
MTO, Food Grade Hexane, solvents, LABFS, etc.
The Gujarat Refinery achieved the distinction of becoming the first refinery in the
country to have completed the DHDS (Diesel Hydro De-sulphurisation) project in June 1999,
when the refinery started production of HSD with low sulphur content of 0.25% wt (max.).
A project for production of high value LAB (Linear Alkyl Benzene -- which is one of
the major raw materials used in manufacturing detergents) from kerosene streams has been
implemented. In order to meet future fuel quality requirements, MS Quality improvement
facilities are planned to be installed by 2006.
37
-
8/8/2019 NIKS Final
38/85
Institutional Arrangements In India
38
-
8/8/2019 NIKS Final
39/85
Figure 1.1
Ministry of Petroleum & Natural Gas shelters 3 types of Industries: 1) Upstream:
Limited.
39
-
8/8/2019 NIKS Final
40/85
ENVIRONMENT PROTECTION, HEALTH AND SAFETY
Environment Protection
Initially there were four effluent treatment plants (ETPs), but in order to create free space
inside the refinery for value added projects, a state-of-the-art Central Effluent Treatment t
effluent is reused in the refinery. Thus Gujarat Refinery is a zero discharge refinery.
To control air pollution, low sulphur content fuels are used in boilers and process heaters.
Other mitigated facilities like tall stacks for better dispersion of emission, CO boiler in FCC,
floating roof tanks for volatile products and high efficiency cyclone separators have been
provided.
A meteorological data station has been installed to record wind speed, wind direction, ambient
temperature, humidity and rain fall.
A Secured Landfill site for storing the residual oil sludge after treatment has also been
provided.
ISO-14001 Accreditation
Gujarat Refinery has got international recognition for its Environmental Management System
and commitment towards environmental protection.ISO-14001 accreditation has been
certified by M/s. DNV in July 1997.
OHSMS and ISRS Accreditation
Occupational Health and Safety Management System (OHSMS) and International Safety
Rating System (ISRS) are modern safety / loss control evaluation systems. Gujarat Refinery
was awarded OHSMS certificate for maintaining world class standard in regard to safety and
health. It also achieved ISRS Level-7 in the scale of 0 to 10.
Green Belt
40
-
8/8/2019 NIKS Final
41/85
A 100 metre wide green belt in south and western sides and another 500 metre wide green
belt in the eastern side of Hydrocracker complex have been developed. About 2.1 lacs
special species of trees have been planted in these green belts.
Health Monitoring
Work environment monitoring is a regular feature at Gujarat Refinery and covers monitoring
of toxic gases like SO2, H2S, CO, Cl2 and sound level. Periodical medical examination of
workers are conducted at an independent occupational health centre.
Fire & Safety
Gujarat Refinery has two fire stations which are well equipped with the fleet of 9 nos. of fire
tenders and modern accessories like fire alarms, hot lines, walkie talkies, High Volume Long
Range monitors, sirens etc. Gas detectors at LPG and process unit areas and automatic water
sprinkler system for critical areas have been provided. On site as well Off Site emergency
management plans have been developed.
Safety Performance
Gujarat Refinery owns and operates one of the best Safety and Fire Management System in
the Indian refining sector. Its exemplary safety record boast of five fire free years with sixth
year in running as on April 2003. It is also the first Indian refinery to achieve International
Safety Rating of Level 8
41
-
8/8/2019 NIKS Final
42/85
CHAPTER - 3
FINANCE
DEPARTMENT
OF
GUJARAT REFINERY
42
-
8/8/2019 NIKS Final
43/85
3.FINANCE
3.1 Introduction
Finance is like a blood to any type of business organization. Finance is the basic pillar to the
any organization. In a dynamic business environment financial performance is the lifeline.
The main function of finance department of any organization is to accumulate finance for
the organization whenever necessary.
It has to seek the way of obtaining capital which is less costly i.e. how the organization
will get capital for long time with less interest payment. Whether is will get enough capital from its
internal sources or from external sources.
The finance function with the more emphasis on profitability, cost cutting, effective
forecasting, innovation new financial product & optimum financial risk management is a key to
management information & decision making system.
Finance with the greater focus on simplifying & consolidating financial procedures,
following best practices of corporate governance, customer satisfaction, and skill development
assists in achieving the goal of excellence with continues improvement.
43
-
8/8/2019 NIKS Final
44/85
3.2Financial objectives
To ensure adequate return on the capital employed and maintain a reasonable annual
dividend on equity capital.
To ensure maximum economy in expenditure.
To develop long-term corporate plans to provide for adequate growth of the Corporations
business.
To manage and operate all facilities in an efficient manner so as to generate adequate internalresources to meet revenue cost and requirements for project investment, without budgetary support.
To complete all planned projects within the scheduled time and approved cost.
To reduce the cost of production of petroleum products by means of systematic cost control
measures and thereby sustain market leadership through cost competitiveness.
To continue to make an effort in bringing reduction in the cost of production of petroleum
products by means of systematic cost control measures.
To generate sufficient internal resources for financing partly/wholly expenditure on new
capital projects.
To ensure adequate return on capital employed and maintain a reasonable annual dividend on
its equity capital
To ensure maximum economy in expenditure.
The endeavor to complete all plan projects within stipulated time and within stipulated cost
estimated.
44
-
8/8/2019 NIKS Final
45/85
DIFFERENT SECTIONS OF THE FINANCE DEPARTMENT
Main Accounts
Purchase Works
Payroll
Stores
CENVAT
TA& Medical
Miscellaneous
Production
Cash Section
Projects Works
Projects Purchase
PF/Advances
Oil Accounts
Concurrence
Coordination
45
-
8/8/2019 NIKS Final
46/85
3.3 PROJECT PROFILE
I, Nikunj Thakkar have undergone the trainiing process in IOCL GIJARAT REFINERY
under the Finance DFM Mr. N.V.BHATT as a Vocational Trainee on the topic ofManagement of the Assets and Liabilities. As a Vocational Trainee my work there was to
study the different policies at IOCL for the Management of Assets and Liabilities. The ways
in which the company carried out its depreciation on the fixed assets, the impairment and the
transferr and disposal of assets etc.
The scope and methodology of my work was to learn about the different policies of IOCL for
the management of assets and liabilities through continuous interaction with the employees of
the organisation headed by the finance manager Mr. V.K.JAIN who was very co-operative
during this span of IIP. I interacted with various employees of the department and studied
about the required policies and practices of the company.
3.4 OBJECTIVES OF THE STUDY
To study about the different products of the IOCL and the different types of fixed assets
held by the company.
To study about the fixed asset management policies of the IOCL.
To study about the different types of accounting policies applied by the company for the
accounting of fixed assets, tangible and intangible assets.
To study about the policies for depreciation, amortization, impairment, transfer and
disposal of fixed assets.
To study about the SAP system applied at the IOCL and about how the assets work under
the SAP system.
46
-
8/8/2019 NIKS Final
47/85
To study about the current asset policies of IOCL.
To study the policies for inventory control.
To study how the different assets are codified in IOCL and on which basis.
To study about the historical review of fixed assets and the Additional Facility proposal.
To study about the different types of policies applied at the IOCL for the management of
short term and long term liabilities.
3.5 LIMITATIONS OF THE STUDY
Asset blocks of Gujarat Refinery have been taken as representation for the assets of
IOCL.
The list of assets that are referred to may not be included in the report due to itsclassified informational content.
The data used in study is dependent on organization as far as accuracy is concerned.
The officials of the organizations due to their policy of maintaining secrecy
were reluctant to share all the required information.
The accuracy of the analysis of the companies and suggestions depend upon
the information shared with me and the observation made by me.
47
-
8/8/2019 NIKS Final
48/85
ANALYSIS
AND
FINDINGS
48
-
8/8/2019 NIKS Final
49/85
3.6 ASSET MANAGEMENT
Asset management is a business process and a decision-making framework that covers an
extended time horizon, draws from economics as well as engineering, and considers a broad
range of assets. The asset management approach incorporates the economic assessment of
trade-offs among alternative investment options and uses this information to help make cost-
effective investment decisions.
Definition
Asset management* is the process of guiding the acquisition, use and disposal of assets to
make the most of their service delivery potential and manage the related risks and costs over
their entire life.
Objectives
The principal objective of asset management is to enable an agency to meet its service
delivery objectives efficiently and effectively. Effective asset management also:
makes the most of the service potential of assets by ensuring they are appropriately used and
maintained;
reduces the demand for new assets and saves money through demand management techniques
and non-asset service delivery options;
achieves greater value for money through economic evaluation of options that take into
account life cycle and full costs, value management techniques and private sector
involvement;
reduces unnecessary acquisition of assets by making agencies aware of, and requiring them to
pay for, the full costs of holding and using assets; and
focuses attention on results by clearly assigning responsibility, accountability and reporting
requirements.
49
-
8/8/2019 NIKS Final
50/85
Figure 4.1
Key activities
Asset management is a
continuous process covering the
whole life of the asset. An
agencys asset management
program should encompass all
the activities illustrated above.
In the following pages we shall discuss a part of the above module viz. Recording, valuation
and reporting activities. We shall focus on Depreciation treatment for such fixed assets
and its implementation SAP.
Depreciation on assets:
In Indian Oil Corporation Limited:
Depreciation/amortization is charged pro-rata on quarterly basis on assets, from/upto the
quarter of capitalization/sale, disposal and dismantled during the year as under:
MAIN PRODUCTS OF IOCL
50
-
8/8/2019 NIKS Final
51/85
1. LPG
2. BENZENE
3. TOLUENE
4. NAPHTHA
5. MTBF
6. HEPLANT
7. SULPHUR
8. PETROL
9. DIESEL
FIXED ASSETS MENAGEMENT POLICIES
Fixed asset are those assets which is held with an intention of being used for the
purpose of producing or providing goods & services. It is not held for sale in the normal
course of business. Expected to be used for more than one accounting period. Example of
fixed assets are Land, Building free hold, leasehold Building, Plant & Machinery, Furniture
etc.
Asset controlled by an enterprise as a result of past events & from which future
economic benefits are expected to flow to the enterprise
There are two types of asset, they are:-
1. Tangible Asset
2. Intangible Asset
Tangible Asset are those asset having physical substance & can be seen & touched
like Building, Plant & Machinery etc.
Intangible Asset are those asset not having any physical substance & therefore cannot
be seen & touched like Goodwill, Patent, Brands & Trademarks etc.
51
-
8/8/2019 NIKS Final
52/85
FIXED ASSET OF IOCL AND ITS POLICIES
The Indian Oil Corporation Ltd is a large scale unit. The Indian Oil Corporation Ltd is
a public sector company form of organization. Every Company does the whole calculation &
every thing about the fixed asset on SCHEDULE-E. It is shown in the balance-sheet. The
company fixed assets are Land-Freehold, Land-Leasehold, Buildings, Roads, Plant &
Machinery, Transport Equipments, Furnitures and Fixtures, Railway Sidings, Drainage,
Sewage & Water Supply System.
POLICIES OF IOCL FOR FIXED ASSETS
Different companies maintain policies for their firm, so the policies for IOCL are as
follows.
FIXED ASSETS
LAND
Land acquired on perpetual lease as well as on lease for over 99 years is treated
as free hold land.
Land acquired on lease for 99 years or less is treated as leasehold land.
Construction Period Expenses on Projects
Revenue expenses exclusively attributable to projects incurred during
construction period are capitalized. However, such expenses in respect of capital facilities
being executed along with the production/operations simultaneously are charged to revenue.
Financing cost incurred during the construction period on loans specially
borrowed & utilized for projects is capitalized on quarterly basis.
Financing cost, if any, incurred on General Borrowings used for projects is
capitalized at the weighted average cost. The amount of such borrowing is determined on
quarterly basis after setting off the amount of internal accruals.
52
-
8/8/2019 NIKS Final
53/85
Depreciation/Amortisation
Cost of lease hold land for 99 years or less is amortised during the lease period.
Depreciation on fixed assets including LPG Cylinders & Pressure Regulators isprovided in accordance with the rates as specified in Schedule XIV to The Companies Act,
1956, on straight line method, upto 95% of the cost of the asset. Depreciation is charged pro-
rata on quarterly basis on assets, from/upto the quarter of capitalization/sale, disposal &
dismantled during the year.
Assets, other than LPG cylinders & Pressure Regulators, costing upto Rs.5000/-
are depreciated fully in the year of capitalization.
Capital expenditure on items like electricity transmission lines, railway siding,roads, culverts etc, the ownership of which is is not with the corporation are charged of to
revenue. Such expenditure incurred during construction period of projects is accounted as
unallocated capital expenditure & is charged to revenue in the year of capitalization of such
projects.
IMPAIRMENT OF ASSETS
Impairment of cash generating units/assets is ascertained & considered where
the carrying cost exceeds the recoverable amount being the higher of net realizable amount &
value in use.
INTANGIBLE ASSETS
Costs incurred on technical know-how/license fee relating to production process
are charged to revenue in the year of incurrence.
Costs incurred on technical know-how/license fee relating to process
design/plants/facilities are accounted as Work-in-Progress-Intangible Assets during the
construction period of the said plan/facility. At the time of capitalization of the said
plant/facility, such costs are capitalized as Intangible Asset & amortised on a straight line
basis over a period of ten years or life of the said plant/facility, whichever is earlier beginning
from the quarter in which the said plant/facilities is capitalized.
53
-
8/8/2019 NIKS Final
54/85
-
8/8/2019 NIKS Final
55/85
To comply all these accounting & income tax requirements, it is essential that
each item of asset should be given an identification number.
One category of asset is not controlled by more than one department. Each such
category shall be allotted a central account in the financial ledger. In case any item of asset is required by some other department, the controlling
department can issue the asset but a record shall be kept of such assets loaned to other
department. Movements between the one department to another shall take place only through
the controlling department. For example, furnitures & fixtures shall be maintained by the
Administration department whenever there is a transfer it should be routed only through the
Administration department.
No asset item should be issued by stores without painting on it the identification
number as given by the controlling department in the issue voucher.
For inter unit & inter divisional, transfer of assets, the same shall be done
through the stores department. The asset to be transferred shall be returned under a Material
Return Voucher to the stores who shall arrange for the dispatch of the asset item, to the
transfer unit/division.
After issue of the asset item the issue voucher as usual is to be sent to finance,
then they on the basis of the identification number available in the issue voucher shall write
the same in their asset ledger for future reference. When an asset is returned to the stores
department the Material Return Voucher shall invariably bear the identification number as the
same would be necessary for linking the asset to its date of acquisition & is original cost.
Physical verification of all assets shall be undertaken once in every three shall
be undertaken once in every three years. The Verification team shall start on the basis of the
identification number & other details available in the Asset Ledger.
FUNCTIONS
Main functions in respect of accounting of asset.
Capitalisation of the cost of acquisition of assets.
Accounting of depreciation
Transfers, disposal & discarding of assets
Maintenance of asset ledger
Arrangement for physical verification of asset
55
-
8/8/2019 NIKS Final
56/85
preparation of schedules for Balance Sheet.
ACCOUNTING OF DEPRECIATION
# Section 205 of the companies act stipulated that no dividend shall be declared or paid
by a company for any financial year except out of the profit of the company for that year
arrived at after providing for depreciation on the following basis or out of the profits of the
company for any previous financial year.
Depreciable asset is arrived at by dividing 95% of the original cost thereof by a
specified period in respect of each such asset.
In accordance, with the provisions of sub section 2(b) of sub section 205 of the
companies act.
No further, depreciation & the balance 5% shall be kept as residuary value in the
books of account.
If the asset after its commissioning is kept idle, full depreciation shall be charged on
such asset.
# For temporary assets such as temporary buildings, sheds, temporary sewage drainage
& water supply & temporary electric supply line etc, erected as a part of construction site
requirements having only salvage value on dismantling after the completion of construction,
depreciation shall be charged at the rate of 100% in the year in which the cost is incurred.
# In case of other temporary assets such as diesel generating sets, transformers &
temporary buildings etc which are required for construction but are not to be demolished or
the assets can be still gainfully used, depreciation shall be charged at normal rates as
applicable.
# After the first capitalization, if there is any extra payment on account of assets already
capitalized arising out of acceptance of certain claims of contractors/suppliers or due to
arbitration awards, or due to any other reasons or alternatively, there is a reduction in the cost
of assets due to certain reduction of custom duty etc, retrospective depreciation shall be
charged from the original date of commissioning of the asset under references.
56
-
8/8/2019 NIKS Final
57/85
TRANSFERS & DISPOSAL OF ASSETS
# All transactions relating to inter-unit transfer of asset shall be routed through the stores
department. Whenever it is decided to transfer an asset from one unit to another, the custodian
department shall return the asset under the Material Return Voucher giving the identification
number of the asset to the stores department. The stores department shall take necessary
action to dispatch the asset to the unit to which it is to be transferred. The Material Return
Voucher & issue note giving identifications numbers shall be sent by the stores department to
account for passing necessary adjustments entries. No inter-unit transfer shall be undertaken
without giving intimation to finance.
# When the asset is transferred from one unit to another during the financial year,
depreciation for the whole year shall be borne by the unit at the receiving end regardless of
the period for which the asset is utilized by the receiving unit.
# After the transfer, the asset accounting entries shall find out the original cost of the
asset & the cumulative depreciation provided on the basis of the identification numbers
furnished in the documents sent by the stores department. Debt note for the original cost of
assets & the credit note for cumulative depreciation shall be sent to the Unit/Division
concerned as per procedure.
# For assets to be declared unserviceable the procedure as prescribed in the stores
manual shall be followed & the assets shall be disposed of after getting the approval of the
competent authority.
# After the asset is declared unserviceable the same shall be returned to the stores
department under Material Return Voucher by the custodian department. The Material Return
Voucher shall contain the description of the asset along with its identification number.
57
-
8/8/2019 NIKS Final
58/85
SAP SYSTEM
SAP, an Enterprise-wide Business Software Package designed tc integrate each area of
a business stands for Systems, Applications & Products for Data Processing. Its Modules are
fully integrated. This means that all the businesses & functions in the company are
connected in the system. SAP/R3 is an Online, Real Time system. This means that when
data is entered into the SAP system, it is processed & stored immediately. This real time
information is up-to-date & available for others to use immediately.
SAP AG, the parent company is based in Walldorf, Germany & provides Leading
package software in the client/server market. It facilitates decision making but doesnt
decided by itself. It provides comprehensive information to optimize but doesnt optimize by
itself. It automates & integrates transactions which enable customer care in terms of
speed/cost/quality/service but it doesnt delight customer by itself.
Today, Indian Oil team along with project consultant Price waterhouse Coopers have
built a valuable knowledge bank of all the existing business processes & envisioned the To-
Be processes on the basis of which SAP system is configured.
To strengthen the system base SAP is implemented across eight functional base SAP
is implemented across eight functional areas namely Finance & Controlling, Sales &
Distributing, Materials Management, Human Resources, Plant Maintenance, Quality
Management, Production Planning & Project Systems under the project namely
MANTHAN
58
-
8/8/2019 NIKS Final
59/85
ORGANISATION STRUCTURE
The SAP hierarchy is the backbone of the SAP system & is linked to every
transaction & master data element in the SAP system. The result is that the SAP hierarchy
provides the translation of the Organization Structure, Reporting Requirements & Process
Environment of the organization where, SAP is being implemented.
SAP has flexible reporting tools & can extract data in a variety of different ways for
management reporting. The system is dependent upon the most appropriate organization
structure being built as foundation for the support of data entry, reporting & management. The
objectives of the SAP organization structures are:
# to be able to organize the system to mirror the business organization (current & future)
# to be able to report using this structure to monitor the effectiveness of the
organization.
# to be able to adapt to a changing business by building the most flexible structure
possible.
The Organization structure is central to the SAP software & there is no standard feature
within SAP to allow data to be changed to a new structure once it has been posted to the
system. Changes to the structure can only be achieved using conversion programs. This
process is very complex & requires a major investment in terms of time & skilled SAP
technical resources. Changes will likely result in significant modifications to documentation,
user manuals, training materials, scripts etc. therefore it is critical to consider the future vision
of the organization before finalizing the organization structure in SAP.
59
-
8/8/2019 NIKS Final
60/85
HOW THE ASSETS WORKS IN SAP SYSTEM
The whole IOCL works in SAP system, after 2002, it maked the whole work of IOCL
easy and faster, by it we can arranged all the assets in their order, and they can be easily be
classified. It helps the employee a lot, first it was difficult, but from when the SAP came in
the organization, it has become a lot easier.
CURRENT ASSETS POLICIES
Current assets are those assets which can be converted into cash, within a given period
of time. Current assets mainly consists of Cash & Bank Balance, Stock, Debtors, Bills
receivables, Prepaid expenses, Loans & Advances.
CURRENT ASSETS IN IOCL
IOCL holds the current assets in two ways:-
1. Inventories
2. Stores and Spares
I. INVENTORIES
In financial parlance, Inventory is defined as the sum of the value of raw materials,
fuel & lubricants, spare parts. Maintenance consumables, semi processed materials &
finished goods, at any given point of time. The operational definition of inventory would be,
The amount of raw materials, fuels, lubricants, spare parts & semi processed material,
stocked for smooth running of plant. Since these resources are idle when kept in stores,
inventory is defined as an ideal resource of any kind having an economic value.
Inventories are the stocks of the product a company is manufacturing for sale and the
components that make of the product. The various forms in which inventories exists inmanufacturing companies are:
60
-
8/8/2019 NIKS Final
61/85
Raw materials inventories are those units of inputs, which have been purchased or
stored for future productions.
Work in progress inventories are semi-manufactured products. They represent the
products that need more work before they become finished products for sale.
Finished goods inventories are those completely manufactured products, which are
ready for sale.
Stock of raw materials and work in process facilitate production, while stock of
finished goods is required for smooth marketing operations. Thus, inventories serve as a link
between the production and consumption of goods.
Inventories differ depending on the nature of business. A manufacturing firm will
have substantially high level of all three kinds of inventories, while retail, or a wholesale, firm
will have a very high level of finished goods inventories and no raw material and work in
process inventories. A fourth kind of inventory, i.e., inventories of supplies are also
maintained by firms, but it does not involve significant investment. Therefore, a sophisticated
system of inventory control may not be maintained for them.
Inventories constitute the most significant part of the current assets of a large majority of
companies in India. For eg., on an average, inventories are approximately 60% of current
assets in public limited companies in India. It is about 30% and below in printing and
publishing, electricity generation and supply, trading & shipping industries. It is as high as
76% in tobacco industry. Because of the large size of the inventories maintained by the firms,
a considerable amount of the funds is required to be maintained by the firm. It is, therefore,
absolutely imperative to manage the inventories efficiently and effectively in order to avoid
unnecessary investment in them. An undertaking neglecting the management of inventory will
be jeopardizing its long-run profitability and may fall ultimately. It is possible for a company
to reduce its levels of inventories to considerable degrees, e.g., 10 to 20% without any adverse
effect on production & sales, by using simple inventory planning & control techniques. The
reduction in excessive inventory carries a favorable impact on the companys profitability.
61
-
8/8/2019 NIKS Final
62/85
NEED TO HOLD INVENTORIES
Inventory being an ideal resource, if it was uneconomical & unprofitable to hold
inventories, no business or industry would maintain them. With the rapid industrialization
during the last three decades holding inventories has become an economic necessity in the
organizations, which can be fully justified if we look at the magnitude of inventory holdings
in Refineries & Pipelines division. The reason of holding such a high inventory is that
refining of crude in our Refineries is done on continuous basis as such an industry like ours
can hardly afford stoppage of production for want of inventory.
Raw materials, additives, consumables etc., required for conversion of crude oil into
various types of finished petroleum products.
Fuels, lubricants, spares and components etc., required for smooth and uninterrupted
running of the plant equipments. The major resource for holding inventory therefore
are :
To maintain targeted flow of production in line with national demand.
Protection against uncertainties of demand & supply which cannot be predicted
with sufficient accuracy.
To avoid stock out in period of storage.
In periods of rapid price rise higher inventory levels may well have to be
accepted.
62
-
8/8/2019 NIKS Final
63/85
NEED FOR INVENTORY CONTROL
Stock/Inventory although are main weapons in a refinerys armory but still, these are
one of its chief liabilities. Inventory holding costs money. Therefore, on one hand where it
is essential to hold inventories, on the other hand it is absolutely vital to have a tight control
on the inventory levels and the aim should be to keep them at optimum level. Inventory
control, therefore deals with determination of optimal procedure for maintaining stocks to
ensure continued availability of required material but avoid storage of excessive and
obsolete stock.
CURRENT ASSETS OF IOCL
INVENTORY OF RAW MATERIALS:-
The current assets in IOCL are handled by A/8 section. A/8 section holds the raw
material, work in process and finished goods. Any changes or anything which is in touch
with the current asset is handled by A/8 section. A/8 does the function of crude oil process.
It starts with the types of material then in it the opening balance is opened then BS & W is
deducted then out of that Net value is obtained. The materials are processed on MMB
(Materials Monthly Basis) basis.
The main material of IOCL is crude oil; A/8 does the function of financial accounting
of processing of crude oil. The types of crude oil are as follows,
Indigenous on-shore oil
Indigenous off-shore oil (Bombay High)
Imported crude oil
Various crude oil used are:-
SG : South Gujarat (low Sulfur)
63
-
8/8/2019 NIKS Final
64/85
NG : North Gujarat (low Sulfur)
BH : Bombay High (low Sulfur)
The Gujarat Refinery has at present four crude distillation units, the fifth one isunder construction. These units are AU-1, AU-2, AU-3, AU-4, AU-5. Depending upon the
capacity, availability and compatibility (with the feed-low sulfur/high sulfur) of these units,
they are fed with suitable mix of fed. Indigenous raw material, which are purchased from
ONGC. On shore crude supplies are received through the pipeline by the inland refineries as
per crude intake programme agreed upon with the supplies. The quantity is determined on the
basis of dips of the receiving tank. The off-shore indigenous crude oil supplied by ONGC is
determined on the basis of the dips of receiving tanks. The measurement & accounting of
crude oil receipt is done as per mutually accepted procedure with the supplies and the
payments are made on dry crude basis.
The other types of crude oil are:
HS High Sulphur
LS Low Sulphur
These are the improved raw materials purchased from abroad like Iraq, Iran, Nigeria, UAE.
The payments are made on the basis of bill of lading quantity in respect of part transfer or
receipt of crude to/from other oil companies. Accounting of these materials is done daily on
tones preparation. They have to maintain Dip memo, which means the whole size of tank.
They also maintain Dip regiater. Accounting is based on measurement of net metric tones.
Generally it is measured on the basis of the diameter of the tank. Offshore
indegenous/imported crude is transported to inland refineries through pipelines. The
difference between the quantity pump from the shore tanks and the quantity received in the
refinery tanks on dry crude basis is considered as pipelines tranportation loss.
64
-
8/8/2019 NIKS Final
65/85
Annual consumption of crude oil is appr. 10.9MMT and the daily consumption rate is appr.
31.5 thousand metric tones. There are different storage tanks allocated to different types of
crude, their capacities are as follows:
Crude Oil Total capacity
South Gujarat (low sulphur) 50 TMT
North Gujarat (low sulphur) 30 TMT
Bombay High (low sulphur) 70 TMT
High Sulphur & Low Sulphur (Imported) 100 TMT
Raw Materials Purchased:-
For imported purchases, government issues licenses, so the purchase can be done. When the
purchase is done from abroad the payment made to all countries is done in US Dolar by
IOCL. The purchase of crude oil depends on the quality of crude. If the quality is bad IOCL
does not purchase it. The rates applied on crude oil by custom duty is 5%.
Work in progress:-
The work in progress inventory acts as a buffer between two stages of the manufacturing
system which may consist of a group of machine or assembly line/production process stage
which can be termed as work center. Products of the refinery have an established market and
the production is well defined, hence they are manufactured in a line process system. The raw
material enters at the beginning and undergoes the operations at different work centers and
emerges as the product at the end of the product line. Ion addition to the basic raw material
there are inputs at various stages in the line. Manufacturing of the components and sub-
assembly in different lines and combining for final assembly in a single line is another
variation of this line manufacturing process. The rate of the manufacture will be dictated by
the slowest work center in the line. A major problem in managing of the line is to balance the
capacity of the work center. Improper line balancing causes (a) overstalking of semifinished
goods before a slow working center and (b) idling of work center further down the line.
Another factor which has to be considered instantly even in balanced line, the work center are
prone to breakdown.
65
-
8/8/2019 NIKS Final
66/85
Working process is valued at the raw material cost. Normally the feed stock is the crude oil
except in the case of benzene, toluene, etc., when the feed is naphtha.
Products of IOCL and their uses:-
1) Motor spirit (petrol):- fuel for vehicles
2) Diesel:- fuel for heavy vehicles
3) Benzene:- petorchemical viz. Caprolactum
4) Sulphur:- manufacture of sulphuric acid
Finished Products:-
The finished products are valued at cost or net realisable value whichever is lower.
STORES & SPARES
The inventory of stores and spares is about 25% of the total inventory of the Gujarat
Refinery. This inventory is totally under control of the Materials Department. The authority
for receipt storage & issue of all materials is centralized in the materials department subject to
the exception in certain cases. The user departments are not permitted to have any stock of
materials either of them in form of sub-stores. However, in certain cases a nominal stock of a
few urgent items can be permitted for meeting emergencies. The functions of the stores
section of the Materials department are as under:-
Receipt & Transportation
Custody & Issue
Inventory Control
Surplus Stores.
The section dealing with accounting of stores in the Finance dep