AssetsAccounting & Capital Budgeting

A Summer Training Report

On

ASSETS ACCOUNTING & CAPITAL BUDGETING

At

INDIAN OIL CORPORATION LIMITED

(MATHURA REFINERY)

Submitted to

Institute of Engineering &Technology

Master of Business Administration

2010-11

Submitted to: Submitted by Dr.D.N Kakkar Haripratap Singh HOD (MBA) MBA 3rd sem I.E.T Lucknow Roll no.1005270019

.

Indian oil corporation Ltd. – Mathura Refinery

DECLARATION

I hereby declare that the project report

submitted by me on ‘ASSETS ACCOUNTING &

CAPITAL BUDGETING’ is absolutely original and

consists of true facts under the guidance Mrs. Prinyanka

Aunjor (Faculty MBA Department IET Lucknow).

Haripratap Singh

MBA 3rd sem.(2010-12)

Roll no-1005270019

Topic : “Assets Accounting & Capital Budgeting at IOCL”2


ACKNOWLEDGEMENT

I would like to take this opportunity to express my gratitude

towards all those who have in various ways helped me in the completion of this

project.

I take this opportunity to extend my sincere thanks Dr. (Pro.)

D. N. Kakkar (HOD) MBA Department (Institute of Engineering &

technology), Who Permitted me for summer training in Indian Oil Corporation

Ltd.

&

Mr.R.K.Gupta,(Chief Finance Manager), IOCL, (Mathura Refinery) and,

Mr. H.P.singh (Finance Manager) & Mr. Avinesh Prasad, (Accounts

Officer) guiding me to complete the project.



TABLE OF CONTENT

PARTICULARSPREFACE

EXECUTIVE SUMMARY

ABOUT IOCL (Indian Oil Corporation Ltd.)

MATHURA REFINERY AT MATHURA

OBJECTIVE AND SCOPE OF STUDY

MISSION, OBJECTIVE & GOAL OF FINANCE DEPT.

FLOW OF FINANCE DEPARTMENT

SECTION WISE SEGREGATION OF FINANCE DEPT.

INTRODUCTION OF ASSETS ACOUNTING

FUNCTIONS OF ASSETS ACCOUNTING

PROCEDURE OF AQUIRING ASSETS

ACCOUNTING OF ASSETS ON SOFTWARE(SAP)

USE OF SAP IN ASSETS ACCOUNTING

INTRODUCTION OF CAPITAL BUDGETING

CAPITAL BUDGETING AT IOCL

CLASSIFICATION OF CAPITAL BUDGETS

CAPITAL BUDGETING FOR PROD. OF MTBE AT MATHURA

OBJECTIVE, PROJECT COST, OPERATING COST

NEED & ANALYSIS

PHASHING OF EXPENDITURE

FINDINGS

RECOMMENDATIONS

BIBLOGRAPHY

GLOSSARY



PREFACE

In today’s era of globalization and competition, coping up with technological advancement, which is

undergoing evolution at a very fast rate, holds the key to the survival and growth of any organization.

Installing technology, well-equipped facilities or going for modification in the existing ones are the means

to attain better performance efficiency and hence further the value addition.

Indian oil, the largest commercial enterprise of India (by sales turnover) is India’s sole representative in

fortunes prestigious listing of world’s 500 largest corporations, ranked 98th for the year 2011To maintain

strategic edge in the market place, Indian oil has given importance to capital budgeting because capital

investment decisions often represent the most important decisions taken by an organization, and they are

extremely important, they sometimes also pose difficulties.



EXECUTIVE SUMMARY

IOCL is the country’s largest commercial enterprise with a sales turnover of Rs. 88725.36 crores and

profits of Rs.7485.55 crores for fiscal year 2007-08. As premier National Oil Company, Indian oil’s

endeavor is to serve the national economy and people of India and fulfill its vision of becoming “an

integrated, diversified and transnational energy major”

With the global competition to maintain strategic edge in the market place, Indian oil has given

importance for capital budgeting because capital investment decisions often represent the most important

decisions taken by an organization, and they are extremely important, they sometimes also pose

difficulties. In the given sample project the process by which company studies the different aspects of

proposal, and decides about feasibility and viability of the project. Here we can see the different phases,

process of analysis, etc of capital budgeting.

An important step in raising capital is estimating the capital requirements. Some of the capital raised will

likely be used to increase working capital. Capital budgeting is the process of identifying and ranking

which of these capital investments add the most value to the business. Capital budgeting decisions are not

unlike the personal budgeting decisions we make everyday. Consider these common features

CONSTRAINT

The amount of capital one can raise is limited, imposing a constraint on the choices. As one

increases the firm’s debt, its debt equity ratio and debt-servicing requirement increase, making it

harder to raise additional debt.

PROJECT RANKING

How one chooses to allocate the investment capital raised depends on the set of

investment opportunities. Project ranking is a means of allocating the investment capital to those

projects that contribute the most value to the business.



MEASUREMENT

There is variety of methods available for measuring the firms return on an investment

project. Three major methods useful in measuring a project value are the pay back, net present value,

and IRR methods

METHODS ADVANTAGES DISADVANTAGES

PAY BACK Simplest method to use Ignores subsequent cash

outflows

IRR Ranks projects by rate of

return. Can compare to hurdle

rate to make accept – reject

decision.

Projects can have more than

one IRR. Need to measure

your hurdle rate.

NET PRESENT VALUE Ranks projects by net present

value.

Negligible.

Hurdle rate is an important part of using either the IRR or NPV method. The hurdle rate is the most

appropriate interest rate to use when evaluating investments. Often times, the hurdle rate is the

opportunity cost of investment capital, the rate of return that can be earned on the next best alternative

investment.



INDIAN OIL CORPORTION LIMITED

CORPORATE

Indian Oil, the largest commercial enterprise of India (by sales turnover), is India’s sole

representative in fortune’s prestigious listing of the worlds 500 largest corporations, ranked 98th for the

year 2008. It is also the 21st largest petroleum company in the world and the # 1 petroleum trading

companies among the national oil companies in the Asia-Pacific region. & also come five maharatna

company of India

INDIA’S FLAGSHIP NATIONAL OIL COMPANY

Incorporated in 1959 as Indian Oil Company Ltd., it became a Corporation on 1 st September 1964,

when Indian Refineries Limited (Est. 1958) was merged with the company. As India’s flagship national

oil company, Indian oil accounts for 56% petroleum products market share, 42% national refining

capacity and 69% downstream pipeline throughput capacity.

Indian Oil is an “academy” company with a source of full-fledged training centers across the country

building competency, confidence and capability to face the challenges of the market place. Among these,

IIPM (the Indian oil institute of petroleum management) at Gurgaon, the Indian oil management centre

for learning at Mumbai, and the Indian oil management academy at Haldia have emerged as world-class

training and management academies.


Indian oil corporation Ltd. – Mathura Refinery REFINERIES

The Indian Oil Group of companies owns and operates 10 of India’s 18 refineries,(Digboi,

Guwahati, Barauni,Gujarat,Haldia, Mathura, Panipat ) with a combined refining capacity of 60.20 million

metric tones per annum (MMTPA) or (1.2 million barrels per day).

These include two refineries of subsidiary Chennai Petroleum Corporation Ltd. (CPCL) and

one of Bongaigaon Refinery and Petrochemicals Limited (BRPL). Indian Oil owns and operates the

country’s largest network of cross-country crude oil and product pipelines spanning nearly 9,000

kilometers, with a combined capacity of 60.42 MMTPA. Indian Oil and its subsidiaries account for

44.50% petroleum products market share among public sector oil companies, 42% national refining

capacity and 69% downstream pipeline throughput capacity.


Indian oil corporation Ltd. – Mathura Refinery PIPELINES

Indian oil owns and operates India’s largest network of cross-country crude oil and product pipelines

of 9000 Kms. With a combined capacity of 60.42 MMTPA. Indian oil also operates 2 single Buoy

Mooring systems in the high seas off Vadinar coast in the Gulf of Kutch for receipt of crude oil. Indian oil

owns and operates 69% downstream pipeline throughput capacity.


Indian oil corporation Ltd. – Mathura Refinery MARKETING

` Indian oil’s country wide network of over 21000 retail sales points is backed for supplies for its

extensive, will spread out marketing infrastructure comprising 169 bulk storage terminals, installation and

depots, 93 aviation fuel stations and 79 LPG bottling plants. Its subsidiary, IBP company Ltd, is a stand

alone marketing company with a nation wide retail network of over 2500

Sales points. Indian oil caters to over 53% of India’s petroleum consumption. Indian oil’s vast distribution

network of over 21000 sales points ensures that essential petroleum products reach the customer at the

“RIGHT PLACE AND THE RIGHT TIME”

Indian oil’s world class R&D centre has won recognition for its pioneering work in lubricants

formulation, refinery processes, pipeline transportation and bio fuels. It has developed over 2100

formulations of SERVO brand lubricants and greases for virtually all conceivable applications-

automotive, railroad, industrial and marine- meeting stringent international standards and bearing the

stamp of approval of all major original equipment manufacturers. Indian oil sincere commitment to

Quality, Safety, Health and Environment is reflected in the series of national and international

certifications and awards earned over the years.

The 17th largest petroleum company in the world, Indian oil, is well on its way to becoming an integrated,

transnational Energy Corporate. Indian oil touches every customers heart by keeping the vital oil supply

line operating relentlessly in nooks and corners of India that’s why wherever you go must find an Indian

oil because it lives in every part, every region of India from Kashmir to Kanya kumari and from

Gujarat to Bay of Bengal.



IOCL STRUCTURE

Indian Oil carries its activities through its five divisions namely:

1) Refinery Division

2) Pipe Line Division

3) Marketing Division

4) Assam Oil Division

5) Research and Development Division

REFINERIES

Refineries Year of Commencement

Guwahati 1962

Barauni 1964

Gujarat 1965

Haldia 1975

Mathura 1982

Panipat 1999



REFNERIES PIPELINES & MARKETING SET-UP OF IOCL



MATHURA REFINERY

“Blending Technology with Ecology”

Mathura Refinery also know as “The Modern Temple”, was commissioned in 1982 as the sixth Indian oil

Refinery. Nestled between the historic cities of Delhi & Agra. The Mathura refinery was commissioned

with an original capacity of 6.0 MMTPA. The capacity was increased to 7.5 MMTPA by debottlenecking

and revamping. With its fluid catalytic cracking units, the refinery mainly produces middle distillates and

supplies them to Northern India though a product pipeline to Jalandhar, Punjab via Delhi. The company

commissioned a two-stage desalted in 1998 for improving the on-stream availability of the crude

distillation unit and a CCRU for production of unleaded Motor Spirit. A DHDS Unit was commissioned

in 1999 for production of HSD with low Sulphur content of 0.25% wt (max). A hydro-cracker for

increasing middle distillates was also completed in 2000. The present capacity of the refinery is 8

MMTPA.

In order to meet future fuel requirements, facilities for improvement in quality of MS & HSD are under

installation and planned to be completed by 2005.

ENVIRONMENT

Mathura Refinery becoming the first refinery in Asia and third in the World whose environment

management system has been certified for ISO 14001/ Marching ahead on the growth path, refinery is

implementing Eco-friendly projects like catalytic reforming unit, hydro cracking unit and diesel hydro-

sulphurisation unit. These units will not only help in producing cleaner fuels but that also result on

substantial reduction in refinery emulsions to a level of 200 kg/hr.

In addition to this commitment towards preserving ecological balance and national heritage has always

been the top of the agenda for the refinery. Ecological park and mini bird sanctuary frequented by 70

species of birds are a living testimony of harmony of refinery operations with ecology apart from the

management techniques adopted for human resources, strategic planning, quality assurance. The major

work has been done in the area of ecology preservation particularly for TajMahal.

“Green Refinery Clean Refinery Mathura Refinery ”

- Motto of Mathura Refinery



ECOLOGICAL PARK

The Ecological Parks at Indian Oil’s Mathura, Gujarat and Barauni Refineries attract a large number of

migrating birds. The effort is already being replicated in other refineries of Indian Oil.

Indian Oil’s R&D Centre is engaged in the formulation of eco-friendly, biodegradable lube formulations.

Seven operating refineries and the R&D Centre have been certified under ISO-14001:1996 Environment

Management Systems

RECOGNITION / AWARDS:

ENERGY CONSERVATION:

National Energy Conservation Award - 1st prize in refinery sector of minister of power for the

years 1991 and 1996.

Jawaharlal Nehru Centenary Award of MOP & NG - for achieving best improvement in energy

conservation Compared to its past best performance for the year 1994-1995.

MOP & NG Award - for best performance in steam leak during the oil conservation week, 1996.

MOP & NG Award - for the best performance with regard to furnace and boiler instrumentation

and control during the oil conservation week, 1993.

National Energy Conservation Award- 2nd prize in refinery sector of ministry of power for the year

1997 .

SAFETY :

British Safety Council Award for the years 1990, 1992, 1993 & 1995.

National Safety Award under scheme II & I for the years 1993 & 1994.

QUALITY MANAGEMENT SYSTEM CERTIFICATION:

ISO 9002 Certification for manufactures and supply of petroleum products.

IS0 9002 Certification for Support Services.

ENVIRONMENT MANAGEMENT SYSTEM CERTIFICATION

ISO 14001 Certification for Environment.


http://www.iocl.com/initiatives_enviromental.aspx%20%5C%20d


TOTAL QUALITY CERTIFICATION

Golden peacock national quality award, 1996

Rajeev Gandhi National quality award, 1994, 1997

TRAINING

Golden Peacock National Training Award for excellence in training, 1997.

VISION

A major, diversified, transnational, integrated energy company, with national leadership and a strong

environment conscience, playing a national role in oil security and 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.

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 strong environment conscience.


Indian oil corporation Ltd. – Mathura Refinery OBJECTIVES

To serve the national interest in the oil and related sectors in accordance and consistent with

government policies.

To ensure and maintain continuous and smooth supplies of petroleum products by way of crude

Refining, Transportation and marketing activities and to provide appropriate assistance to the

consumer to conserve and use petroleum product efficiently.

To earn a reasonable rate of interest on investment.

To work towards the achievement to self-sufficiency in the field of oil refining by setting up

adequate capacity and to build up expertise in lying of crude oil and petroleum product pipelines.

To create a strong research and development base in the field of oil refining and stimulate the

development of new product formulations with a view to minimize/eliminate their imports and to

have next generation products.

To maximize utilization of the existing facilities in order to improve efficiency and increase

productivity.

To optimize utilization of its refining capacity and maximize distillate yields from refining of

crude oil to minimize foreign exchange to outgo.

To minimize fuel consumption in refineries and stock losses in marketing operations to effect

energy conservation.

To further enhance distribution network for providing assured service to customers throughout the

country through expansion of reseller network as per marketing plan/government approval.

To avail of all viable opportunities, both national and global, arising out of the liberalization

policies being pursued by the Government of India.

To achieve higher growth through integration, mergers, acquisitions and diversification by

harnessing new business opportunities like petrochemicals, power, lube business, consultancy

abroad and exploration and production.


Indian oil corporation Ltd. – Mathura Refinery OBLIGATIONS

Towards customers and dealers

To provide prompt, courteous and efficient service and quality products at fair and reasonable

price.

Towards suppliers

To ensure prompt dealing with integrity, impartiality and courtesy and promote ancillary

industries.

Towards employees

Develop their capability and advancement through appropriate training and career planning,

expeditious redressal of grievances.

Expeditious redressal of grievances

Fair dealing with recognized representatives of employees in pursuance of healthy trade union

practice and sound personnel policies.

Towards community

To develop techno economically viable and environment friendly products for the benefit

of the people.

To encourage progressive indigenous manufacture of products and materials so as to

substitute imports.

To ensure safety in operations and highest standards of environment protection in its

manufacturing plants and townships by taking suitable and effective measures.

Towards defense services

To maintain adequate supplies for defense services during normal and emergency

situations as per their requirements at different locations.



OBJECTIVE OF DOING THIS PROJECT

To know about the practical implication of Finance function in any organization as an MBA student.

While pursuing this project in IOCL, our main objective was to gain an idea about the workings of

Finance Department as a whole.

SCOPE OF STUDY

Due to the paucity of time available, we could only get an overview of the topics of our interest area and

not a detail analysis. Further, our study was limited to Mathura Refinery (IOCL) and its Financial

Department only. All our study is based on the latest information available and not on the basis of past

records.



MISSION, OBJECTIVE AND GOAL OF FINANCE DEPARTMENT

A) FINANCIAL MISSION

1) To provide high quality financial staff support for decision making and control to all levels of

management, corporate, divisional unit and location to enable the achievement to overall corporate

objectives and goals.

2) To play a lead role in scanning the domestic and international financial environment, the

formulation and implementation of all financial policies and plans for different time spans consistent

with and conducive to the business plan for expansion, diversification, productivity etc…

3) To interact pro-actively with the relevant government agencies on pricing and investment and with

financial institutions, depositors and creditors, with sensitivity and promptness for mobilization and

provision of funds for uninterrupted operations and project execution at optimal costs.

4) To maintain, review and update all relevant accounting records, systems and procedures for

discharging the fiduciary responsibilities and enabling compliance with statutory obligations.

5) To inculcate financial awareness, costs benefit attitudes and system orientation in the entire

organization.

6) To develop the human resources, system and techniques of finance for continuing innovation and

contribution towards IOC corporate excellence.



(B) FINANCIAL OBJECTIVES

1) To ensure adequate return on capital employed and maintain a reasonable annual dividend on its

equity capital.

2) To ensure maximum economy in expenditure.

3) To generate sufficient internal resources for financing partly/wholly expenditure on new capital

projects.

4) To develop long term corporate plans to provide adequate growth of the activities of the

corporation.

5) To continue to make an effort in bringing reduction in the cost of production of petroleum

products by means of systematic cost control measures.

6) The Endeavor to complete all plan projects within stipulated time and within stipulated cost

estimate.

(C) FINANCIAL GOALS

1) To inculcate cost consciousness in user departments.

2) Development of Standard Refining cost at each unit level.

3) Proper implementation of budgetary control and submission of MIS in time.

4) To keep the level of inventories below the level fixed by the Board and outstanding debts, loans,

advances and claim at bare minimum.

5) To ensure payment on due date to various agencies.

6) Monitor capital expenditure to ensure completion within stipulated time and cost.

7) Optimize utilization of working capital efficient management of funds.



FLOW OF FINANCE DEPARTMENT(REFINERIES AND PIPELINES DIVISION)

DIRECTOR (R&P)

ED (FINANCE) HO

G.M. (FINANCE)

DGM (FINANCE)

CFMs

SFMs

FMs

DFMs

SACOs

ACOs


Indian oil corporation Ltd. – Mathura Refinery SECTION WISE SEGREGATION IN REFINERY’S

FINANCE DIVISION

A-1: MAIN ACCOUNTS

Cash budget is prepared in this section and the same is to be produced before HO. All other section of

finance department provides the information to A-1 section for preparing list “B”. List “B” details include

20 items approximately. Some of them are mentioned below.

Employment and Housing accommodation statistics.

Payment of sales tax, Excise duty, Entry tax and other tax and duties.

Loss on disposal/write-off of –

(a) Assets

(b) Stores and spares showing original cost, book value and reason for disposal of

each item under various categories.

Details of staff welfare expenses etc.

Asset management is controlled by A-1 section. For assets management, they prepare the master of

assets, which includes name, cost centre and other details for capitalization of assets. Further, receiving

debit, credit notes and reconciliation also form a part of this section.

A-2: PURCHASE

Generally A-2 section deals with the payment of purchase items only. After purchase, the material is kept

into stores. Store Department makes Goods Receipt Vouchers (GRV) and sends it to the purchase i.e. A-2

section. Here the GRV is checked with the purchase order (PO) and payment is made on its basis.

Section dealing with purchases is responsible for

Scrutiny & concurrence of purchase proposals

Deposits and advance payment to suppliers.

Passing of bill for supplies received.

Pricing of goods receipts notes.

Accounting of cash purchases made by the materials department.

Arrangement for insurance of transit risk.

Maintenance of books of accounts.


Indian oil corporation Ltd. – Mathura Refinery Sales tax matters.

A-3: WORKS

A/3 work section mainly deals with payment or running contracts. Its considers only plants maintenance,

roads, painting, welding, water etc. First and final payments are made on the basis of work completion.

A-4: PAYROLL

This section mainly deals with the payment to employees for their work. Rules for pay and allowance are

prescribed by head office from time to time. The eligibility for special type of allowance such as special

allowances, shift allowance etc. is determined by personnel department and intimations and sent to the

finance department for employees eligible for such allowance.

Function dealing with this section can be broadly classified as:

Scrutiny & concurrence of proposals from personnel department.

Payment of salaries and allowances.

Advances to employees.

Deductions from pay bills.

Other welfare schemes including gratuity.

Personal claims and other payments.

Statutory and statistical requirements.

A-4 also maintains the data to transfer and new recruitment of persons and adds it to master information.

If a person is transferred to another unit, the LPC (last pay certificate) is required to be added into master

information.

A-5: STORES AND MODVAT

MODVAT stands for Modified Value Added Tax, which is now known as CENVAT i.e. Central Value

Added Tax. It is a scheme, which provides relief to final manufacturers on the excise duty borne by the

suppliers in respect of goods manufactured by them. Under this scheme, a manufacturer can take credit of

excise duty paid on raw materials and components used by him. The normal excise duty rate is 16%.

However it depends upon the Tariff class under which the product is classified.

The section dealing with accounting of stores shall have the following functions:

Passing and accounting of transportation bills.


Indian oil corporation Ltd. – Mathura Refinery Accounting of receipts, issues, return and transfer of materials.

Accounting of imported materials for capital works and operations/ maintenance.

Stock verification.

Accounting for sale of surplus materials.

A-6: TA/LTC/MEDICAL

This section maintains in-transfer and out-transfers accounting for claim settlement and also handles the

bill payment of official tour of employees. HO. Claim of Leave Travel Concession (LTC) controls all

foreign tours; this section also deals encashment of LTC and medical payment.

A-7: MISCELLANEOUS SECTION

The function of the Miscellaneous Section includes the following:

1. Accounting of cash imp rest and advances for company expenses;

2. Passing of bills of miscellaneous nature

3. Miscellaneous recoveries from outsiders

4. Inter-sectional coordination.

A-8: PRODUCTION ACCOUNTING

This section maintains production accounts, including crude accounting, custom duty payments, product

bill accounts, bitumen drum accounts and stock valuation accounts. A-8 Keeps records of input in terms

of crude oil and output in terms of the company’s final products.

The basis functions of the production accounts are:

Crude oil quantity and value accounting for the receipts, consumption and stock.

Accounting of inter-divisional/ inter-unit transfer of products for ex-refinery value and excise

duty.

Accounting of consumptions of own fuel/products.

Maintenance of pool accounts and audit thereof.

Value of stocks

Costing.


Indian oil corporation Ltd. – Mathura Refinery A-9: CASH / BANK

This section mainly deals with making payments. No fixed limit is established by the organization for

making payments. The organization has special current accounts with State Bank of India. These accounts

are the sources of payments. The balance at the end of the day, becomes nil by transferring the amount to

the head office. The employees of the organization are paid through cash up to Rs.20000 and by cheque

for over and above Rs. 20000.

Perks such as TA, LTC and medical. Salary, on the other hand, is paid through cheques.

Cash section shall be responsible for:

Receipts of cash, cheques and bank drafts

Payment of cash, cheques and bank drafts.

Handling of bank deposits/ with drawls, custody of cash and transfer of funds.

Security arrangement for cash handling.

Safe custody of valuables and documents.

Petty cash imprest.

Maintenance of subsidiary cash credit account and special current account.

A-10 & A-11: PROJECT (WORKS) & PROJECT (PURCHASE)

These sections deal with payment regarding capital expenses. In case of project (Works), Services Entry

Sheet is an important document to be produced by the in-charge engineer.

A-12: PF & ADVANCES

The scheme of the provident fund is the same as in case of any government undertaking i.e. 12% of the

dearness allowance is kept aside for this purpose and the company contributes the same amount. All the

employees irrespective of their position in the organization are entitled to 9.5% interest on provident fund.

This rule is applied uniformly to all the units and branches of the refineries division of Indian Oil

Corporation limited.


Indian oil corporation Ltd. – Mathura Refinery A-13: OIL ACCOUNT

Here are some basic functions of the oil accounting:

Accounting of crude oil receipts

Accounting of customs duty on crude oil

Accounting of finished product receipts

Dispatch of products;

Excise procedure and accounting

Material balance & Production statistics.

PRODUCTS OF MATHURA REFINERY

LPG

Benzene

Toluene

Naphtha

Motor spirit

Motor spirit (used for imported cars.)

Aviation Turbine fuel

Superior Kerosene

High Speed Diesel

Light Diesel Oil

Low Sulphur Heavy Stock

Fuel Oil

Bitumen

N – Heptane

Aluminum Rolling

Linear Alkyl Benzene


Indian oil corporation Ltd. – Mathura Refinery PROJECT ON ASSET ACCOUNTING

Meaning of asset accounting

Asset accounting encompasses the entire lifetime of the asset from purchase order or the initial

acquisition (possibly managed as an asset under construction) through its retirement. The system

calculates, to a large extent automatically, the values for depreciation, interest, insurance and other

purposes between these two points in time, and places this information at your disposal in varied form

using the Information System. There is a report for depreciation forecasting and simulation of the

development of asset values.

POLICY OF IOCL REGARDING TO THE FIXED ASSET

FIXED ASSETS

1. 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.

2. 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 specifically borrowed and utilized

for projects is capitalized on quarterly basis up to the date of capitalization.

Financing cost, if any, incurred on General Borrowings used for projects is capitalized at the

weighted average cost.

The amount of such borrowings is determined on quarterly basis after setting off the amount of

internal accruals.

SCHEDULE



Depreciation/Amortisation

Cost of lease hold land for 99 years or less is amortized during the lease period.

Depreciation on fixed assets including LPG Cylinders and Pressure Regulators is provided in

accordance with the rates as specified in Schedule XIV to The Companies Act, 1956, on straight

line method, upto95% of the cost of the asset other than Insurance spares which are depreciated up

to 100%. Depreciations charged pro-rata on quarterly basis on assets, from/up to the quarter of

capitalization/sale, disposal and dismantled during the year.

Assets, other than LPG Cylinders and Pressure Regulators, costing up to Rs. 5,000/- per item 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 not with the Corporation are charged off to revenue. Such expenditure

incurred during construction period of projects is accounted as unallocated capital expenditure and

is charged to revenue in the year of capitalization of such projects.

CONCEPT OF ASSET ACCOUNTING

Concept of asset accounting can be understand from the following -----

1-For all items of fixed assets such as buildings, plant & machinery, furniture & fixtures etc. asset register

shall be maintained by the Finance Department for complying the various accounting provisions under

the Companies Act and the Income Tax Act.

2- Adequate depreciation on the cost of fixed assets shall be charged to the Profit & Loss Account before

ascertaining the profit. The acquisition cost of assets should include all expenses for bringing the asset

into existence. Such cost, therefore, includes purchase cost, erection cost, supervision cost etc. incurred

up to the stage the asset is ready for commissioning


Indian oil corporation Ltd. – Mathura Refinery 3- The Companies Act prescribes the minimum quantum of depreciation which should be charged to the

profits of limited company before such profits are distributed as dividend, Keeping in view the statutory

requirements and the effective life of the assets, the Board of Directors have prescribed the rates of

depreciation for various categories of assets on straight-line method.

4-The rates of depreciation admissible under the Income Tax Act are based on written-down value

method and are different from the rates adopted by the Company, for its annual accounts. As such for

compliance of the income tax requirements, details of depreciation at income tax rate are being

maintained separately by Marketing Division, Bombay.

5- In case any item of asset is discarded, sold or written off, the difference between the sale price of such

asset and the written-down value shall be adjusted in the books of accounts as loss or gain.

6- It is on of the basic responsibilities of the company to account for physical existence of all its assets

shown in the books of accounts. For the purpose, it is essential to have periodical physical verification of

assets whereby the physical existence of each asset appearing in the Asset Ledger can be verified to the

satisfaction of auditors. As per MAOCARO (Manufacturing and Other Companies (Auditors Report)

Order 1975, issued under section 227 (4A)of the Companies Act, verification of Assets at least once in

every three years or by rotation so that all assets are verified at least once in every three years is

necessary. Hence, all units/ offices should draw their physical verification programmed in such a way that

all assets are verified and reconciled at least once in the cycle of three years. The current cycle started

from 1.4.1987.

7-To comply all these accounting and income-tax requirements, it is essential that each item of asset

should be given an identification No. which should be quoted as a reference for all transactions or

movements of that asset. The custodian departments as well as the Finance Department shall keep their

records with reference to such identification numbers.

8-The authority for handling the various categories of assets should be earmarked department-wise in

such a manner that one category of asset is not controlled by more than one department. Each such

category shall be allotted a control account in the financial ledger. The authority to indent for purchase of

assets, for drawl from stores and for keeping numerical and location-wise account of each such category

shall vest with the departments so nominated.


Indian oil corporation Ltd. – Mathura Refinery 9-Demarcation of authority of handling of assets has been done with reference to the normal area of

responsibility of various departments. The following indicates the category of the assets and the name of

the department who will be treated as the custodian for these assets:

— Land Administration Department

— Building, Roads & Fencing Maintenance Department

— Plant & Machinery (Process) Production Department

— Plant & Machinery (Services) Production/Power & Utilities/Maintenance Department

— Water Supply & Sewage Power & Utilities Department Disposal

— Construction Equipments Maintenance Department

— Rollway Siding Maintenance Department General Equipment & Appliance

— Data Processing Machines Finance Department / Systems Department

— Hospital equipment & Medical Department Appliances

— Maintenance Equipments Maintenance Department

— Office Equipment &Appliances Administration Department

— Air Conditioners, Water Maintenance/Administration Department Coolers, Air Coolers,

Refrigerators

— Fire Fighting Equipments Production Department

— School/Guest House/Canteen Administration Department & Other Welfare related equipments

— Drawing Office & Survey Technical Service Department Equipments

— Transport Vehicles Administration Department


Indian oil corporation Ltd. – Mathura Refinery — Furniture & Fixtures Administration Department

— Other Sundry Assets Administration Department

10-The controlling department as nominated in the manner prescribed hereinbefore shall be responsible

for all items of assets appearing under a control account the details of which would be available in the

Asset Ledger They shall also be responsible for keeping the numerical records with reference to the

location of each item of asset. In case any item of asset shall be required by some other department,

the controlling department shall issue the asset but a record shall be kept of such assets loaned to other

departments. Movements between the one department to another shall take place only through the

controlling department. For example. The control record of all items of furniture and fixtures shall be

maintained by the Administration Department with location wise details and whenever there is a

transfer of furniture from one department to another, it should be routed only through the

Administration Department. Similar system should apply for all other categories.

11-Inter-unit and Inter-divisional transfer of movable assets 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 transferee unit/division.

12-A suitable system of codification of Assets shall be devised by each unit/office. The identification

number shall be given by the controlling department on the issue voucher itself when they intend to draw

the asset item from the Stores. The Stores Department should not issue asset items to any department

other than the controlling department. Further, 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.

13-After issue of the asset item the issue voucher as usual shall be sent to Finance, who 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 for transfer or disposal, 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 and its original cost.

14-Physical verification of all assets shall be undertaken at least~ once in every three years. The

verification team shall start on the basis of the identification number and other details available in the


Indian oil corporation Ltd. – Mathura Refinery Asset Ledgers. Verification shall be conducted for assets in possession of each department and

discrepancies, if any shall be processed for the approval of the competent authority. Year-wise

verification programme will be drawn in the beginning of every three year verification cycle.

FUNCTIONS OF ASSET ACCOUNTING

Following are the main functions in respect of accounting of assets:

i) Capitalization of the cost of acquisition of assets.

ii) Accounting of depreciation

iii) Transfers, disposal and discarding of assets

iv) Maintenance of Asset Ledger

v) Arrangement for physical verification of assets.

vi) Preparation of schedules for Balance Sheet.

1-CAPlTALISATION OF COST OF ACQUISITION OF ASSETS

1-Cost of acquisition of asset shall include all expenses incurred for bringing the asset into existence and

up to the stage asset is ready for commissioning.

2- For movable items of assets like transport equipment, workshop equipment, movable items of plant &

machinery, equipment & appliances, furniture & fixtures and other sundry assets. the acquisiton cost

would mean the purchase cost plus transportation and other direct incidental expenses. No overhead is to

be allocated to such items. These are to be capitalized on the basis of goods issue voucher.

3- Items upto the value of Rs. 1,000/- in each case belonging to the category of furniture & fixtures shall

be charged to revenue expenses. Cost of books shall also be straight away charged to revenue expenses.

Cost of carpets, Durries and cost of partitions constructed in a rented building should be charged to

Miscellaneous expenses directly. Pocket calculators irrespective of the value, shall be charged. to revenue

directly. If the detachable appliances like fans, geysers, sinks, wash basin are installed for the Corporation


Indian oil corporation Ltd. – Mathura Refinery Owned buildings at the time of original construction, the same shall be capitalised along with buildings.

However, appliances procured later and those for rented buildings will be charged to revenue expenses up

to the limits mentioned above.

4- The quantitative records shall be maintained for these items by the respective custodian departments. A

physical inventory of the above items shall be taken by the custodian departments every year and the

physical balance shall be reconciled with the balance appearing in the quantitative record register.

Discrepancies if any, shall be investigated and regularized on the same lines as done in case of any other

store items as per manual of Delegation of Powers, .

5- Free hold land shall be capitalized at the actual cost of land and other direct incidental expenses

incurred in connection with the purchase/acquisition of the land viz. Legal costs, stamp duties and fees

etc. and other direct expenses incurred in acquiring the land. Land acquired on lease for 99 years or more

shall be classified as 'Free hold land' and Land acquired on lease for less than 99 years shall be classified

as 'Lease hold Land' and shall be amortized during the lease period.

6- Cost of right-of-way for laying pipelines is to be capitalized to the extent of actual cost of

consideration paid to the land owners for the use of right-of-way. Compensation for damages for clop,

trees and other structures etc. paid thereon during construction period is to be charged as construction

period expenses and capitalized. Subsequent payment of crop compensation, if any, shall be charged to

revenue.

7- Sometimes expenditure is required to be incurred on certain facilities to be provided by other

authorities like Railway siding, Power Transmission Lines, Roads where the assets remain the property of

the relevant Government authorities even though the whole or part of their cost may have been defrayed

by the Corporation as enabling works for the project. In all such cases the expenditure so incurred after

1.4.1983 shall be booked under a separate head "Enabling Assets" in Schedule 'E' and capitalized

accordingly. Such assets shall be depreciated in full over a period of five years.

8- Civil structures or buildings constructed for housing the equipment shall be treated as a part of the

plant and machinery and their cost shall be capitalized along with the cost of plants under the Plant &

Machinery Account.



9- For building & roads, plant & machinery and other power & utility systems etc. where construction

activity is also involved apart from purchase of project material and equipment etc. the cost of acquisition

shall include elements of direct and a portion of construction period expenses directly attributable to such

item of asset. Elements of direct cost in such cases would include purchase cost, customs duty, clearing

and forwarding charges, ocean freight, railway freight etc. contracts for construction, fabrication and

erection etc. and start up and commissioning contracts for the relevant equipment.

10- As per policy of the Corporation, the construction period expenses on Administration and supervision

exclusively attributable to projects shall be capitalised. However, such expenses in respect of capital

facilities being executed along with the production operations simultaneously shall be charged to revenue.

In this connection. Following guidelines shall be observed:

i) All direct costs shall be capitalised in the normal way.

ii) Construction period expenses on administration and supervision of the project exclusively attributable

to the projects shall be capitalised.

iii) The managerial expenses incurred at unit and HO namely the time devoted by DGM/GM of the Unit,

Finance Department, Materials Department, Technical Services Department. etc. shall be charged to

revenue so long such expenses are incurred in respect of capital facilities being executed along with the

normal production operation of the refinery/pipeline unit. However, if a project has its own Finance,

Materials and Administration Department separately, the expenditure on such departments shall be

capitalised irrespective of the value of the project.

iv) No general overhead expenses shall be capitalised

v) No interest/financing charges shall be capitalised for the construction period of a project unless a loan

is specifically drawn for all located to such project.

11- In acquisition of assets requiring construction activity for a long period like a gross root Refinery

Pipeline Projects, a lot of expenditure is incurred during construction period like salaries, provident fund

and other staff expenses on the employees assigned to construction work for supervision, technical

consultants, general administration and office expenses, insurance, maintenance and operation



of vehicles, temporary facilities for the purpose of construction, depreciation on fixed assets used during

the period of construction, shall be capitalized.

12- While working out the capitalised cost of the plant & machinery all expenses incurred on acquisition

of the plant including and up to the stage of erection, installation and commissioning shall be taken into

account. After the Refinery/ Pipeline is ready for commissioning, all expenses up to the stage Plant is

ready for commissioning shall be determined according to the normal principles of commercial

accounting and shall be capitalised. All preliminary expenses such as crude oil analysis expenses cost of

designing, technical assistance fees etc. shall be grouped under the head of Unallocated Capital

Expenditure.

13- After commissioning of the Pipeline, a reconciliation of the material purchased, issued to the

contractors, installed in the works, received back from the contractor antler lying with the contractor

should be prepared in respect of each contractor separately for indigenous and imported materials. After

the work of reconciliation of the material with the contractors is over, an installation Report containing

job-wise plant-wise station-wise details of the quantity and value of the materials installed should be

prepared. This should be made available by the Stores accounting section duly checked and verified by

Engineering Department and tallied with the Price Stores Ledger maintained in the Finance Department.

14- As far as possible, the job-wise plant-wise/station-wise erection cost shall be separately booked in the

books of accounts. The construction cost which is not directly attributable to the individual

job/plant/station shall be booked separately and shall be allocated to each job/plant/station on a pro-rata

basis based on the total material cost incurred on each job/plant/station.

15- The total direct cost of the job/plant/station shall be determined by adding the cost of the imported

materials/indigenous materials installed in each job/plant/ station as detailed in Installation Report and

erection/installation cost thereof. The construction period expenses including the establishment and other

general administrative expenses shall be allocated to each job/plant/station on pro-rata basis based on the

total direct cost incurred on each job/plant/station.



16- It shall be ensured that the construction period expenses are allocated on all construction jobs

including factory erection, water supply and sewage net-work and township quarters etc. However, the

temporary assets in the nature of construction site requirement shall be excluded from such allocation. In

case of phase-wise capitalization of a project, whenever a particular phase of the project, is to be

capitalized and the remaining phase is still under construction, the construction period expenses up to the

date of capitalization of a particular phase shall be worked out and allocated to capitalized assets and

under construction assets on the basis of total direct cost incurred on the 'capitalized assets' and 'under

construction assets'. The construction period expenses incurred after the date of capitalization of a

particular phase of the project, shall be allocated only to the remaining phases of the project under

construction along with the share of the expenditure allocated to the project under construction at the time

of last phase of capitalization.

17- The unallocated capital expenditure shall also be allocated to all jobs/ plants/stations in the same

manner to the cost of the jobs to which they relate.

18- The Asset should be capitalized when ready for commissioning. In cases where certain portion of the

Projects remain incomplete, but some of the assets are completed and are ready for commissioning, then

that portion Of the completed assets should be capitalized and transferred-to fixed assets and depreciation

charged accordingly.

19- For purposes of capitalization, each job or each building shall be taken as one Unit. Quarters

belonging to one uniform category and design shall be capitalized together giving the total number of

such quarters in the asset description. After capitalization, the jobs and building shall be grouped cost

centre wise. Sub-codes shall be allotted cost-centre wise under each main account code and the cost of

jobs belonging to each cost centre shall be booked in the respective account sub-codes. Job wise/building-

wise details shall be maintained in the Asset Ledgers.

20- In case of operational plants, the first charge of catalyst, solvent or chemicals reagents shall be

capitalized along with the cost of plant.

21- The commissioning dates of the jobs/project for the purpose of capitalization shall be fixed in

consultation with project authority/technical department keeping in view the date of the successful

completion of the pre-commissioning test runs. In case, any job/project is completed up to and including



fifteenth of a particular month, the first day of the month and in case beyond fifteenth, the first day of the

following month, will be considered as the date of commissioning for the purpose of capitalization.

Accounting treatment of expenses for extended period of trial runs over a longer period shall be

determined by taking into consideration the facts and circumstances in each case.

22- The interest charges during construction period up to the date when Plant is ready of commissioning

shall be fully capitalised. After the commissioning of the first phase of the Refinery/Pipeline. the quantum

of interest to be allocated on construction account shall be decided by Head Office time to time.

23- After commissioning of the first phase of the refinery/pipeline, the construction expenses and the

operational expenses shall be booked separately in such a way that only such expenses as are exclusively

incurred for construction activity are booked to the Project expenses.

24- Liability for foreign credit shall be provided on the basis of Bank Selling rates ruling at the time of

Capitalisation of Assets acquired against such credits. Subsequent exchange fluctuations shall be charged

to revenue in the year of payment.

25- All papers, books, documents and vouchers etc. pertaining to capitalisation of Assets shall be kept as

a permanent record.

2-ACCOUNTING OF DEPRECIATION

1- Section 205 of the Companies Act stipulates that no dividend shall be gdeclared or paid by a company

for any financial year except out of the profits 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:

a) On the written-down value basis as provided in Section 350 of the Companie6 Act or

b) On the straightline basis—the amount of depreciation in respect of each depre. ciable asset is arrived at

by dividing 95% of the original cost thereof by a specified Period in respect of each such asset; or

c) On any other basis approved by the Central Government which has the effect of writing off by way of

depreciation, 95% of the original cost to the Company of each such depreciable asset on the expiry of the

specified period.


Indian oil corporation Ltd. – Mathura Refinery 2- In accordance with the provisions of sub-section 2(b) of Section 205 of the Companies Act, the Board

of Directors have prescribed the rates of depreciation on straight line method for various categories of

assets keeping in view the effective life of assets. Keeping in view the life of assets as determined by the

Board and rates of depreciation a-s prescribed in Schedule XIV of the Companies Act, 1956 schedule of

rates of depreciation for various categories of Assets effective from the accounting year 1987-88 is

given~ in Annexure IV(;1).

3- The depreciation should be charged on the straight line basis as per rates approved by the Board on full

value of the assets limited to 95 percent of the original cost of each asset. As soon as the cumulative

depreciation provided for each asset reaches an amount equivalent to 95 percent of the original cost no

further depreciation shall be provided on such asset and the balance 5 percent shall be kept as residual

value in the books of accounts in the terminal year.

4- Depreciation shall be charged on the installed/commissioned asset for the whole year irrespective of

the date of installation/commissioning. If for some reason or the other, the asset after its commissioning is

kept idle, full depreciation shall be charged on such assets.

5- Plant & Machinery costing upto Rs. 5,000/- in each case shall be depreciated fully in the year of its

purchase/capitalisation after retaining a token value of Re. 1/- in the books of accounts.

6- Furniture & Fixtures costing upto Rs. 1.000/- in each case shall be charged off to revenue in the year of

its purchase.

7- Capital expenditure incurred after 1.4.1983 on Enabling Assets like electricity transmission lines,

railway sidings etc., the ownership of which does not vest with the Corporation shall be depreciated in

full over a period of five years. No residual value shall be retained in case of such Enabling Assets.

However, the Capital cost and total depreciation shall continue to be depicted in Schedule 'E' of Fixed

Assets.

8- Cost of lease hold land taken on lease for less than 999 year shall be amostired during the lease period.

9- For temporary assets such as temporary buildings, sheds, temporary sewage drainage and water supply

and temporary electric supply line etc., erected as a part of construction site requirments having only

salvage value on dismantling after the completion of construction depreciation shall be charged at the rate

of 100 percent in the year in which the cost is incurred. Such temporary assets. however, shall be borne



on the asset register and the cost and the depreciation particulars shall be shown separately in the schedule

of assets, till the asset is dismantled or discarded. The salvage value of such assets shall be credited to the

project after its completion. In case of other temporary assets such as diesel generating sets, transformers

and temporary building 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.

10- Booking of assets to various account heads shall be done in such manner that each account head

comprises such assets only which are subject to a uniform rate of depreciation. This will facilitate the

calculation of depreciation based on the balances appearing in each account head

11- After the first capitalization, if there is any extra payment on account of assets already capitalised

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

customs duty etc., depreciation shall be recomputed retrospectively from the original {late of

commissioning of the asset under reference.

3-TRANSFERS AND DISPOSALS OF ASSETS

1- 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.

2- No depreciation shall be charged on assets declared unserviceable during the year.

3- After the asset is sold off, the Asset Accounting Section shall be required to rank adjustment between

the written-down value of the asset and the sale price. The written-down value of the asset shall be

determined on the basis of the particulars furnished by the custodian department in the Material Return

Voucher. In case of loss, the amount will be debited to the account "loss on assets sold, discarded or

written off". In case the sale price is more than the written-down value of the asset, the profit will be

credited to the account "profit on sale of fixed asset".

4- Dismantling of Assets shall be undertaken only after furnishing a justification and obtaining the

approval of competent authority. Salvage materials recovered from the dismantling shall be returned to



the Stores under a Material Return Voucher giving the description of the asset so dismantled. The loss or

gain on dismantling shall be determined after making adjustment for the value of the salvaged materials

and the cost of dismantling. In case of dismantling of temporary structures where 100% depreciation has

been charged in the year in which such structure was brought into existence, the credit for the value of

salvaged materials shall be taken to Misc. Income.

5- After completing all adjustments by eliminating the original cost and the cumulative provision for

depreciation from the books of account, the value of such asset shall be removed from the Asset Ledger

6- Details of amount under the accounts "Profit/Loss on assets sold or written off" shall be furnished to

Head Office along with the Balance Sheet giving the amount for each item of asset, and the reasons for

write-off. The specific items requiring Board's approval for write-off shall be separately mentioned with a

detailed note on each of such items.

4-PROVISION OF FURNITURE ON HIRE AT THE RESIDENCE OF OFFICERS

1-Corporation has introduced a scheme whereby Officers of the Corporation in Grade 'D' and above shall

be eligible for provision of furniture items at their residence, on hire basis. Value of the furniture shall not

exceed the maximum limit fixed for various categories of officers as per rules of the scheme. The present

limit are as under:

— Officers in Grade 'D Rs .75,000/-

— Officers in Grade 'E' & 'F' Rs. 1,00,000/-

— Officers in Grade 'G' and above Rs. 1,40,000/

2- As and when Officer's category is changed on promotion, he will be entitled to utilise the difference

amounts by way of adding furniture items at his residence.



3- The Officers shall be allowed to purchase furniture items through Office or directly themselves with

prior permission of the Corporation for which Officers shall submit the bill to IOC for payment to

suppliers.

4- For this facility, Officers shall be required to pay 2% of their basic pay as furniture hire charges each

month.

5- Furniture items at the residence of officer shall remain the property of the Corporation and depreciated

according to the rules of the Corporation. Physical verification of furniture shall be carried out as per

normal procedures.

6- On retirement/resignation/termination or otherwise cessation of service with the Corporation or after

expiry of 10 years from the original issue of furniture at residence on hire basis, whichever is earlier, the

officer shall be required to purchase such furniture at book value as worked out by adopting depreciation

rates prescribed in this behalf from time to time subject to minimum residual value of 5% as per

corporation Rules.

7- In case of premature death of an Officer, the family of the deceased officer will be required to purchase

the furniture items at book value or 30% of the original cost whichever is lower.

8- Repairs & Maintenance of the Corporation furniture at the residence of Officers can be undertaken by

Officer himself or through the Corporation. The expenses on this account shall not, however, exceed a

limit of 2% of the cost of furniture per year. Any unspent balance of this limit of 2% not utilized in one

year can be carried forward to subsequent years to cover repairs & maintenance in subsequent years.



9- In addition to normal repairs & maintenance of the furniture items, expenditure up to following limits

shall be allowed once in 3 years for change of tapestry of sofa set only

— Officers in Grade 'D' Rs. 1350/

— Officers in Grade 'E' & 'F' Rs. 1800/

— Officers in Grade 'G' and above Rs. 2400/

10- Reimbursement of expenditure shall be claimed in prescribed form duly supported by bills/cash

memos etc. to Admn. Department who after verification shall forward the same for payment to Finance

11- The senior executives are provided with one room air-conditioner plus other items of furniture &

furnishings for office facility at their residence within monetary limits of Rs. 15,000for Chairman, Rs.

12,000 for Directors and for EDs/GMs at Rs. 8000/-. At the time of retirement, the executives may

purchase them at their book value subject to a minimum residual value.

The soft furnishings like curtains, linen etc provided at the residence of officers for office facility may be

replaced after 4 years if required.

5-MAINTENANCE OF ASSET LEDGERS

1- Item-wise Asset Ledger (Annexure IV(23) shall be maintained by the Asset accounting Section giving

full description of the asset along with its identification number.

2- For process plants, details of detachable parts and important equipments such as pumps, motors, heat

exchangers, vessels, control panels and columns etc. shall be given in the Asset Ledger in respect of each

plant. The marking /numbering of the detachable parts may be done by use of metallic tags so that these

could be helpful for physical verification. Any transfer of such detachable parts from one plant to another

shall be intimated to Finance for making correction entries in the Asset Ledgers.

3- For buildings, the location and the plinth area of each building shall be mentioned in the Asset Ledger.

In respect of each road, the total length of the road shall also be mentioned.



6- SCHEDULES FOR BALANCE SHEET

1- For the purpose of Balance Sheet, the Section shall prepare following statements for submission to the

Main Account.

i) Schedule of Fixed Assets

ii) Details of depreciation provided during the year

iii) In case there is a change in the rate of depreciation of a particular asset, the difference between the

depreciation calculated at the old rate and at the new rate.

PROCEDURE OF ACQUIRING ASSET

FOLLOWING ARE THE MAIN STEPS IN ACQUIRING ASSET:

INDENTER (USER OF ASSET)

INDENT (PREPARE THE LIST OF NECESSARY ASSET)

MATERIAL DEPT (LIST IS GIVEN TO MATERIAL DEPT).

INQUAIRY (INQUIRY TAKE PLACE FOR LISTED ASSET)

TENDER (TENDER ARE OFFERED BY MATERIAL DEPT.)

OFFER (VARIOUS OFFERS COME FROM DIFFERNET PARTIES)

COMPARITIVE STATEMENT (COMPARISION TAKE PLACE BETN. OFFERS)

LOWEST COST TENDER (CHEAPEST & SUITABLE OFFER IS ACCEPTED)


Indian oil corporation Ltd. – Mathura Refinery PURCHASE ORDER (PURCHASE ORDER IS GIVEN TO SELECTED PARTY)

ONE COPY OF PURCHASE ORDER IS GIVEN TO:

PARTY TO WHICH ORDER IS GIVEN

MATERIAL DEPT

STORE SECTION

FINANCE DEPT.

ADVANCES (SOME ADVANCES IS PAID TO THE PARTY)

STORE (LISTED ITEMS ARE STORED IN STORE DEPT.)

GOODS RECEIPT NOTE (G.R.N)

INSPECTION (IT IS NECESSARY TO CHECK THE ORDERED ITEMS)

FINANCIAL ACCOUNTING

(FINANCIAL ACOUNTING TAKE PLACE FOR THESE ITEMS)

ASSET DEBIT

ADVANCE CREDIT



ACCOUNTING OF ASSETS TAKE PLACE ON THE SOFTWARE WHICH IS

KNOWN AS S.A.P

SAP STANDS FOR:(Systems, application and products in data processing)

SAP (Systems, Applications and Products in Data Processing)

"SAP is the fourth largest software company in the world. It ranks after Microsoft,IBM and Oracle in

terms of market capitalization. SAP is the largest Enterprise Resource Planning (ERP) solution software

provider. SAP’s products focus on ERP, which it helped to pioneer. The company's main product is SAP

R/3;the "R" stands for real time data processing and the number 3 relates to a three-tier application

architecture: database, application server and client SAPgui.Other major product offerings include

Advanced Planner and Optimizer (APO),Business Information Warehouse(BW),Customer Relationship

Management(CRM),Supplier Relationship Management(SRM), Human Resource Management

Systems(HRMS),Product Lifecycle Management(PLM), Exchange Infrastructure(XI) and Knowledge

Warehouse(KW).Reportedly, there are over 91,500 SAP installations at more than 28,000 companies.

SAP products are used by over 12 million people in more than 120 countries."



MODULES OF SAP:

1-FI / CO (financial controlling)

2-TR (Treasury and cash)

3-MM (Material Management)

4-SD (Sales & Distribution)

5-PP (Production Planning)

6-QM (Quality Management)

7-WM (Warehouse Management)

8-PM (Plant Maintenance)

9-PS (Project Systems)

10-HR (human resource)

SAP-A-Corporate Overview

SAP is the 4th largest software company in the world

Total number of people employed by SAP-30,000

Number of programmers employed by SAP- 5,400


http://www.sapbrainsonline.com/TUTORIALS/FUNCTIONAL/HR_tutorial.html

http://www.sapbrainsonline.com/TUTORIALS/FUNCTIONAL/PS_tutorial.html

http://www.sapbrainsonline.com/TUTORIALS/FUNCTIONAL/PM_tutorial.html

http://www.sapbrainsonline.com/TUTORIALS/FUNCTIONAL/WM_tutorial.html

http://www.sapbrainsonline.com/TUTORIALS/FUNCTIONAL/QM_tutorial.html

http://www.sapbrainsonline.com/TUTORIALS/FUNCTIONAL/PP_tutorial.html

http://www.sapbrainsonline.com/TUTORIALS/FUNCTIONAL/SD_tutorial.html

http://www.sapbrainsonline.com/TUTORIALS/FUNCTIONAL/MM_tutorial.html

http://www.sapbrainsonline.com/TUTORIALS/FUNCTIONAL/FI_tutorial.html

Indian oil corporation Ltd. – Mathura Refinery FY03 Net Income -$1.077 million

Number of companies using SAP-12,000

Number of SAP installations-79,800

Number of people using SAP12,000,000

Total number of people in the 12,000 companies who are using SAP

Number of languages supported by SAP-28

Number of country-specific versions of SAP-46

Number of pre-defined best practices contained in the SAP system-1,000

Number of SAP experienced consultants worldwide -55,000

Number of years ago SAP was started-28

Number of people who started SAP- 5


Indian oil corporation Ltd. – Mathura Refinery USE OF SAP IN ASSET ACCOUNTING

CREATE ASSET(NORMAL/ AUC/SUB ASSET)

Menu Path

Accounting- Financial Accounting- Fixed Asset- Asset- Create- Asset.

Transaction Code

AS01

WORK STEP in creating new fixed asset

1-Create asset – Initial screen

a. Asset Class: is a class to which fixed asset belongs. There is one version of asset

classification both for Company Act & Income Tax Act. Asset class code of 8 digit alpha

numeric number.

b. Company code: This code refers to the company for which asset is created.

c. Reference Asset : Reference another asset to pick up default values.

d. Reference sub asset : Reference another asset to pick up default values

e. Reference Company : Reference another Company to pick up default values

f. Post Capitalization: if there is, capitalization then it will be required field.

2. Press enter to go to the Create asset ; General data screen.

3. Create asset- General Data Screen

a. Description: is the detail of the asset created which we want to be maintained.

b. Asset Main No. Text: It is used in reporting and accessing total asset main number.

c. Serial no. : This field is utilized to capture existing no. of assets in the legacy system.

d. Inventory no. : The inventory no. is output in the standard inventory list for asset

accounting.


Indian oil corporation Ltd. – Mathura Refinery e. Quantity : is to be mentioned for all assets

f. Unit of measure: has to be mentioned to supplement the quantity figure.

g. Capitalized on: The system enters the asset value date of the Ist posting that result in the

capitalization of the asset in this field. Capitalization date is the value date of an asset.

h. Deactivation on: The system enters the asset value date of the retirement posting for a full

retirement in this field.

i. First Acquisition on : the system automatically sets the asset value date of the first

acquisition posting in this field.

j. Planned Retirement on : We enter a date here for the planned retirement date of the asset.

k. Acquisition year: The system enters the fiscal year of the first acquisition posting in this

field.

4. Press enter to go to the Create Asset : Time Dependent Data Screen.

5. Create Asset: Time Dependent Data

a. Cost center: The SAP System uses the cost center assignment in the master record to

determine the cost center.

b. Internal order: is a order to which depreciation & interest should be posted.

c. Location: This field is used for information purpose only.

d. License Plate no.:

e. Personnel no.: The personal no. is the only feature with in a client which is unique to

employee.

f. Shift factor: where the asset are working for the shifts, we can mention the no. of shifts the

asset is used for say single, double, triple shift.

6. Press Enter to go to the Create Asset : Allocation screen.

7. Create asset: Allocation

a. Insurance Group: By insurance group we can classify for insurance purpose the asset

we are creating.

b. Insurance category: This is meant for the type of insurance policy that we take the for the

asset class that we are creating.

c. Political state code: The state in which the asset exits. This is required for income tax

reporting purpose.



8. Create Asset: Origin Data.

a. Vendor: This field is used to capture the vendor code.

b. Manufacturer: we can enter the manufacturer of the asset in this field.

c. Purchased New : Set this indicator if the asset was purchased new (not used)

d. Purchased Used : Set this indicator ,if the asset was second –hand

9. Press enter to go to the Create Asset: Over view of depreciation Areas Screen.

10. Create Asset: Over view of Depreciation Areas.

a. Depreciation key : Dep. Method

Will default from asset class. User can change this in he asset master record.

Check that dep key defaulted is correct for buildings dep keys can be 1.63% & 3.34% for

plant & machinery depreciation keys can be 4.75% , 16.21% and for furniture and fixture

it will be 6.33%.

b. Useful life: In all cases, system will default an useful life of 100 years.

c. Depreciation start date: will be the first day of the quarter in which capitalization is done.

d. Index: Available for calculation of replacement values.

11. Click save to save the asset master record.

12. After saving, note the asset no. which is created by this procedure.

CHANGE ASSET(NORMAL/ AUC/SUB ASSET)

Menu Path

Accounting- Financial Accounting- Fixed Asset- Asset-Change-Asset.



Transaction Code

AS02

WORK STEPS

1-Change asset: initial screen:

a. asset number

b. company code

c. reference asset

d. reference sub asset

2-Press enter to go the change asset: general data screen

3-Change asset: general screen

a. description

b. asset main no. text

c. inventory number

d. quantity

e. last inventory on

f. capitalized on

g. deactivation on

h. planned retirement on

4-Press enter to go to the change asset: time dependent data screen

5-Change asset: time dependent data

a. business area

b. cost center

c. internal order

d. location

e. personnel number

f. shift factor

g. asset shutdown



6-Press enter to go to the change asset: allocation screen

7-Change asset: allocations

a. insurance group

b. insurance category

c. political state code

8-Change asset: origin data

a. vendor

b. manufacturer

c. Purchased new

9- Press enter to go to the Change Asset: Over view of depreciation areas screen

10- Change Asset: Over view of Depreciation Areas

a. Depreciation key

b. Useful life

c. Depreciation Start Date

11- Click save to save the asset master Record.

RESULT

Note that the asset master record has been changed.

DISPLAY (NORMAL/AUC/SUB ASSET)

Menu Path

Accounting- financial accounting- Fixed asset- Asset- Display-

Transaction Code

AS03



Work Steps

1- Display Asset: Initial Screen

a. Asset No.

b. Sub asset no.

c. Company code

d. Reference asset

e. Reference sub asset

f. Reference Company

2- Press enter to go to the display Asset: General data Screen

3- Display asset: General Data Screen

a. Description

b. Asset main no. text

c. Serial no.

d. Inventory no

e. Quantity

f. Unit of measure

g. Capitalized on

h. Deactivation on

i. First acquisition on

4-Press enter to go to the Display asset : Time dependent Data Screen

5-Display asset: Time dependent data screen

a. Cost center

b. Internal order

c. Location

d. Personnel no.

6-Press enter to go to the Display asset: Allocation screen



7-Display asset : Allocation Screen

a. Insurance group

b. Insurance category

c. Political state code

8-Press enter to go to the Display asset: Origin date

9-Display asset : origin Data

a. Vendor

b. Manufacturer

10-Press enter to go to the Display asset: Over view of Depreciation Areas Screen

11-Display asset: Over view of Depreciation Areas Screen

a. Depreciation key

b. Useful life

c. Dep. Start date

12- Click enter come out of display asset master record screen

RESULT

The asset master record display will not be allow you to change any field in the record.

ACQUISITION OF ASSETS AGAINST EMPLOYEE ADVANCES

MENU PATH

Accounting-financial accounting-asset accounting-postings-external asset acquisition-clearing offset.

Entry



Transaction code

F-91

WORK STEPS

1-Asset acquisition to clearing acc Header data

a. document date

b. posting date

c. document type

d. company code

e. currency rate

f. transfer posting with clearing

g. posting key

h. vendor account

i. SplG/L indicator

2-Press enter to go to the screen asset acquisition to clearing account: create vendor line item

3- Asset acquisition to clearing account: create vendor line item

a. amount

4-Click choose open item to go to the next screen

5-Asset acquisition to clearing account: select open items

a. company code

b. account

c. account type

d. special g/l indicator

6-Click on process open item to view and select open items for processing

7-Select over view icon to see the line items



8-Asset acquisition to clearing account: display over view

a. posting key

b. account

c. transaction type

9-Click on enter to go to the next screen

10- Select overview icon to see the document line items

11-Click on post to post document

RESULT

The asset gets capitalized an the employee advances is cleared to the extent of the value capitalized

PROCESS OF ASSET DEPRECIATION

Menu path

Accounting-Financial accounting-Fixed asset-Periodic processing-Depreciation run-Execute

Transaction code

AFAB

WORK STEPS

1-Depreciation posting run screen

a. Company code

b. Fiscal year

c. Posting period

d. List asset

e. Test run

f. Asset main number

g. Asset sub-number

h. BDS session name


Indian oil corporation Ltd. – Mathura Refinery 2-Follow the menu path , programme –execute in background to execute the depreciation posting

programme

3-Review the progress of the background job by following the menu path system-services-jobs-job

overview

4-Select background jobs screen

A. job name

B. user name

5- Press enter to advance to job overview: alphabetic screen

6-Job overview: alphabetic

Review the status of the depreciation job.

7-To access the batch input : initial screen ,follow the menu path ,system-services-input-edit

8-Batch input: initial screen

a. session name-it is the name of the batch input session.

9-Press enter to advance to batch input: session overview screen

10-Locate the depreciation posting screen.

11-Click on the session name and click the (process) button or follow the menu path

Session-process .

RESULT

Once the batch input session has been processed, the accounting documents for depreciation have been

posted to the general ledger and the depreciation posting is complete.



INTRODUCTION OF CAPITAL BUDGETING

The basic characteristic of a capital expenditure is that it generally involves the current outlay or near

future outlay of funds expected to yield a flow of benefits in future. The benefits may be monetary or

non-monetary. A capital expenditure, from the accounting view point, is an expenditure, which is shown

as an asset in the balance sheet. This asset, except in case of non –depreciable asset like land, is

depreciated over its life.

“CAPITAL BUDGETING IS THE PROCESS BY WHICH FIRM DECIDES WHICH LONG

TERM INVESTMENT TO MAKE.” The decision to accept or reject a capital budgeting project

depends on an analysis of the cash flows generated by the project and its cost. Due to capital budgeting

one can know about the risk and return of the project also the viability and feasibility of the project by

doing different analysis. So in today’s world for any company capital budgeting becomes necessary,

because of long-term effects, irreversibility of the investment, substantial outlays, uncertainty about

future, etc.

In this large commercial organization we could get kind support of every person of finance department

and got experience of making capital investment decisions. We have tried to put here by this project that

how this company decides on investments, how the capital budgeting process can be done and what are

the important aspects of capital budgeting that should be considered in depth and for that what type of

analysis is done. So we have also put here one sample proposal or project, to give an idea about how

different analysis can be done, making decision and how an investment proposal translates into a concrete

project.

IMPORTANCE

Capital expenditure decision often represents the most important decisions taken by an organization.

Their importance stems from 3 inter related reasons.

1) Long term effects - The consequences of capital expenditure decisions extend far into the future.

Current capital expenditure decisions provided the framework for future activities.

2) Irreversibility - A wrong capital investment decision often cannot be reversed without incurring

substantial loss.


Indian oil corporation Ltd. – Mathura Refinery 3) Substantial outlay - Capital expenditures usually involves substantial outlays.

DIFFICULTIES

While capital expenditure decision is extremely important, they also pose difficulties. These difficulties

stem from 3 principle sources given below:

1) Measurement problems - Measuring the costs and benefits of a capital expenditure proposal is

difficult, particularly when they are somewhat intangible in nature.

2) Uncertainty - The benefits of capital expenditure decision occur in the future. The future is

characterized by uncertainty. Hence analysis of capital expenditure proposal is difficult.

3) Temporal spread - The costs and benefits relating to capital expenditure proposal occur at

different points of time. A rupee received now is not the same as received a year hence.

CAPITAL BUDGETING

“Capital Budgeting is the process by which the firm decides which long-term investments to make.”

Capital budgeting projects, i.e., potential long-term investments, are expected to generate cash flows over

several years. The decision to accept or reject a Capital Budgeting project depends on an analysis of the

cash flows generated by the project and its cost. The following four capital budgeting decision rules or

tools are considered for measuring financial feasibility of project:

Payback period

Average Rate of Return (ARR)

Net Present Value (NPV)Topic : “Assets Accounting & Capital Budgeting at IOCL”60

Indian oil corporation Ltd. – Mathura Refinery Internal Rate of Return (IRR)

A Capital Budgeting decision rule should satisfy the following criteria:

Must consider all of the project’s cash flow.

Must consider the Time Value of Money.

Must always lead to the correct decision when choosing among Mutually Exclusive Projects.


Indian oil corporation Ltd. – Mathura Refinery PHASES OF CAPITAL BUDGETING:

Capital budgeting is a complex process, which may be divided into the following phases:

1. The capital budgeting process begins with the identification of potential investment opportunities.

The planning body develops estimates of future sales that serve as the basis for setting production

targets which in turn, is helpful in identifying required investment in plant and equipment.

2. A system of rupee gateways usually characterizes capital investment decision-making. Under this

system executives are vested with the power to okay investment proposals up to certain limits.

3. Before undertaking projects involving larger outlays are usually required an appropriation orders.

The purpose of this check is mainly to ensure that the funds position of the firm is satisfactory at

the time of implementation.

4. Translating an investment proposal to a concrete project is a complex, time-consuming, and risk-

fraught task. Delays in implementation, which common, can lead to substantial cost overruns for

that the following are helpful. (1) Adequate Formulation of Projects, (2) Use of the principal for

responsibility Accounting, (3) Use of Network techniques.

5. Performance review is a means for comparing actual performance with projected performance. It

is useful in several ways; (1) it throws light on how realistic were the assumptions underlying the

project. (2) It provides a documented log of experience that is highly valuable for decision

making. (3) It helps in uncovering judgmental biases. (4) It includes a desired caution among the

project sponsors.


Indian oil corporation Ltd. – Mathura Refinery PROJECT DEVELOPMENT CYCLE:

The development cycle consists of three broad phases:

1. Pre investment phase which consists of several stage of identification of investment opportunity,

preliminary analysis, feasibility study, and decision-making.

2. Implementation phase involves setting up of manufacturing facilities, consists of several stages

(1) project and engineering design, (2) negotiation and contracting,(3) construction, (4) training ,

(5) plant and commissioning.

3. Operational phase is the longest phase in terms of time span begins with the project

commissioned and ends with the project wound up.

Aspects of Appraisal :

Broadly four types of appraisal may be conducted while evaluating an investment proposal:

(1) Market appraisal requires a wide variety of information and appropriate forecasting methods.

(2) Technical appraisal needs to determine with respect to location, size, process, etc.

(3) Financial appraisal seek to ascertain whether the project will be financially viable or not with respect

to servicing debt and return expectations.

(4) Economic appraisal concerned with judging a project with respect to social cost and benefits

of project to the firm in non-monetary terms.

Basic considerations are Risk and Return factors of financial analysis. Higher the return, ceteris paribus,

higher the market value, higher the risk, ceteris pair bus, lowers the market value. In financial analysis the

trade-off between risk and return needs to be carefully analyzed.

Market and Technical Appraisal:

Before a detailed study of a project is undertaken, it is necessary to know, the types of information

regarding size of market because viability of the project depends upon the level of sales exceeds a certain

volume. The information for this purpose can be gathered from past record of demand and present,

breakdown of demand, price statistics, methods of distribution, and government policy by primary

sources and secondary sources.


Indian oil corporation Ltd. – Mathura Refinery Technical analysis is concerned primarily with materials and inputs, production technology, plant

capacity, location and site, machinery and equipment, structures and civil works, projects charts and

layouts and work schedule. An important aspect of technical analysis is concerned with defining the

materials and inputs require to proximity to raw materials and markets, availability of infrastructure

facilities and other factors.



FINANCIAL ESTIMATES AND PROJECTIONS:

Costs and benefits from the financial angle:

In defining the costs and benefits of a capital expenditure proposal from financial angle the following

principles must be borne in mind: cash flow principle, post-tax principle, incremental principle. Cash flow

associated with a project may be divided into three parts: initial flow, operational flows, and terminal

flows. When a project is viewed from the total funds points of view, the net cash flow operation and

winding up is the cash flow left after meeting all expenses.

Time value of money :

Money has time value. A rupee today is more valuable than a rupee a year hence. There are different

aspects of equations by which we can calculate the future value of money they are Annuity, Differed

annuity, Perpetuity, Annuity due, present value etc.

Appraisal criteria:

There are two broad categories of appraisal criteria: non-discounting and discounting criteria. The non-

discounting criteria are: urgency, payback period, accounting rate of return, an debt service coverage

ratio, while discounting criteria are: net present value; benefit cost ratio, internal rate of return and capital

charge.

According to the urgency criteria, projects, which are deemed to be more urgent, get priority over project,

which are regarded as less urgent. The payback period represents the amount of time that it takes for a

capital budgeting project to recover its initial cost. The use of payback period specifies that all

independent projects with a pay back period less than a specified number of years should be accepted.

The Internal Rate of Return of a capital budgeting project is the discount rate at which the Net Present

Value of a project equals zero. Projects with an IRR greater than the cost of capital should be accepted.

Average rate of return is a measure of profitability, which relates income to investment, so a project is

deemed to accept if ARR exceeds a certain cut off rate of return, the net present value of a project is equal

to the sum of the present value of all the cash flows associated with the project. A wide variety of


Indian oil corporation Ltd. – Mathura Refinery measures are used in practice for appraising investment but most commonly used method for small size

investment is payback period and for large investment ARR and discounted cash flow methods.

Cost of capital :

The firms cost of capital is the discount rate, which should be used in capital budgeting, the cost of capital

reflects the firm’s cost of obtaining capital to invest in long term assets. Thus it reflects a weighted

average of the firm’s cost of debt, cost of preferred stock and cost of common stock.

Risk analysis:

Risk analysis of capital investment is one of the most complex controversial and slippery areas in finance,

risk refers to variability, several measures of variability have been used to denote risk like Mean,

Standard Deviation, Coefficient of variation etc, the methods of risk analysis commonly used in practice

are: (1) conservative estimation of revenues, (2) safety margin in cost figures, (3) flexible investment

yardsticks, (4) acceptable overall certainty index. The analysis of risk factor in practice can be improved

if the profitability distribution of the key factors underlying an investment project is developed and

information is communicated in this form.



CAPITAL BUDGETING PRINCIPLES AND PRACTICES IN IOCL

( Guidelines as issued by HO - IOCL)

TYPES OF PLANS/ BUDGET:

The corporate objective, as approved by the board of Directors, forms the basis of long term/ short-term

budgets so as to obtain the desired objectives.

LONG TERM PLAN

PERSPECTIVE PLANS

Perspective plans covers duration of 10 to 15 years. This plan sets the long term goals to be

attained by the corporation in line with the corporate objectives. The corporate objectives are

further divided into divisional goals and unit goals. The purpose of perspective goals is to achieve

efficiency and supremacy in the existing operations and also to diversify into other areas of

operations as may be possible taking into account the opportunities thrown by the environment.

The perspective plan is updated once in 2 years so that at any point of time, perspective for a

period of 10 to 15 years is available. The corporate planning department based on the inputs

received by the divisions prepares the perspective plan.

LONG RANGE PLAN

Long range plan covers duration of 5 years. Long range planning is aimed to achieve the broad

objectives envisaged in the perspective plan by fixing specific targets and action plans for various

functions. The long range planning department at all units and HO coordinates the long-range plan

and the same is updated every year so as to have a detailed plan for 5 years at any point of time.

The targets set in the long-range plan are reviewed periodically at units/ HO with reference to

actual performance.



SHORT TERM PLANS

In the short term the corporation prepares revenue and capital budgets indicating the revised estimates for

the current year and the budget estimate for the next year. These budgets are more detailed and indicate

the expected physical/ financial performance of operations and projects for close monitoring and control.

In addition to these budgets, the purchase budget, the working capital/ cash budget are also prepared to

know the position of availability of internal resources for financing projects and for further funds

management in case of surplus/ deficit. The foreign exchange budget is also prepared for submission to

the government our requirements of foreign exchange.



CAPITAL BUDGETING AT IOCL

The capital budget is a plan of expenditure over a period of time on a chosen set of projects, which results

in acquisition of assets to the corporation and helps in generating income over a period of years in future.

Such projects are expected to generate income and improve efficiency over a period of time in future.

The capital budget plays a very vital role for the growth and financial health of any organization. it is

necessary to continuously update the technology, removal of operational bottlenecks, and improvement in

efficiency and productivity, enhancement of capacities , fulfillment of social objectives, etc..

The quality of investment and success of project in regard to its fulfillment of objectives, depend largely

on the quality and content of the proposals seeking approval for capital investment. Further, the proposal

seeking approval of the board are emanating from the different departments of the units. It may be

possible that these different departments are making different, even conflicting assumptions and

exercising different degrees of care while formulating capital budgeting proposals. In view of above it is

imperative that a central group at the corporate office subjects capital investment decision seeking

approval of the board to an overall, impartial and scientific appraisal. The primary function of this group

is to apprais e all capital investment proposals seeking approval of the board.

The foremost issue that need to be described in the capital budgeting process pertains to identification of

basic objective or need which is sought to be fulfilled by implementation of proposed project. The

proposal shall present the complete prospective, rational and background of need for project.

The need for the project may be broadly justified on account of:

Technical / operational necessity

Improvement in existing operations through removal of constrains/ updating of technology.

Capacity enhancement due to demand and supply imbalances.

Investment on account of government/ strategic policy decisions

Investment on account of marketing considerations.

Safety/environmental and statutory requirements.


Indian oil corporation Ltd. – Mathura Refinery The financial analysis in capital budgeting is a vital for accessing the viability of each non plans

scheme ( encompassing wide spectrum of activities covering safety, statutory requirements

technology up gradation etc.) and hence provides valuable information to the top management.

Financial analysis produces an estimate for the financial gains, which will accrue to the corporation

after the implementation of scheme. The financial analysis entails determination of year wise cash

flows of the project, computation of internal rate of return (IRR), each scheme is financially

evaluated.

The budgeting in Mathura Refinery follows the Zero Base Budgeting (ZBB) concept in which each

requirement is required to be justified after evaluating al the possible alternatives and ranking them in

order of importance by systematic analysis. The allocation of funds is not to be on the basis of the

same activity being carried in the past. In this process, the objectives are to be established with

alternative ways of achieving these objectives and carrying out the cost benefit analysis and

ascertaining the consequences of disapproval.


Indian oil corporation Ltd. – Mathura Refinery CLASSIFICATION OF CAPITAL BUDGET

In IOCL, Mathura Refinery capital budget is classified in 2 categories:

Plan schemes

Non- plan schemes viz. Additional Facilities (AF)

PLAN SCHEMES:

Plan schemes are those schemes which are required to be included in the annual plan documents for

submission to Government / Planning Commission for approvals. These schemes ultimately form part of

the government’s annual plan. they are important from national point of view and involve substantial

expenditure, generally above 100 crores on items relating to capacity improvement of primary or

secondary units. While non-plan schemes generally cover capital investments on additional facilities like

buildings, off site, utilities, furniture, vehicles, etc.

They are generally developed in line with action plan drawn on Long Range Plan (5 years) / Perspective

plan (10-15 years) of the corporation. No expenditure on plan schemes is incurred unless the scheme is

included in the approved annual plan document with a budget allocation for the year and also the scheme

is approved by competent authority as per the delegation of powers. The annual plan is required to be

submitted to the Government by mid September every year.

It is essential that the revised outlay for the current year and the outlay required for the next year are

assessed realistically in order to ensure that the total actual expenditure would be close to the proposed

outlay.

NON- PLAN SCHEMES (AF):

The AF schemes encompasses wide spectrum of activities covering safety, statutory requirements,

technology up gradation, welfare, replacements/addition of assets, operational necessities, etc.

Individually AF schemes may be lower cost, collectively they may account for significant portion of the

total capital expenditure. Therefore the handling of AF schemes with regard to their selection, accurate

cost estimates and timely completion assumes a great significance. The schemes need to be judiciously

implemented after detailed study of various alternatives available.



PROCEDURE FOR APPROVAL OF AF (ADDITONAL FACILITES) SCHEMES

All AF proposals shall be initiated and prepared by units in the ZBB decision-making package. The AF

proposals are required to be forwarded to Secretary, Investment Review Committee, and HO for approval

only after obtaining concurrence of the local finance and endorsed by the Unit Head.

The proposals forwarded to HO for approval shall cover full details and justifications. HO would

examine the proposal and obtain the approval of the competent authority. On approval, necessary

provision will be made in the AF budget.

PREPARATION OF AF PROPOSALS

The units as per the prescribed format shall submit the AF proposals. While this is the minimum

requirement for submission of an AF proposal, additional/ supplementary date/ information needs to be

added as required for a better appreciation and evaluation of the proposal.

AF proposal shall contain the following information:

Name, objective and purpose

Background/ origin of the proposal

Generation/ evaluation of alternatives

Description of activities

Benefits / saving from the proposal

Project cost estimates

Completion schedule

Economics

NAME, OBJECTIVE AND PURPOSE



The name of the proposal should be brief but reflect the contents. The objective and purpose of the

proposal shall be stated clearly and unambiguously and it should be ensured that the same are specific and

not general nature.

BACKGROUND / ORIGIN OF THE PROPOSAL

Following points are of importance.

The circumstances leading to the preparation of the proposals should be explained in detail. In

case the proposal is prepared in pursuance of the recommendations of a committee, working

group, statutory bodies, ministry etc., the mere mention of this does not constitute the background

for propelling the case. The case must be presented in perspective, explaining briefly the rationale

behind particular recommendations. Full documentary evidence must be presented in support

wherever applicable.

In many cases, AF proposal are initiated to improve an existing operation by removing

constraints, updating technology, replacement/ addition of equipments, process modifications,

extension of an existing facility to new areas etc. in all these cases, it is of prime importance that

the proposal includes a brief description of existing facilities/ operations . The constraints/

limitations experienced with the existing facilities must be discussed and efforts made in the past

to overcome these problems etc. should be sufficiently elaborated. Brief description of operation

of facilities in past vis-à-vis the need for proposed modification would help to appreciate the

problem.

GENERATION / EVALUATION OF ALTERNATIVES

Once the objective of the proposal is firmed and the evaluation of the existing facilities have been

completed the next logical step is the generation of alternatives or options available for achieving the

desired objectives.

The following 2 points are of importance in this regard:


Indian oil corporation Ltd. – Mathura Refinery All possible alternatives should be explored and listed. This may involve different level of efforts

and cost or different ways of performing the same functions, activity or operation.

Evaluation of alternatives must also be carried out in systematic manner. While there cannot be a

uniform approach for evaluation of alternatives, some of factors to be considered are: cost-benefit

analysis, repercussion on other units/ operation, time schedule, availability of resources, down

time requirements in case of plant modifications, long – term implications, conforming to

corporate policies, legal and other statutory requirements, etc. in any case, the proposal should

clearly indicate the criteria and considerations that led to the selection of the recommended

alternative.

DESCRIPTION OF ACTIVITIES

Once the evaluation of alternatives and selection of the optimum scheme is completed the proposal should

be developed with sufficient detailing.

Some of the major considerations/ requirements at this stage are listed below:

BENEFITS /SAVING FROM THE PROPOSALS

The importance ability of the proposed scheme must be fully explored with reference to area

requirements vis-à-vis availability, extent of enabling jobs required, execution feasibility (impact

on running units, safety precautions needed, etc.), shut down requirements, utility requirements/

availability, hook up jobs, etc. these must also be documented as part of the proposal.

Efforts must be made to identify and examine the utility of redundant/-unutilized materials

available in the plant. This would help in cutting down cost and time besides ensuring the use of

idle equipment.

The proposal should include only those activities/ facilities need for meeting the objective. Each

element/ activity included in the proposal must be backed by adequate justification for its

inclusion. It is always better not to include an entirely unrelated activity/ facility in a proposal but

rather make a separate proposal with justification, etc. for the same.

In case the proposal envisages the introduction of new technology/ process/ equipments, it is

desirable to gather reliable information on the performance of similar process/ equipment

elsewhere within the country or outside, instead of relying entirely on the vendor’s claims.



An assessment of the additional manpower requirements for operating the proposed facility should

be made and included as a part of the proposal.

The methodology or execution of the project should be finalized at the proposal stages itself. In

case it is felt necessary to engage a consultant, adequate justification for the same, job scope for

consultant etc. must be clearly mentioned in the proposal.

PROJECT COST ESTIMATES

Need for realistic cost estimates

The importance of making an accurate cost estimate4 cannot be over stressed. It will have a direct

bearing on the economic viability of the scheme. While over-estimation may cause blockage of

funds which otherwise could be utilized profitability for some other purpose, under estimation

would necessitate repeated approvals for cost overruns and may also affect the project completion

schedules.

Basis

It is essential that the basis adopted for cost estimation of all major components be included.

Generally, cost estimates for major equipments, imported goods, proprietary items etc. shall be on

the basis of current budgetary quotations. Detailed work ups, copies of quotations etc, must be

enclosed with the proposal. The effort shall always be to base the cost estimates on a sound basis.

Escalation

All cost estimates shall be as on the date of submission of the proposal and the rate of escalation

adopted for different cost estimates shall be indicated, along with basis.

Foreign exchange requirements

The foreign exchange requirements are to be worked out separately and shown. The need to

import equipments /process etc. involving outgo of Foreign exchange are to be critically reviewed,

indigenous availability fully explored and foreign exchange component of the proposal kept to the

bare minimum.



METHODOLOGY:

DATA COLLECTION:

Data Source:

(a) Primary Data :

1. The Technical and Engineering Service

2. Maintenance & Inspection

3. Environmental Control

4. Finance Department

5. FCC Unit

(b) Secondary Data :

1. Annual General Reports

2. FCCU Catalogue

3. Plant Records

4. Library and Websites



CAPITAL BUDGETING FOR SETTING UP OF FACILITIES FOR

PRODUCTION OF METHYL-TERTIARY-BUTYLETHER (MTBE) AT

MATHURA REFINERY

INTRODUCTION:

LPG produced from FCC unit at Mathura Refinery is presently supplied to IPCL. After recovering the

Propylene potential from it. IPCL return back the balance streams comprising of Propane and C4

components. C4 components consist of Isobutylene, Butane 1 & 2, Isobutene and N-butane. These

components are valuable feed stocks for various downstream petrochemicals and separation / conversion

of the same would result in high diversification, it is envisaged to produce Methyle-Tertinery-Buty1 Ether

(MTBE) from C4 components by etherification of Isobutylene content present in the C4 stream. This will

not only result in value –addition but also enable Mathura Refinery to meet the future stringent

specification of Motor Spirit (MS) in respect of Anti Knock Index and Vapor Lock Index.

With the operating capability of FCC unit to about 1.25 MMTPA against the design capacity of 1.0

MMTPA, the potential of Isobutylene present in LPG of FCC unit is around 14-15,000 TPA. The

potential can further be increased to about 18-19,000 TPA by up gradation of existing catalyst with

suitable high activity catalyst higher amount of lighter products. MTBE that can be generated from the

above Isobutylene is estimated to be further enhanced to a level of about 37,000 TPA with the revamp of

FCC unit to 1.5 MMTPA planned along with new 3.0 MMTPA. Crude Distillation Unit (stage-II approval

of revamp, potential of FCC revamp give by M/s UOP.

In view of the above it is considered to put up a MTBE plant to utilize potential Isobutylene to produce

around 27,000 TPA of MTBE. A cushion of 25% is being dept in the design to take care of additional

7,000 TPA Isobutylene to produce around 27,000 TPA of MTBE. A cushion of 25% is being dept in the

design to take care of additional 7,000 TPA Isobutylene that would be available after FCC revamp

increasing the MTBE production to a level of 37,000 TPA.



OBJECTIVES OF THE STUDY :

To check the feasibility of providing facilities at FCC unit for production of MTBE.

To recommend the appropriate and most feasible alternative for revamping of FCC unit with

lowest investment.

PROJECT COST :

The estimated cost of the MTBE project at Mathura Refinery is Rs. 45 Crores including foreign

exchange. The cost has been worked out based on April 2006 and no escalation beyond April 2006 has

been considered.

OPERATING COST :

The Operating cost for the grass root plant MTBE includes cost towards utilities, chemicals, adsorbents,

catalysts, salaries, wages, repairs, general administration and overheads, consumables etc. The operating

cost for the chemicals, catalysts, utilities for the MTBE plant are considered based on the information

provided by the process licensor.

ENVIRONMENTAL ASPECTS :

The addition of the oxygenated compounds like MTBE may be mandatory in the near future to reduce CO

pollution for the maintaining the Ozone layer in the atmosphere. Other countries like USA and Europe

have already adopted reformulated gasoline concept wherein the addition of oxygenates is mandatory.

ENERGY CONSERAVATION MEASURE :

The various new facilities to be provided under this project would be designed to meet the high standard

of energy efficiency. This would include the recovery of heat form the furnace flue gases, recovery of

heat from hot process streams, used of Distributed Digital Control System and optimum use of utilities.

PROJECT MANAGEMENT :

Process package of license units is proposed to be carried out by license processor for the technology

whereas for offsite / utilities, basic engineering would be done through engineering consultant. A reputed

consultant who has the experience in project management of MTBE plant shall be engaged for the project

management and construction supervision on temporary basis.



ANALYSIS:

Analysis of the project was done on the basis of the parameters mentioned below.

NPV (Net Present Value)

Internal Rate of Return (IRR) :

Payback Period:

Need:

It is clear from the above that Mathura Refinery will not be in a position to meet revised MS

Specifications with the existing facilities. Therefore, there is a need to provide facilities for achieving

revised MS Specification at Mathura Refinery.

Analysis of Alternatives

Project Authorities have analyzed following alternatives for generating high octane MS component :

Alternative 1 : Reformer for generating high octane reformate

Alternative 2 : Alkylation Unit for Generating high octane Alkyl ate.

Alternative 3 : Isomerisation Unit for generating high octane Isomer ate.

Alternative 4 : MTBE Unit for generating high octane MTBE.

Alternative 1 was rejected on the problem on high Benzene content and high investment cost.

Alternative 2 was rejected due to the use of Hydrofluoric Acid (HF) as Catalyst which is not eco-friendly

and due to high investment cost.

Alternative 3 was rejected due to very low capacity of the plant (63 TMTPA against minimum economic

size of 150 TMTPA)


Indian oil corporation Ltd. – Mathura Refinery Alternative 4 was using blending of MTBE has been found to be just meeting the blending requirement

for making 911 TMTPA MS with relatively low investment in the post FCC revamp operation.

TECHNICAL EVALUATION:

LOCATION SITE :

The proposed facilities shall require about one acre land and shall be located inside the existing battery

area of Mathura Refinery. The required area has been envisaged to be generated by knocking off the idle

equipments of Caustic and Acid Treatment Facilities on the West side of the existing PDF Unit.

CAPACITY:

The proposed Capacity of 40,000 TMTPA MTBE Plant is based on Cracked LPG generation in the post

FCCU revamp operation.

TECHNOLOGY:

The proposed technology is based on the technology of M/S. CD Tech., Netherlands, who has alliance

with M/s. ABB Lummis. Proposed technology has a unique feature that reaction and product purification

takes place in a single column. The same technology has been used world wide for making MTBE from

FCC LPG feedstock.

FACILITIES:

The facilities envisaged under the project are as under :

Splitter facility separation of C3 and C4 components of FCC LPG.

Unit comprising of reactor / distillation columns along with purification system for production of

MTBE.

Two new tanks of 5000 M3 Capacity each for storage of MTBE along with blending facilities in

finished MS pool.

Associated pumps, piping’s, instrumentation etc.


Indian oil corporation Ltd. – Mathura Refinery PHASING OF EXPENDITURE

The proposed project to create facilities at Mathura Refinery to produce 40,000 TPA of MTBE is

expected to complete within 30 months from the date of approval. These facilities will be operative from

the fourth year after the commencement of the project. The expected cost of the project as discussed

earlier is 45.00 Crores. The investment is decided to divide in three financial years talking several factors

into consideration. The schedule of phasing of expenditure is shown as under.

Year Amount (Rs. In Crore)

1st Year 9.0

2nd Year 18.0

3rd Year 18.0

Total 45.0

COMPLETION SCHEDULE:

The project on providing facilities at Mathura Refinery to produce 40,000 TPA of MTBE is scheduled for

completion within 30 months from the date of approval

ADDITIONAL MANPOWER REQUIRED:

Impact of proposal for providing the facilities at Mathura Refinery to produce 40,000 TPA of MTBE on

the deployment of manpower is one of the very important factors to be taken into consideration.

Total 30 numbers of additional manpower is envisaged for the proposal facilities. This has been taken into

consideration while working out operating cost and economics of the project. However, efforts will be

made to generate required additional manpower from within by redeployment/ restructuring.


Indian oil corporation Ltd. – Mathura Refinery FINDINGS

The proposed project for providing facilities for production of MTBE at FCC unit in Mathura Refinery is

found feasible in Financial, Technical Analysis. The decision to accept or reject a capital Budgeting

project depends on an analysis of the cash flows generated by the project and cost of the project as well as

the tools of capital Budgeting are considered for measuring financial feasibility of project: from the

Financial analysis the following points can be concluded to accept this project.

The Project cost is 4500 lakhs and Sales realization from the difference of input and output of

MTBE is calculated to be 2041 lakhs.

The Payback Period is 4.1 years means the amount of time that it takes for a to recovery its initial

cost here calculated at 4.1 years.

From the estimated cash flow of the project the Internal Rate of Return (IRR) is 17 % which

represents that the project is feasible to accept.

The Net Present value of the project is calculated at $890. 48

From the technical analysis and studying the market demand scenario the project is found viable

to accept.

As shown in financial analysis the sales realization is considered as operating income and the

operating cost is also calculated at 602 lakhs.



FINANCIAL ANALYSIS

The estimated cost for the project works out at Rs. 4500 lakhs inclusive of foreign exchange of Rs 4.3

crore based on budgetary offer and in house data available for the various ongoing projects. The cost

estimates are expected to be within an accuracy level of +/- 20%. FE component is Rs. 435 lakhs. The

Projects cost includes design change allowance @ 10% and contingency @ 10%.

Basis of financial calculation (Free Pricing):

The financial analysis of the project with operational life of 15 Years with cash flow analysis has been

done.

The depreciation rate @ 25% at written down value (WDV) of plant & machinery and 10% WDV

for Civil items has been considered for income tax calculation.

Corporation tax has been calculated @ 35% with surcharge. On tax “10% on profit after

adjustment of depreciation.

The financial analysis has been worked out free pricing mechanism.

Capacity utilization has been considered as 75% for the first year and 100% for the second year.



PROJECT COST

No. PARTICULARS F.

EX.

I. C. Total

1 Land 0.0 0.0 0.0

2 Site Development - 50.0 50.0

3 Process Design,

Engineering

79.0 108.0 187.0

4 Royalty & know- how 82.0 28.7 110.7

5 Plant & Machinery 266.4 2931.9 3198.3

6 Water Supply & public

Health

- 20.0 20.0

7 Office equipments &

furniture

- 25.0 25.0

8 Construction Site

Requirement

- 70.0 70.0

9 Construction period

expenses

- 45.0 45.0

10 Start up Expenses 9.5 3.5 13.0

Sub Total (1 to 10) 436.9 3282.1 3719.0

Design Change allowance

@

10%

43.6 328.21 371.9

Sub Total 480.5 3610.3 4090.9

Contingency @ 10% 48.05 361.03 409.1

Grand Total 528.6 3971.3 4500.0

Project cost Rs. 45 crore



OPERATING COST: (RS/LAKHS)

Catalyst 90.00 120.00 120.00

Salaries 67.50 90.00 90.00

Chemicals 97.50 130.00 130.00

Utilities 82.50 110.00 110.00

R & M (2.5 %) 84.75 113.00 113.00

Gen. Admen. (0.5%) 20.25 27.00 27.00

Consumables (0.10%) 3.75 5.00 5.00

Insurance (0.10%0 5.25 7.00 7.00

Total 451.50 602.00 602.00

DEPRECIATION

Year Plant & Machinery

WDVDep.@ 25 %

OtherCivilItems

WDVDep.10%

Total WDVDep.

1 3198.3 79935 25.0 2.5 3223.3 802.1

2 2398.7 599.6 22.5 2.2 2421.2 601.9

3 1799.0 449.7 20.3 20. 1819.3 451.7

4 1349.3 337.3 18.2 1.8 1367.5 339.1

5 1012.0 252.9 16.4 1.6 1028.4 254.6

6 758.9 189.7 14.7 1.4 773.7 191.2

7 569.2 142.3 13.3 1.3 582.5 143.6

8 426.9 106.7 11.9 1.1 438.8 107.9

9 320.1 80.1 10.7 1.1 330.9 81.2

10 240.1 60.1 9.7 0.9 249.8 61.1

11 180.1 45.1 8.7 0.8 188.8 45.8

12 135.1 33.7 7.8 0.7 142.9 34.5

13 101.3 25.3 7.1 0.7 108.3 26.1

14 75.9 18.9 6.3 0.6 82.3 19.6

15 56.9 14.3 5.7 0.5 62.7 14.8



RECOMMENDATIONS:

In the proposed Project the process by which I study the different aspects of proposal, and decides about

feasibility and viability of the project, represents that payback, net presents value, and IRR are the

methods available for measuring the firm’s return on an investment project.

Payback Period is 4.1 years, which represents the amount of time that is takes for a Capital Budgeting

project to recover its initial cost. The Internal Rate of Return (IRR) of a project is 17% means it is the

discount rate at which the Net Present Value (NPV) of a project equals zero. The Net Present value of

Projects is $890.48 that equal to the sum of the presents value of all the cash Flows associated with the

projects.



Bibliography

Matter is taken from:

www.galaxy.com( Internal site of Mathura Refinery)

www.iocl.com

www.mysap.com

Project Manthan

Development Report of Mathura Refinery

Manual of S.A.P


http://www.mysap.com/

http://www.iocl.com/

http://www.galaxy.com/


GLOSSARY

MMTPA - Million Metric Tonnes Per Annum

ISO - International Standards Organization

AATS - Administrative Approval and

Technical Sanction

SOR - Statement of Rates

LSTK - Lump Sum Turn Key

BG - Bank Guarantee

PWD - Public Works Department

MES - Military Engineering Services

PF - Provident Fund

ED - Executive Director

GM - General Manager

EMD - Earnest Money Deposit

F&S - Fire and Safety

TC - Tendering Committee

P & A - Personnel and Administration

DFM - Deputy Finance Manager

AHR - Abnormally High Rates

ALR - Abnormally Low Rates

LoA - Letter of Acceptance

MB - Measurement Book

SAP - System Application Program


Documents

AssetsAccounting & Capital Budgeting