R.S HAL financial analysis and cost account.doc

8/14/2019 R.S HAL financial analysis and cost account.doc

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SUMMER TRAINING REPORT

ON

FINANCIAL ANALYSIS AND COST

ACCOUNT OF

PREPARED AND PRESENTED TO

HAL

UNDER THE GUIDANCE OF-

Submitted To:

Ms. K.K. Mishra

(H.O.D.) MBA Departe!t

Submitted For the Partial Fulfillment for the Degree of Master ofBusiness Administration

S"#itte$ B%&

'ite!$ra K"ar Si!h

MBA III &Seester

(2007-2009)

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CERTIFICATE

This is to certify that Mr./Ms. Jitendra K!ar sin"h # a stdent of M$A

first year ha%in" has co!&'eted his/her &ro(ect Re&ort on the s)(ect

*INAN+IA, ANA,-SIS AN +OST A++OUNT O* A, drin" 023

04 nder !y s&er%ision and "idance.

The Pro(ect Re&ort of the stdent is his/her o5n 5or6 and reference ha%e

)een d'y ac6no5'ed"ed.

I 5ish hi!/her a'' the )est for his/her ftre.

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ACNO!"EDGE#ENT

Accomplishment of tasks and objective is achieved by guidance

and blessings of God$ #% &'et*$ e+de*$ te',e*and of course

by the grace of Almighty. t is a great opportunity for me to register my

ackno!ledgements to all of them.

t has been a profound privilege for me to have an opportunity to

!ork under #. .. #i*' "ead# Department of Business

Administration.

!ish to ackno!ledge my deep sense of gratitude to #*. .. #i*'

project $uide and all faculty of MBA Department for accomplishment of

this project report as !ell as for every sphere pertaining to successful

occupation of this course.

Finally# pay my regards to all# !ho directly or indirectly helped in

collection# compilation# editing and other related !orks for

accomplishment of this project study.

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TABLE OF CONTENT

E/e,utie Summ'%

%. &opic

'. Brief introduction

(. )esearch methodology

*. Findings and suggestions

#'i 1od%

'. Idu*t% 'd Com&'% o3i+e

%. +ompetitive situation

'. +ompany background

(. ,rgani-ation chart

*. Product range

. Balance sheet/ financial position

b. te &o4e,t &o3i+e

%. !hy this project !as undertaken 0relevance of topic1

'. problem environment1

,. Te &o4e,t - Re*e', #etodo+o5%

%. research problem

'. research objective and related sub objective

(. information re2uirement 3 in detail 4 source of information

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*. choice of research design 3 alternatives 4 choice

. research instrument used

5. sampling techni2ue used and sample si-e 3 !hy6

7. field !ork 3 method used for data collection

8. analytical tools used

9. scope and limitation

d. A'+%*i*

%. sample profile

'. primary data tabulation 4 interpretation

(. cross/ bivariate 4 other method

*. interpretation 4 findings

. suggestion

5. conclusion

1ib+io5'&%

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PREFACE

t is a matter of great satisfaction and privilege for us to place before the esteemed

readers a project report on financial management in "A: dealing !ith budgeting

costing and bills mainly.

&he system of accounting !hich prevails in "A: is ;integrated accounting system

and is uni2ue to the organi-ation. "al


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E6ECUTIE SU##AR8

Topic :FINANCIAL ANALYSIS AND COST ACCOUNT OF HAL

n this report !e have tried to cover all the sections related to finance# their

functions# objectives and !orking mainly.

=ith respect to the allotted time !e had the chance of kno!ing the finance

department of such a big organi-ation. &he duration of our summer training !as

short in comparison to the monolithic level of functioning in the organi-ation# so it

became difficult to cover each and every aspect in detail but !e have tried our best

to jolt all the important points related to our study

&his !as a golden opportunity for us as !e had a practical e>posure of the

functioning of accounts and finance department

&his project report is a mere constitution of varied functions !hich are handled by

the accounts department. n the due course of our study !e became a!are of the

concepts !hich are used in "A: !ith respect to the pricing and costing functions.

)?S?A)+" M?&",D,:,$@

REASEARCH #ETHODO"OG8is a !ay to systematically solve the

research problem. t may be understood as a science of studying ho!

research is done. n it !e study the various steps that are generally

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adopted by a researcher in studying his research problem. t is

necessary for a researcher to design the methodology for the problem

as the method may differ from problem 3 problem.

Sou,e o3 d't' ,o++e,tio ,n the basis of secondary data.

findings

%. "A: is listed among ;avC)atnas< of ndian $overnment.

'. &hough# "A: has monopoly in market and is able to earn heavy

profits but it lacks at some places.

(. "A: has no big competitor in the !hole market.

SUGGESTION

%. "A: has huge and talented !ork force for !hich level of operations is

too less. "A: should look for more customers and orders.

'. Many employees are very 2ualified 4!ell endorsed !ith valuable

ideas their ideas should be taken into consideration.

(. Full computeri-ation of unit !ill lead to high profits.

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INTRODUCTION

1RIEF HISTOR8 OF HINDUSTAN AERONAUTICS "I#ITED

"UCNO! DIISION

:uckno! Division of "A: !as established in %97 !ith the primary

objective of manufacturing systems and accessories for various aircraft

and engines and accessories for various aircraft and engines and attains

selfCsufficiency in this area. ts facilities are spread over 5## s2uare

feet of built area set in sylvan surroundings. At present it is turning out

over 8 different types of accessories. &he division started !ith

manufacturing various systems and accessories

"ydraulics

?ngine fuel system

AirCconditioning and Pressuri-ation

$yro 4 Barometric nstruments

?lectrical system item

Endercarriage

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?lectronics items

All under one roof to meet the re2uirements of the aircraft# helicopters

and engines being produced by "A: at that time. &his !as follo!ed !ith

manufacturing the same range of accessories for M$ series of aircraft#

nternational aguar and repair/overhaul of MirageC' 4 SeaC"arrier

accessories. n addition the Division manufactured systems for +ivil

Aircraft i.e.# Avro# Dornier and AC(' 4 +hetah# +hetak "elicopters.

&he Division# right from the beginning# laid a lot of emphasis on

developing indigenous capability for design and development of various

systems and accessories. &his capability and culminated in indigenous

design and development of a variety of systems and accessories for the

:ight +ombat Aircraft 0:+A1 and Advanced :ight "elicopter 0all version

i.e. Army# Air force# avy 4 +ivil1 t!o prestige aircraft programmes in the

country. &he division has also developed and has made successful

strides into the area if Microprocessor based control systems for the

:+A system as !ell as other system.

&he division diversified not only in other defence application like

tanks and armored vehicles for Army# it took commercial applications of

hydraulics items# gyroscopic e2uipment# Purpose &est ?2uipment 4

$round Support ?2uipment and successfully supplied in the market. &he

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division has been in the forefront of accessories development and

supply not only to ndian Air force but to Army# avy and various

Defence :aboratories as !ell as space applications. &he division today

has a prime name in the Aviation market and various international

companies are interested to join hands !ith it for future products.

HAL PRODUCTS AND CUSTOMERS PROFILE

RODUCTS OF HA"Mig seriesnternational aguarMirageSukhoi 0proposed1SeaC"arrier

AC('Giran MGC/MGC

CII" AIRCRAFT

DornierAH),"S 7*8

HE"ICOTERS

+hetak 0Alouette1+heetah 0:ama1

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Flying Academies 4 ?ducational nstitutions.

Airlines / Air &a>ies / Air +argo.

Defence Forces of +ountries from South ?ast Asia# Middle ?ast#

Africa# ndia subCcontinent.

+ollaborators / :icensors.

E6ORT RODUCTS

Supply of )otables and spares of aguar nternationally and

+heetah 0:ama1 / +hetak 0Alouette1 "elicopter.

)epair / ,verhaul of M$ series# aguar nternationally +heetah

0:ama1 / +hetak 0Alouette1 and Dornier Accessories.

$round Support ?2uipment.

+omplete range of ?lectrical Po!er control system and other

accessories.

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Accessories Division of "A: !as established in %97 !ith the

primary objective of manufacturing systems and accessories for various

aircraft and engines and attain self sufficiency in this area. ts facilities

are spread over 9*# s2m of built area set in sylvan surroundings. At

present it is turning out over %% different types of accessories. &he

Division started !ith manufacturing various Systems and Accessories

vi-# "ydraulics# ?ngine Fuel System# AirCconditioning and

Pressuri-ation# $yro 4 Barometric nstruments# ?lectrical System items#

Endercarriages# ?lectronic items all under one roof to meet the

re2uirements of the aircraft# helicopters and engines being produced by

"A:. &his !as follo!ed up !ith manufacturing the same range of

accessories for Mi$ series of aircraft# nternational aguar and repair /

overhaul of MirageC' 4 SeaC"arrier accessories. n addition the

Division manufactures systems for +ivil Aircraft i.e. Avro# Dornier and

AC(' 4 cheetah# chetak 4 Advanced :ight "elicopters.

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&he Division# right from the beginning# laid a lot of emphasis on

developing indigenous capability for Design and Development of various

System and Accessories. &his capability has culminated in indigenous

design and development of a variety of systems and accessories for the

:ight +ombat Aircraft 0:+A1 and Advanced :ight "elicopter 0all versions

i.e. Army#Air force# avy 4 +ivil1 C t!o prestigious aircraft programs in

the country and & 0ntermediate et &rainer1. &he Division has also

developed and has made successful strides into the area of

Microprocessor based control systems for the :+A ?ngine as !ell as

other systems.

&he Division diversified not only in other defence applications like tanks

and armoured vehicles for Army# it look commercial applications of

hydraulic items. $yroscopic ?2uipment# Special Purpose &est

?2uipment 4 $roup Support ?2uipment and successfully supplied in the

market. &he Division has been in the forefront of accessories

development and supply not only to ndian Force but to Army# avy and

various Defence :aboratories as !ell as for Space applications.

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&he Division today has a prime name in the Aviation market and various

international companies are interested to join hands !ith it for future

projects.

&he Division has also made steady progress in the area of ?>port.

o,e**

"eat &reatment facilities for all types of steels#

Aluminum alloys# +opper# ickel 4 &itanium alloys.

ote,tie Te'tmet

&reatment facilities of all types like Plating# Publishing etc#

SP?+A: types of Surface protection 4 Painting facility# i.e.

):SA +oating P&F? +oating# M,:@ DA$ +oating.

!e+di5

Division has ?lectro Beam# Argon arc# Spot 4 Seam

!elding e2uipment to facilitate intricate !elding on thin

metal bello!s# capsules# stator Packs# Brushes etc.

,ur !elders are fully approved 4 certified by +ivil

Aviation Authority.

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Rubbe$ +'*ti,$ Foud%

&hese facilities are in C house to cater for the needs of

various production / servicing re2uirements.

A**emb+% Ad Te*t

8 s2.mtrs of +lean/AirCconditioned room 0class

%# !ith laminar flo! cabinets1 !here assembly 4

test activities for instruments# "ydraulics and Fuel

factories take place.

Attached facilities to Assembly Shops are

Dedicated &est ?2uipment# ?nvironmental &esting

facilities to meet the aeronautical acceptance

standards.

Eiomet'+ "'bo'to%

Facilities for all types of ?nvironmental testing as per

re2uirements of BS# M: 4 SS# available to meet

regular re2uirements of type testing of all types of units

designed/developed in the inChouse ) 4D centre.

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n addition the :ab also caters for the need of special

type of testing for =heels# "ydraulic item etc. in

dedicated test rigs/beds.

Design +omputer +entre !ith Enigraphic# +AD 4 Analytical Soft!are

Packages

FinanceDepartment

According to literature of Finance# as !ritten by many e>pert

!riters# IFinance is the life blood of any organi-ation !ithout !hich an

organi-ation cannot even survive.J "ence the importance of Finance

Department can be understood as ;"eart< in human body. As a human

body !ithout a heart cannot be dreamt of# similarly an organi-ation

!ithout a finance department is meaning less. Accessories division of

"A: has a big finance department !hich contains ten big and small

sections !hich are center of activity for !hole unit. &hese sections are

as follo!s 3

1. Bills Payable Section

0. Bills )eceivable Section

7. Book Geeping Section

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8. Budget and )eporting Section

9. +ash ,ffice

:. +osting# Pricing and Material Accounting Section

;. Finance Section

2. Payroll Section

4. Pension +ell

1. Provident Fund Section

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Budget And Reporting Section

A budget is an overall blueprint of a comprehensive plan of

action expressed in physical and financial term; it includes plan for each

of the activity/responsibility centre of the business and provides a link

between the physical& financial plans of various departments of the

company.t is also a document to control for monitoring and revie!. A

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budgeting system is a comprehensive system of planning and control

covering all segments of an undertaking and giving a sense of direction.

the budget system should be such that it makes it imperative for the

management to establish goals and objectives# define policies# develop

programs# both longCterm and shortCterm # and allocate resources

#measure performance against the targets and in the process # revise

the objectives and policies# if found necessary.

&he budget period is the financial year commencing from April

to March and the budgetary e>ercise !ill commence from mid une. &he

budget is projected in a three year time frame covering estimates for

Cuet %e' (ei*ed e*tim'te*) i.e. R. E

1ud5et %e' (bud5et e*tim'te*) i.e. 1.E

(Ne/t %e')

Foe,'*t %e' (3oe,'*t e*tim'te*) i.e. F.E

(Ne/t to bud5et %e')

Projections under the current year represent revised estimates 0).?1 for

the current year. For comparison purpose# actual of the year previous to

the current year# the budgeted projections approved earlier for the

current year as !ell as

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&he actual for the first four or five months of the current year

are also given. &he budget is being presented for a three year time

frame considering the lead time for the supply from the date of order and

the reasonable span of control of e>penditure# keeping in vie! the

fluctuations in prices.

&he divisions have a long term perspective plan of# not less

than five year spelling out their production and allied resources for the

on going projects and for the possible ne! lines. &he facilities for such

activities by !ay of capital e2uipments and manpo!er and other

infrastructure are assessed. &he budgets and forecast are based on

such long term plans. &his long term plan is a rolling plan to facilitate

long term perspective planning at corporate /divisional levels.

For understanding any manufacturing and repair and overhaul

programs# e>pense are incurred both on capital revenue accounts.

+apital e>penditure relate to the e>penditure on ac2uisition of assets

meant for use but not for sale and intended to give long term benefit. All

other e>penses are categori-ed under revenue e>penditure. "o!ever#

certain items of revenue e>penditure like tooling# project management#

training# document etc. are identifiable to a specific project /program and

are to be incurred for the project/program. As the benefit from these

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e>penses is derived over the total period of the program# these

e>penses are treated as deferred revenue e>penditure and recovered

over the product/services by !ay of amorti-ation.

t is to be noted that a budget is formulated taking many factors

in to account. &here are certain factors in each budget !hich have a

direct bearing on that budget and any variation in that factor !ill have

direct impact on the budget. Such factors are identified as key factors.

For e.g. in "A: situation# order status forms the key factor for all other

budgets. Production capacity# trained manpo!er etc.# are key factors in

production budget. t is essential to identify key factors in respect of

each of the budgets and their influence on the budget is taken note of

!hile preparing the budget.

t is necessary to lay do!n the norms in the key areas like

inventory# profitability# productivity etc. Budget being a plan of action and

a document for monitoring and control should be oriented to!ards these

norms to satisfy and assure that the areas are planned according to the

norms.

n the process of budgeting# it is very essential that the

concerned managers in charge of production and support departments

are involved from the very beginning of the preparation of the budgets to

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the point of finali-ation. &his type of grass root budgeting is essential so

that all managers !ho initiate and incur e>penditure in respect of

activities included in the budget are involved and they feel responsible

for achievement of the physical and monetary targets laid do!n for them

in the budgets and the process of monitoring and revie! !ill thus be

facilitated . =ith this end in vie! the participation of the concerned

managers in the preparation of various budgets has been provided for.

&he process of budgeting# monitoring and revie! is continuous.

t is therefore essential that there is a specific group to super !ise the

preparation and submission of budget as per targeted dates# revision of

budgets at appropriate times# monitoring and revie! of budgets at

periodical intervals either monthly or 2uarterly. For this purpose a budget

committee is to be constituted in each division.

&hus budget is the sole authority to authori-e e>penditure.

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CAPITAL BUGET

C'&it'+ bud5et i* 3',i+itie* &+'i5. T'i5 ito ',,out

te +e'd time e;uied$ te 3',i+itie*


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"elps to consider the best proposals according to !hich priority

can be fi>ed.

"elps to control capital e>penditure i.e. utili-ation in effective

manner.

"elps a systematic procedure for appraising profitability

performance of the company.

+apital investment proposals are submitted in sections as underC

%. e! Projects

'. +ontinuing Projects

(. )eplacement

*. =elfare

. Design and Development.

$enerally top e>ecutives of the corporate and operational level

take initiation for proposals of capital e>penditure as per re2uirement. t

is generally the concerned department and project in charge !ho feel its

need.

Proposes under each section are detailed under ( heads a under

%. plant and machinery

'. civil !orks

(. other

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Time *,edu+e 3o bud5et ,om&i+'tio > '&&o'+:

&he budgetary e>ercise starts in the divisions by une so as to

ensure availability of divisional budget in corporate office by % august

after due clearance by the concerned MD.

!" Ne# Pro$ect

n "A: fresh capital outlay is envisaged !hen any ne!

!ork/project is assigned to "A:.

&his covers the facilities necessary to implement ne! projects

sanctioned duly supported by preliminary / detailed project report

0PP)/DP)1. e! project are sanctioned by government or "A:

board of directors depending on the project outlay involved.

A Preliminary Project )eport 0P.P.).1/Draft Project )eport 0D.P.).1

is prepared !hich covers the follo!ing

%. ,bjectives of the scheme.

'. &echnology consideration choice.

(. Project description.

*. Si-e.

. ?nvironment.

5. +apital e>penditure.

7. Deferred revenue e>penditure.

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8. Manpo!er re2uirement.

9. Production planning.

%. Enit production cost in different phases.

%%. Fund flo!# both under capital and revenue.

%'. Financial analysis to assess financial viability of the

project.

Mainly the techni2ues used are

)eturn ,n nvestment

Pay Back Approach

Discounted +ash Flo!

nternal )ate of )eturn.

2. Cotiui5 &o4e,t

&his covers facilities to improve productivity# reduce costs and remove

bottlenecks on account of inade2uate balancing# through improvements

and rationali-ation.

+apital e>penditure re2uired improving productivity and capacity of the

plant and the balancing facility re2uired to introduce technological

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improvements and cost reduction are projected under the follo!ing

categories

A1 &echnological up gradation

B1 +ost reduction/?fficiency improvement.

+1 Production diversification.

?. Re&+',emet

Substantial investments are made from time to time !hile embarking on

Ine! projectsJ.

?>perience sho!s that the plant and machinery# in addition to normal

useful life# has also an economic life. Diverse factors such as design#

material and technology adopted# environment conditions etc. determine

the normal life of the plant and machinery.

&his covers replacement of facilities !hich have completed their life or

are beyond economical repairs. tems planned for replacement should

be scrutini-ed by an e>pert committee comprising technical# commercial

and finance members and cleared for replacement.

)eplacement is necessitated broadly for the follo!ing reasons

A1 due to normal !ear and tear.

b1 )easons like change in service re2uirement# technology#

obsolescence# uneconomical repairs etc.

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@. !e+3'e

&his section deals !ith the investing proposals relating to

!elfare activity vi-. +anteen# &ransportation# "A: &o!nship# Medical

facility# Schools# Sports etc. =hile making projections in this section# the

norms for !elfare of the staff are kept in vie!.

BP? has specified the satisfaction level for the residential

accommodation for the plants/projects based on the area of location of

the plant / project. &hese are kept in vie! !hile making the proposals.

&he capital facilities needed for the !elfare of the employees

figure under this head. =here certain !elfare facilities are contemplated

in the PP)/DP) of Ine! projectsJ# those are reflected under the head

Ine! projectJ itself.

&he follo!ing details are furnished !hen making proposals for

the 2uarters

a1 Details of manpo!er# category !ise# e>isting and for the future

period.

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b1 )esidential 2uarters re2uired to satisfy the BP? normsK different

types of 2uarters proposed.

c1 ?>isting and proposed level of satisfaction.

d1 Availability of rental accommodation in the vicinity of the factory.

e1 o. of employees in receipt of ")A/ having o!n houses.

f1 Phases of construction

. De3eed eeue e/&editue (DRE)

For undertaking any ne! manufacturing and repair program

e>penditure is incurred to provide necessary tooling# documentation#

inspection e2uipment etc for carrying out the programs. &he benefit from

these e>penses is derived over a long period and can be identified to the

specific project. As such these e>penses are treated as deferred

revenue e>penditure 0D)?1.

?>amples of items are

&ooling

Payment for services of specialists of collaborators

&raining

Project management

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Static test/long test/life test

on standard e2uipment/inspection e2uipment

:arge sums are sanctioned by board/government under the

head 0D)?1 !hen approving a project. A separate budget to cover the

above specific items is prepared.

ERFOR#ANCE 1UDGETING

An effective mechanism of financial management and control can be

built up only on a sound budgetary system. &he budget of a public

enterprise serves the re2uirement of internal accountability and also

to e>ternal agencies besides providing a plan of action against !hich

performance is revie!ed. e3om',e bud5eti5 i*$ i e**e,e$'

&o,e** o ' te,i;ue 3o &e*eti5 e*tim'te* 'd e/&editue

i tem* o3 3u,tio*$ &o5'm*$ ',tiitie*$ 'd &o4e,t*. It

bi5* out te tot'+ bu*ie** o&e'tio* tou5 ' ,+'**i3i,'tio

b% 3u,tio*$ &o5'm* 'd ',tiitie*.&hrough suitable narrative

statement and !ork load data that form an integral part of

presentations# it indicate the !ork done# proposed to be done and the

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?nsure the initiation of action for implementing schemes

provided in the budget.

,versee the regular flo! of e>penditure and prevent cost

overrun.

Te ,oetio'+ eeue bud5et '* bee e*tu,tued '*

&e3om',e bud5et


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B. ORDER STATUS

,rder status is compiled in respect of major products# jobs and indicates

the follo!ing

%1 &otal order book position of the division / company# product

!ise.

'1 Luantity delivered there against as at the beginning of the

budget period.

(1 Luantity outstanding for delivery at the beginning of the

budget period.

*1 Luantity proposed to be delivered yearly during the ( yrs.

Period vi-. +.?# B.?# F. ?.

1 ,rders likely to be received 4 proposed yearly delivery

schedule there against.

2. RODUCTION 1UDGET

Production budget is compiled product !ise/service !ise in

respect of major products and services.

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All others are listed under different groups like the manufacture

of sparesK miscellaneous overhaul jobsK rotable overhaul etc. this

indicates the 2uantitative targets and value !here 2uantification is not

possible# or voluminous# such as spares manufacture and miscellaneous

overhaul jobs. &his budget is linked to order status and sales budget.

Te 3o++oamines the projections made by the divisions and after making such

changes as deemed necessary for integrating various divisional

budgets# approval is conveyed to the divisions. &hese approved budgets

form the basis for other operating budgets.

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&o evaluate the performance against these targets it is

necessary to correlate this !ith monetary values. &o do so# the

resources re2uired for production in terms of material# labor and

amorti-ation 0direct e>penses1# besides standard man hour content in

the production should be given.

t is also necessary to spell out the details of amorti-ation# total

amount amorti-ed. &his !ill include amorti-ation of special tooling and

test e2uipments as !ell as other D)?.

?. SA"ES 1UDGET

&his budget indicates the 2uantities to be delivered#

product/activity !ise !ith values# during the budget period. n the case of

direct deliveries by the divisions to customers# the 2uantities indicated in

this budget must match !ith the deliveries indicated in the order status.

As per "A: accounting policy# sales are set up on the basis of

signaling out and delivery. Duly signed forms L*'( / L( or forms

evidencing signaling out of aircraft by the +.). constitute delivery for

this purpose. t is therefore imperative that the sales budget reflects the

items targeted to be delivered during the budget period.

&he sales budget is presented in t!o parts i.e.

0i1 for firm orders and

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0ii1 for anticipated orders.

Further# the budget under each part lists services and products

phase !ise# customer !ise 0AF# avy# +oast $uards# Army# +ivil

+ustomer# etc.1 and also e>ports.

For jobs other than cost plus# F.P.L. submitted or approved#

form the basis for sales computation for the current year and likely

prices for deliveries in the relevant years form the basis for sales

computation for budget year and forecast year.

For cost plus jobs sales computation is estimated based on

technical evaluation and past actual for similar jobs.

t is necessary that the items targeted for sales during the

budget period are valued to convert the anticipated accomplishment into

monetary figures.

&o facilitate effective monitoring# revie! and control# the

approved sales targets are thereafter broken up month !ise and actual

achievements are monitored !ith reference to the monthly targets#

variances are determined and analy-ed for taking suitable control

measures.

@. !A8S AND #EANS 1UDGET

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=ays and means budget indicates the inflo! and outflo! of funds during

the budget period. &he sources for inflo! of funds are receipts from AF#

avy# Army# +oast $uards and other non traditional customers.

?mphasis is paid on linking the estimation of receipts from these

agencies !ith the production plan. ,utflo! comprises of e>penditure on

establishment of capital facilities# revenue purchases# salaries and

!ages# advances# deferred payments# royalty/license fee# interest and

other payments.

A finance and accounts department is responsible for the

preparation of !ays and means budget after taking into account

projections made in various other functional budgets.

&he projections made in the !ays and means budget#

particularly in respect of receipts# are to be accurate and realistic. Ad

hoc reductions in projected payments to sho! a favorable cash flo!

position are not to be restored to. Ender the financial arrangements !ith

the main customers i.e. AF# the government agencies# a substantial

portion of the e>penditure is reimbursed as advances from time to time.

=hile in respect of manufacturing jobs reimbursement is obtained up to

the e>tent of 9 of labor and overhead# % of deferred revenue

e>penditure and imported material# stage payments are received in

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advance for )MS orders and overhaul jobs. &hus e>penditure gets

reimbursed !ithout much loss of time and receipts should not normally

be less than the payment made.

&he !ays and means budget is supported by a detailed

e>planatory note on the assumptions and basis for projections of

receipts and payments. Details of other receipts and Iother services and

e>pensesJ are also to be furnished.

&he payments indicated in this budget are to tie up !ith the

projections made in various other budget s like capital budget# purchase

budget etc. +ash outflo! on account of repayment of loans# interest on

loans/cash credit# dividend and income ta> centrally incurred by

corporate office and allocated to the divisions !ill also be included in this

budget to arrive at the net surplus/deficit.

&he approved !ays and means budget is split into month !ise

targets. Actual are monitored monthly against these targets and

revie!ed in the monthly divisional +,M.

. #ANO!ER 1UDGET

Man po!er budget is a plan of manpo!er re2uirement for the

budget periods indicating the manpo!er mi> of direct !orkers# indirect

!orkers and officers. &his budget brings out the manpo!er strength at

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the end of the previous year and projects the re2uirement under different

categories during the three year period covered in the budget for

meeting the planned production tasks in these years.

&he preparation of the manpo!er budget involves close

interaction bet!een production planning department and management

services department to carry out detailed analysis of the re2uirement of

manpo!er vi-C a Cvi- the available strength. t enables the future

recruitments !ith a vie! to achieve the ma>imum utili-ation of the

human resources.

t is a plan providing ade2uate !ork load to the e>isting

manpo!er# redeployment of e>cess manpo!er# if any# from one !ork

centre to another# thereby removing imbalance in the distribution of

manpo!er.

&his budget is for!arded along !ith the production budget to

the corporate office for the approval.

Man po!er budget is compiled by the management services

department in coordination !ith the offices of the production

engineering# factory manager and the administration.

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&he projections are to conform to the norms laid do!n by the

corporate office from time to time. &he actual build up of manpo!er is

restored to only after approval of the budget.

&he ratio bet!een the direct and indirect !orkers should not

e>ceed % %.'. &he strength of the officers may be projected on the basis

of departmental organi-ation and the !ork load but 3should not e>ceed

the ceiling laid do!n from time to time from the corporate office.

&he manpo!er budget is directly linked !ith the production

budget and has a bearing on the operating budgets i.e. profit and loss

budget# =ays and Means budget and =elfare budgets.

. URCHASE 1UDGET

Purchase budget# essentially a )evenue budget is both

commitment and e>penditure plan relating to budget period. &he value

of the material purchase re2uisitions pending at the beginning of the

year to be converted into purchase order during the year and the

2uantum of commitment e>pected to be made during the year constitute

the proposed commitment during the year. &he e>tent of the

commitment made during the previous periods !hich have not been

paid for !ould be the Ioutstanding commitments at the beginning of the

year I.the sum of these t!o !ould constitute the final commitment.

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&he process for inventories is necessarily to be based upon the

norms corporate office has laid do!n for maintenance of the various

components of the !orking capital. =hen the production budget is

planned# the inventory for finished goods and stock in trade and also the

!ork in progress is to be maintained as per norm.

t is necessary to see at a glance ho! the various components

of the !orking capital are emanating out of the budgets and ho! they

compare !ith the actual of the previous year and !ith reference to the

desired norms.

&he norms for inventory and sundry debtors# as fi>ed by the

company from time to time are to be adopted. &he present norm for =P

and S& put together is 9 months production of the follo!ing year and for

sundry debtors #it is ' of sales to be progressively brought do!n to

%5.

Enless each one of the ingredients of !orking capital is

efficiently managed there !ould be blocking of funds resulting in

mounting interest liability and conse2uent reduction in profitability. in

every division there should be a nodal point to monitor the performance

of !orking capital management.

. FOREIGN E6CHANGE 1UDGET

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&his covers the foreign e>change re2uired to purchase the

capital and revenue items including e>penditure on payment of :icense

Fee /)oyalty /Foreign technicians< fees# during the budget periods.

Details of Free Foreign ?>change and the non convertible rupee 0+)1

amounts are given. n order to serve as a control device# it is essential

that the item !ise details for the provisions made form part of this

budget.

&he projections in this budget cover the re2uirements of FF? on

commitment basis and the +) re2uirements both on commitment and

cash basis.

For reducing variation bet!een Budget and actual it is ensured that

%1 ?stimates are critically e>amined by a committee consisting

of representatives of planning# commercial and financial

department.

'1 $uidelines issued by the corporate office from time to time

are follo!ed so that uniformity in projections is achieved.

(1 +ommitments of high value are monitored !ith a system for

a timely feed back.

*1 A critical revie! is made at the )? stage.

9. ROFIT AND "OSS 1UDGET

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Profit and :oss Budget is the ;Master Budget< reflecting the sum

total of the revenue items in various other budgets. &he items included

in this budget are to the items figuring in the profit and loss account in

annual accounts and closely adhere to the schedules of profit and loss

account as !ell as corresponding account heads in master chart of

accounts.

&he Profit and :oss budget is prepared by the finance department and is

based on the projections made in the various other functional budgets

like Sales budget# ,verheads budgets Depreciation correlating +apital

Budgeted.

&he figures reflected under the head ISA:?SJ in the profit and loss

budget are the same as in sales budget.

&he budget under this head is based is based on both on past

actual as !ell as other data available i.e. e>penditure on employees

using transport/canteen# old assets condemned and detailed for

disposal# unserviceable/surplus stores# disposal and other details#

handling charges received on bought out items# procured on behalf of

customers for non "A: inventory are also classified under this head.

B0. ROECTED 1A"ANCE SHEET

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Projected balance sheet indicates the summary of financial

position of the budget periods. &he projections made therein

automatically flo! into the projected balance sheet from the contents of

the various other budgets. &his budget is prepared by Finance and

Accounts Department of the Division.

&he starting point for the projected balance sheet is the

finali-ed/budgeted balance sheet for the immediately preceding

accounting year.

BB. ERO 1ASE 1UDGETING

A method of budgeting in !hich all e>penditures must be

justified each ne! period# as opposed to only e>plaining the amounts

re2uested in e>cess of the previous periodNs funding

&he economics of Oero Base Budgeting 0OBB1 is implicit in its

concept and philosophy itself# !hich re2uires very organi-ation and its

activities to justify their very e>istence and effectiveness. Being# in

essence# an ex-ante rather than post-facto cost benefit analysis of all

decision making in an organi-ation/unit# OBB seeks to reverse the !hole

process of conventional budgeting by its une2uivocal assertion that it is

not e>penditure that should justify the output. n stead# it should be the

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output that must justify the e>penditureK its implementation re2uirements

and implications.

At the government level# the objectives of OBB e>ercise are to

optimi-e the cost of governance by making the public e>penditure more

effective and needCbased. &hus the $overnment of ndia !as reiterated

its intention of implementing OBB !hile presenting the budget for the

year %999C'.

t is necessary for top management to e>amine and endorse

foundational assumptions of OBB. &he basic tenets of OBB are

ot!ithstanding the prosperity of an organi-ation# there !ill al!ays

be a gap bet!een desirability and affordability. n other !ords all

!hat is desirable may not be affordable.

As a corollary to the above# the greatest challenge to the decision

makers# therefore# lies in identifying the NDesirableN !ithin the limits

of NaffordabilityN.

I&here is no room for improvementJ is an operating philosophy of

DoomCSayers. n reality even best can be improved provided

there is a =:: to do so.

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manner and permits the reCallocation of resources from lo! to high

priority programs. Finally# OBB is the ex-antecostCbenefit analysis of all

decision making in an organi-ations.

OBB re2uires each manager to

?stablish objectives of his or her functions consistent !ith

organi-ational objectives and gain agreement on themK

Define and devise alternative !ays of achieving the objectivesK

Select the most practical and effective alternative from the aboveK

Break the chosen alternatives into incremental levels of effortsK

Assess the cost and benefits of each incremental levelK

Describe the conse2uences of disapproval of the activityK and

)ank all the activities of his function according to the importance of

each one of them in achievement of functional objectives.

n OeroCBase Budgeting approach one reconstructs the

operation from -ero or scratch. ?ach activity competes for funds on

e2ual footing and the funding decisions are as per the relative

importance.

Oero Base Budgeting 0OBB1 can be used in any area on !hich

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cost/benefit analysis can be carried out and for !hich standard costs

and norms are not available.

&he process of formulation of -ero Base Budget consists of the

follo!ing steps

dentification of NDecision EnitsN

Preparation of NDecision PackagesN

)anking/Prioriti-ation of decision packages !ithin a decision unit.

)anking /prioriti-ation of decision packages of various decision

units.

Allocation of resources for the chosen decision packages under

each decision unit.

Monitoring and evaluation.

BUGETAR% CONTROL

Budgetary control is an important financial techni2ue by !hich

the business concerned can be efficiently managed enabling for!ard

thinking and thereby carrying out the operations according to plans. &his

system is not entirely mechanistic so as to automatically put to operation

once set in motion but it re2uires coordination and involvement of

number of persons belonging to various departments of the concern.

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Follo!ing are some of the behavioral factors re2uiring attention for the

success of the system

0a1 Fuller participation of the persons being made responsible

in the process of setting the budgets !hich motivates in

achieving the budget targets.

0b1 Proper training and education for such persons to enable

them to appreciate their o!n budget and in achieving the

corporate objective.

0c1 Fi>ation of individual responsibility for the costs they

control.

0d1 Hariance analysis as a means to achieve the objective but

not for !itch hunting.

Budgetary control involves comparison of actual !ith the

budgets and ascertainment of variance there from !ith a vie! to find out

the reasons for !hich such variance and takes suitable remedial

measures. &he budgetary control is a very important activity to insure

that the actual conform to the plans set up through the budgets. &he

meaning and purpose of setting up of budgets !ill not be achieved

!ithout an effective Budgetary +ontrol System. "ence it is necessary tohave an effective system of Budgetary +ontrol through !hich actual are

monitored periodically.

All the important budgets vi-. Production# Sales# Profit and

:oss# =orking +apital# =ays and Means# after approval by the Board#

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monitor the commitments and e>penditure made during the period# !ith

respect to budget and actual# under the capital head.

?. Foei5 E/,'5e Re&ot: C

For the gro!th of any global company# foreign e>change is vital

resource as it enables the company to stand in importCe>port market. Foreign

e>change keeps a check on foreign e>change committed and the e>penditure

made during the prescribed period. t enables the management to monitor the

condition of the foreign e>change !ith the company.

@. C.O.#. #eeti5 Re&ot:-

+,M i.e. +ommittee ,f Members Meeting takes place in "A: !here

different issues are discussed such as sales# profit# inventory# !ays and

means# etc. &he report of this meeting is prepared including all the subjects

discussed. &his report is meant for committee members only.

. SU-?0 Re&ot:-

SuC( i.e. SukhoiC( is a project undertaken by "A:. SuC( report is

prepared by "A: to monitor the progress i.e.SuC( project and the sanctions

made for the project.

. "CA-"S REORT:-

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:+AC:SP is a customerCfinanced project# !hich is funded by

Aeronautical Development Agency# Bangalore per the Mou 0Memorandum of

Enderstanding1. Ender this project a 2uarterly report of commitment and

e>penditure is prepared submitted to the customer.

7. #IS REORT:-

MS i.e. Management nformation System report is a report !hich isprepared to inform the management about the various activities beingperformed at "A: and their progress. t involves all the issues as !ays and

means# performance of employees# overheads# inventory# sales# and cost ofproduction# value of sales# profitability and other issues. t can be said thesummary of all the reports made by this section. &his report is prepared !ith avie! to give a brief idea of division.

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Bi&&s Recei'a(&e Section

Bills receivable section is one of important sections under

the finance department of ".A.:. As the name suggests the main

function of Bills )eceivable sections is to receive. &he payments of the

sales made during the budget period.

Ob4e,tie*

&o ensure that dues from +ustomers in respect of $oods supplied

and services rendered are recovered timely as per the Fi>ed Price

Luotation /Price +atalogue approved by the Ministry in

accordance !ith the $overnment letter issued by the Ministry of

defense dated '* Aug %99.

&o ensure that nvoices in respect of Advances# Stage Payments#

Final Deliveries are raised timely in order to have smooth cash

flo! position.

&o ensure that proper accounting is done as per the re2uirement

of Statute and accounting instructions laid do!n by the corporate

office.

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b1 Subse2uent Stages /Final Payments are claimed on the basis of

Milestones achieved #Dispatch Advice# Ackno!ledgement received

from Air Force in form L*'(#nspection note certified by the +.).

about the progress of !ork done

n respect of )epair and ,verhaul !ork the payment is strictly

regulated based on the nature of !ork carried out e.g. Functional test#

Defect nvestigation# and Oero hours servicing# )epaired#

,verhauled.

&o prepare and render nvoices to on 3AF +ustomers in respect

of follo!ing Activities

i1 Development Sales for +ustomer Financed Projects

ii1 Supplies and Services rendered to +ivil +ustomers

iii1 Supplies against ).M.S. orders from Army# avy.

&o raise debit on other Divisions as S..&. in respect of parts

/accessories supplied for fitment in ?ngines and Aircraft /

"elicopters manufactured by them for Supply to +ustomers.

&o claim payment from A, 0DAD1 on the basis of Fitment details

received from the user Division.

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&o submit invoice for reimbursement of )oyalty from Air Force and

Set up Sales for these claims and create claims )eceivable.

&o follo! up !ith A, 0DAD1 and other customers for collecting the

payment against the nvoices raised.

&o provide details to Budget section for +ompilation of Sales

Budget on the basis of Sale orders# Firm /Forecast &ask# .D.&.,

for Budget ?stimates #)evised ?stimates #F.+.

&o collect Sales &a> from the +ustomers and deposits the same.

&o compile Sales &a> returns and submit the same to MM

Department for on!ard submission to Sales ta> Authorities for

Assessment.

"A: deals in three main areas# vi-C

%. Manufacturing/Production of ne! projects

'. )epair and overhaul of products supplied to AF

(. )epair# Maintenance and Supply of spares 4 rotables

#'u3',tui5 o4e,t*:-

&he main customer of "A: is ndian Air Force. Most of the

manufacturing projects undertaken by "A: are from .A.F. only. ,ther

than .A.F.# ndian Army# avy# +oast $uards# Border Security Force

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and other foreign customers also demand for ne! products. For ne!

projects Bill )eceivable department generally takes funds in advance.

&he payment pattern is fi>ed !hich is as follo!sC

%st stageC ' of total approved FPL on receipt of )MS,#

'ndStageC ( of the batch 2uantity on start of manufacturing#

(rdstageC ( on start of assembly#

*thstageC %on commencement of e2uipping at aircraft division#

and

thstageC on delivery of Aircraft.

&he advances are paid annually in installments for material

procurement. &he total amount of installment must not to e>ceed )s

5.(cr.

!oi5-

For ne! projects# the costing department prepares the FPL

0Fi>ed Price Luotation1 on the basis of !hich B/) Section claims the

advances. After raising the advances B/) Section intimates for start of

production. After that production invoices are prepared and !ith the form

L*'( duly coordinated by +.).. the bills are sent to A, 0DAD1 or

D+DA# Bangalore.

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n case of delayed dispatch the li2uidity damage is charged

by .A.F. at the rate of . to ' per month or per !eek as per the

terms laid do!n in purchase order.

,ther than above stated customers "A: accessories

division# :uckno! also !orks on the demands of other divisions of "A:

kno!n as FD i.e. nter Factory Demand. For these manufacturing

payment is raised on the preC decided agreements bet!een different

divisions.

Re&'i 'd oe'u+*:- (R > OH):

,ther than production of ne! accessories assemblies and

subCassemblies "A: :uckno! Division also !orks on repairs and

overhauls of its products. For repair and overhauls .A.F. loads a ;&ask

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Defence 0MoD1 for verification after !hich the due payment is made

generally by che2ue.

For )epair and overhaul also there is a fi>ed pattern of

payment decided by "A: and .A.F. C

5 of total approved amount on loading of task#

order#

( of total amount on completion of task through

bills.

:ike manufacturing projects for repair and overhaul also the

:i2uidity Damage is charged by .A.F. if there is any delay in dispatch of

repaired part. &he time period given for such tasks is 8 months and '

months grace period is given. &he :.D. is charged at the same rate as in

manufacturing projects.

Re&'i$ #'ite',e 'd *u&&+% (R#S):-

For replacement of e>hausted parts rotables etc. the .A.F.

issues )MS, i.e. )epair Maintenance and Supply ,rder to "A:. ,n

receipt of )MS, the e>hausted part/assembly or rotable is replaced !ith

fresh part/assembly or rotables. Luality control department of "A:

checks the efficiency and capability of replaced part !hich is further

checked by +) i.e. +entral )esearch nstitute !hich is authori-ed by

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&his is the reason behind limited transactions bet!een "A:

and Army# avy. $enerally all the processes involved in manufacturing

a ne! project# repair 4 overhaul and )MS are same as that in the case

of AF.

Payment pattern and the channels for payment are also

same in the case of Army. &he final payment is made to "A: through

A, 0DAD1.

As it has been mentioned that avy has a very small portion

of !ork done by "A: thus no advances are collected from avy the

payment on behalf of avy is done by +DA 0+ontroller of Defence

Accounts1 $oa/Mumbai.

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C)oyal Air force of ,man

CAir Force of Mauritius

CAir Force of epal etc.

For dealing !ith above mentioned customers "A: sends

2uotation clearly mentioning the terms and conditions of payment.

&he case is different !ith B.S.F and +oast $uard. For these

t!o the +ontractor Bills are made.

,n accepting the order or contract given by the customer a

letter of order acceptance is sent to ordering authority/party.

&hen the !ork is done as per the re2uirement of customer. f

the !ork re2uires the material or help from foreign# the import is done on

the !ish of the party for !hich party has to pay along !ith % packing

4 handling charges. After completion of all !ork# dispatch advice is

prepared by dispatch section. ,n the basis of D.A. the B.). section

raises the bills and collects the payments.

For B.S.F. 4 +.$. the contractors bill is sent to +DA

0+ontractor Bill1 is a government certified from for giving contracts

related to defence production. ,n verification of contractor bill +DA

makes payment to "A:. From +ivil customers "A: is generally paid by

che2ues.

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n case of civil customers# :.D. is charged by the customers

but only on manufacturing projects# not on repair# manufacturing or

overhaul the :.D. is charged at the rate of . to per !eek. n case

of e>port to foreign customers bills are sent !ith dispatch of item to

customers. +ustomer has to pay on the bills. &he payment is done by

bank transfers i.e. by use of :etter of +redit on Sight Draft.

f payment is done after the closing of accounts the

e>change rate variance is calculated and charged into Profit and :oss

account.

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Bi&&s Pa)a(&e

An organi-ation can survive if and only if it meets

organi-ation


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Geeping proper accounts of payments as per the

re2uirements and directions of corporate office is another function of this

section.

Ob4e,tie*:

&o regulate the payments to suppliers and service providers as per

the terms and conditions of the Purchase orders/Agreement.

&o ensure that the payments to different parties are made

promptly so that supplies and services to the division is maintained

uninterruptedly in furthering the objects of the ,rgani-ation.

&o ensure that proper accounting is done as per the re2uirements

of the statute/standing instructions from the ".,.

&o ensure that all statutory deductions e.g. &.D.S. etc.# are made

from the Bills of suppliers/service providers and Deposited timely

!ith the appropriate authority.

Due to different nature of services and service providers this

section has been segregated into three sub sectionsC

Bills Payable 0Foreign Bills1

Bills Payable 0ndigenous Bills1

Bills Payable 0+ivil !orks 4 services Bills1

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Bi&&s Pa)a(&e *Foreign Bi&&s+

Foreign Bills subCsection of Bills Payable section generally

deals !ith the payments related to foreign suppliers as stipulated terms

and conditions of purchase order.

Fu,tio*

i1 Payments and Accounting of C

Advances to suppliers as per the terms 4conditions of Purchase

,rder.

:icense fees# )oyalty etc as per the license agreement !ith the

foreign collaborator.

+ustoms Duty# Freight Bills.

Final Bills.

ii1 ,pening of letters of credit on the advice of .M.M Department and

liasoning !ith Banks for Foreign ?>change release and payments

on maturity date.

iii1 Maintenance of commitment registers for budgetary purpose.

iv1 Maintenance of Deferred :iabilities accounts.

v1 Pricing of ).D.) !ith P.,. rates and :oading of +ustoms duty#

Freight and nsurance charges.

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vi1 Priced ).D.) are sent to Materials Accounts Sections /?.D.P for

Punching and Batch mode for the processing of Material :edger.

vii1 For any re2uirement of material/machine the demand goes to

purchase office !hich invites tenders and after a long chain of

procedure the purchase orders are issued. ,n the basis of

purchase orders issued to foreign parties/suppliers the payment is

done.

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F+o< o3 !o:-

i1 All Purchase ,rders /+ontracts received are entered in the

registers before opening of separate file for each P.,.

ii1 All the :.+. opened in favour of Foreign Suppliers as per the terms

of Purchase ,rders are entered in )egister to record the

particulars about their ?>tension# revalidation and utili-ation .,n

maturity of the :.+. the Bank Adjustment Houcher is prepared on

the basis of Bank advice and send to +ash Section for Adjustment.

Particulars of payments are also noted in the relevant P.,.

iii1 =here Purchase terms provide for IDocuments through BankJ the

Bills Payable section after checking the document !ith the

Purchase ,rder passes the nvoice and issue :etter of Authority to

the Bank for arranging payment.

iv1 All the contractual payments in respect of )oyalty# :icense fee

4&echnical Assistance fees are made as per the :icense

/+ollaboration Agreement after obtaining Foreign ?>change

release from the Ministry# ).B. and Producing .,.+. from the

ncome &a> Department.

v1 Bills of ?ntry received from the MM Department are entered in the

)egister to record value of the goods assessed #amount of duty

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paid to ensure that the duty levied is correct and the amount of

duty paid is loaded to the inventory accounts correctly .A copy of

the B/? is sent to the Bank for for!arding the same to )B

vi1 After receipt of $oods the Stores Department sends the ).D.) to

the Foreign Bills for Pricing and making necessary accounting.

vii1 Pending the Pricing of ).D.).# the payments made to foreign

vendors through :.+. /Sight drafts are put temporarily in $oods in

&ransit Account.

viii1 n respect of Material dispatched by the vendor against P.,. raised

by us# the liability is provided in our Books of Accounts if payment

has not been made for such supplies.

i>1 Follo!Cups !ith .M.M Department for timely release of ).D.) so

as to clear the $..&.

>1 +oCordination !ith the .M.M for replacement of rejected materials

so as to clear $..&.

#ode o3 &'%met to Foei5 'tie*

0i1 Sight Draft

0ii1 :etter of +redit

0iii1 Advances

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Si5t D'3t:-

As the name tells# sight draft is a mode of payment to foreign

parties !here the payment is done on seeing i.e. receiving the

documents related to the imports. n case of payment through sight draft

the purchase order stipulates payment terms as ;Document through

bankporting company i.e. seller dra!s a sight draft on the

company and sends it through bank !ith enclosed documents like

invoices# bills# air!ay/shipment bills etc. &he bank of "A: on receipt of

documents sends them to "A:. ,n verification of documents "A:

orders the payments and on behalf of "A: the bank pays to the bank of

seller.

"ette o3 ,edit:-

:etter of credit# popularly kno!n as :.+. is the fastest and

therefore most preferred mode of payment among by the vendors. :.+.

is a kind of bank guarantee !hich ensures the payment to supplier

through his bank in his country !ith the dispatch of material. A letter of

credit is opened in favour of the supplier as per the terms and conditions

of the P.,. or demanded by the supplier in 2uotations or negotiation.

"A: intimates its bank i.e. Punjab ational Bank or State Bank of ndia

to open an :.+. in favour of the supplier for a certain period say (

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months i.e. the payment has to be done in ( months on receipt of

re2uired documents. &he bank of "A: contacts its branch/related bank

in that country and as the supplier produces the re2uired documents to

the bank !ithin prescribed period# the bank in suppliers country pays on

behalf of "A:porters generally ask for advances so as they can meet out !orking

capital re2uirements. Advance is paid as per the terms and conditions of

the P.,. For this "A: authori-es its bank by the means of letter of

authority to arrange the payment to foreign supplier after obtaining the

relevant from ).B.. !hich is mandatory. ormally these advances are

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is prepared and sent to cash office for entry into cash book or bank

book.

Bi&&s Pa)a(&e *Indigenous+

Fu,tio*

CC&he follo!ing are the functions of Bills Payable 0nland1 Section

i1 Payment of Advance to supplier as stipulated in the purchase order.

ii1 Payment of Final Bills

iii1 Bank Dealings !ith relation to suppliers e.g. ,pening of letter of

credit# Bank $uarantee and the payment to bank on the due dates.

iv1 Accounting and pricing of ).D.) 0)eceiving cum Discrepancy

)eport1.

v1 Maintenance of commitment registers for budgetary purpose.

vi1 Payment of Misc. Advances /imprest approved by the competent

authority.

F+o< o3 !o:-

i1 All the P.,.s received are first entered in the P.,. )egister before

putting the same in a separate file.

ii1 f the P.,. stipulates for payment of Advance payment is given.

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iii1 After receipt of the goods# suppliers invoice duly linked !ith

relevant ).D.) are received from the Purchase Department !hich

are scrutini-ed !ith reference to relevant Purchase ,rder and then

passed for payment after making adjustments for Advance

Payments already made. )emittance vouchers are prepared

based on the passed invoices and are for!arded to cash section

for issuance of +he2ue.

iv1 n respect of P., !here payment is stipulated as I&hrough BankJ

the BP sections# after intimation from the Bank through Purchase

Department# makes entry in the )egister and nvoice and sends

the remittance Houcher to the +ash section to arrange payment

and collection of Documents from the Bank by the Purchase

Department.

v1 n respect of :ocal purchases made on Iche2ue against Delivery

basisJ the Performa invoice is linked !ith the relevant Purchase

,rder and the payment is authori-ed and )emittance voucher is

sent to the cash section for making payment.

vi1 Pending the receipt of ).D.) from transit in respect of material

)eceived but not taken on charge due to delay in inspection

/commissioning /rejections the payment made to suppliers as

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Advance on receipt of goods through Bank Documents /+he2ue

against delivery basis are put in $..& i.e. $oods n &ransit

Account at the year end.

vii1 n respect of those P.,.s !here material has been received but

the payment has not been released# the appropriate liability is

provided for at the yearCend so as to account for all e>penses.

viii1 Follo! up !ith .M.M Department for release of ).D.). in respect

of those Po1 n respect of rejected materials# follo!Cup is to be made !ith

.M.M. Department to get those rejected materials replaced from

the vendor so as to clear $..&.

Bi&&s Pa)a(&e *Ser'ices ci'i& ,Construction pa)-ents+

Fu,tio*

Payment and Accounting of Advances.

Payment and Accounting of running bills to contractors.

Payment and Accounting of final bills

Adjustment and )ecovery of Advances

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canteen# casual !orks# maintenance contracts and other daily use items

payments as telephone bills# tele># freight and cartages# stationary#

electricity etc.

For obtaining the services as stated above the tendering is

done. &he tender document is prepared !ith all the terms and conditions

mentioned properly !ith the consent of A.$.M.

After receiving the 2uotations from service providers# a

committee of "A: members opens the 2uotations and as per the terms#

conditions and re2uirement the :% i.e. :o!est ,ne is chosen and the

tender is a!arded to the party 2uoted the least amount i.e. :% party. At

the time of allotment of tenders % amount of total tender value is

charged as security kno!n as ?MD 0?arnest Money Deposit1 and an

agreement is made bet!een "A: and service provider and as per the

agreement if the services are not up to the mark# then the service

provider is liable to pay the penalty !hich is deducted by "A: !hile

making payments.

,ther than payments this department also takes care of

deducting income ta># sales ta> etc of service provider and submitted

the same !ith concerned authorities.

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n case of services the advance payments are very rare and

if it is paid then to take care of advances and balance is also the job of

this subCsubCsection.

Do,umet*:

&a> )egister

onC&a> )egister

Bi&&s Pa)a(&e *Ci'i& Construction+

+ivil construction subCsubCsection takes care of all the

payments regarding the civil constructions !hether a ne! construction

or repair# renovation etc.

For civil construction# again the tendering is done. &hese

tenders are managed and issued by civil engineering department and

after the process of choosing :% as in ServicesK the contract is a!arded

to the contractor after a negotiation/bargaining meeting. "ere also the

contractor has to pay the earnest money deposit as the security. ,ther

than this in case of contracts involving payments above )s. % lakhs# a

bank guarantee from the contractor is prescribed !ith certain norms.

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F+o< o3 !o

i1 Advances to +ontractors are given as per the Acceptance letter

given to the contractor !hich is recovered !ith interest by !ay of

deduction from on account payable bills in suitable percentage in

relation to the progress of !ork so as to recover all sums advance

by the time 8 of the contract is completed.

ii1 Material Advice to the e>tent of 7 of the value of materials

brought by contractors and lying at the site is given on certification

of the ?ngineer nCcharge and is recovered from running/final bills.

iii1 n respect of running bills the !orks account section links the bills#

submitted by contractor duly certified by ?ngineers nCcharge# !ith

the contract/acceptance letter/!ork order etc. and arranges

payment after deducting income ta># balance security deposit and

other advances if any and retaining the prescribed of the bill

to!ards the retention money. "o!ever# !here the contractor has

given the Bank guarantee to!ard retention money no deduction is

to be made on this account.

iv1 Similarly# the final bill submitted by the contractor is checked !ith

the measurement book and the gross amount payable is

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determined. &he amount settled against running bills# advances if

any# penalty for delay in completion of !ork# recovery to!ards

consumption of material# &.D.S etc. is deducted from the $ross

Amount payable. ,ne "alf of the security deposit refundable to the

contractor is retained as defect liability deposit.

v1 +apitali-ation of the buildings and other capital !orks is done on

receipt of the completion certificate and final bills and the

classification of the buildings is done in accordance !ith the rules

in force.

vi1 Payments of bills for services e.g. ?lectricity# &elephone# =ater

etc.# received from plant maintenance department/concerned user

duly verified by them and approved by the competent authority are

made.

vii1 Payment in respect of other services received by the company is

made after it is duly approved by the competent authority.

Dei'tio St'temet:-

&o keep a check# on the variation bet!een the set targets

and the actual a deviation statement is prepared as per the "A: rules

' deviation in actual from set targets is admissible in e>penditure but

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in case of more than ' deviation the contractor is liable to give

reason for deviation.

e'+t%:-

As per the conditions laid do!n in tenders on 2uotations or

during negotiations % to % penalty is charged per !eek for late

!ork.

Com&+etio o3 !o:-

,n completion of !ork a completion certificate is given by

the contractor and in turn no dues certificate is issued by "A:.

After completion of !ork of the security amount is

retained by "A: for the period of si> months to keep a check on final

construction so that the contractor can be traced in case of any fault in

construction.

Tedei5:-

For civil construction# different types of tenders are issued

0%1 ,pen &enders

&hose tenders are open for every party/contractor !ho think

they are able to undertake the job. &hese tenders are advertised in

press.

0'1 :imited &enders

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&he MM dept. prepares a list of contractors# service

providers# vendors !ho are kno!n and capable and had good!ill in

market. &his type of tenders are sent to these parties only land they are

numbered i.e. Hery limited

0(1 Single &enders

&hese tenders are issued in emergency cases.

0*1 PreCLualified &enders

&hese types of tenders are given to those !ho are preC

2ualified by "A: for a certain job.

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Finance Section

Finance section of Finance and Account Department !orks

as a checkpoint for all types of transactions. &his section carries out the

scrutini-ing function !hich has a major role to play in capital and

revenue e>penditure decisions in regard to purchase of material# stores#

tools# repair# replacement or sanctions. &he section also ensures that all

the e>penditure is made !ith the reference to the budget and in

accordance !ith the principle of financial propriety. Finance section

ensures that funds are in proportion to meet out the approved budgeted

amount. t also ensure that the financial proposals are routed to

competent authority as per delegation of po!ers so as to ensure the

compliance of the provisions of companypenditure

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Finance section comes into play !ith the start of stages of

purchase i.e.

0i1 ndenting stage from user department

0ii1 )e2uest to MM section for procurement of material 0MP) is

made1

0iii1 Floating of in2uiry i.e. inviting the 2uotations.

0iv1 )eceiving of 2uotation

0v1 n2uiry of 2uotations.

Before floating the in2uiry MM send the related files to

finance section for justification of purchase and then the 2uotation are

asked and the section comes into play again !hen 2uotations are

received and :% is chosen it is sent back to finance section to check the

terms and conditions of purchase and appropriatibility of purchase. After

a nod from finance department the final purchase is done.

o,edue:-

Finance section plays a major role in accounts department. t can be

termed as centre point of activities# because this section clears all the

files for proceedings by the concerned authorities as per delegation of

po!er.

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First of all material purchase re2uest is send by the purchase

department# it is re2uest for procurement of material !hich is sent to

store and then store sends this file to finance section for further

proceedings.

&hese re2uisitions are broadly classified as under

%. non recurring items

'. )ecurring items

+oncerned authority in the section approves the files.

+ommittee members as per the amount mentioned in the files do

approval of the files. Different committees have been formed for different

approvals.

,ne committee approves the proposal !hich amount unto )s lakhs#

different committee is authori-ed for the amount above )s lakhs and

so on. Approval is done by +.M 0inventory and material management1#

Manager 0Maintenance1# and senior Manager 0Maintenance1.

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opened in front of concerned authority. &here are fi>ed days of opening

sealed tendersCFriday and &uesday. Amongst these sealed tenders :%

is selected# !hich represents the lo!er amount amongst all tenders. n

spite of considering lo!er amount other factors are also taken in to due

consideration subject to the companyimum# reorder# monthly consumption# reference of old

supply# delivery date# department re2uisition etc.

n the same manner for foreign purchase re2uest P)S 0Procurement

)evie! Sheet1 is prepared. Procedure for clearance of foreign material

re2uest is same as follo!ed in indigenous case.

n nutshell# any approved in terms of e>penditure !ill be

routed through the finance department.

,nly after the approval from finance department the

concerned purchase files are sent to higher authorities for

verification/approval.

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,ther than approvals finance section has the authority to

justify any e>penditure !hich re2uires more amount than the forecasted

amount or an e>penditure !hich !as not forecasted at all. t matches the

e>penditure !ith budget and keeps a check on outflo! of funds.

Finance section is a small but most important part of the

finance department because it not only deals !ith the reasonability and

justification of e>penses but it also takes care of clearance of stock in

trade# goods in trade# sundry debtors etc.

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Boo. .eeping section

All of the organi-ations have to have the records of their functions#

activities# and specially the inflo! and outflo! of funds. "A: in this case

is no e>ception.

"A: also has a separate book keeping section !hich takes of

maintenance of all the records# ledgers# books of accounts etc.

Fu,tio*:-

%. $enerali-ation and consolidation of records.

'. Preparation of full and final record.

(. Preparation of ledgers.

*. Preparation of Balance Sheet.

. Preparation of &rial Balance.

5. $eneration of various reports such asC Sales# Purchase# ?>port#

mport# etc.

7. Geeping records of employees going to/coming from other

divisions.

8. Geeping records of material sent to/brought from other divisions.

9. Geeping record of all fi>ed assets.

%. Participation in +ompany Audit.

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!oi5:-

All the sections prepare their separate records for their individual

section. &hen these records are for!arded to Book Geeping Section.

&he Bank of )ecords i.e. Book Geeping Section# then combines the

various records sent by various sections in various forms to form a

general and all purpose record. &hen these records are segregated into

the form of ledgers# trial balance# and balance sheet to present the

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COST AN ACCOUNTS EPART/ENT

&he cost account section is responsible to establish a costing

system in line !ith the activities and the product range of the division. t

is responsible for maintaining records associated !ith the accounting for

material# labor and overhead. t analyses all cost for manufacturing#

selling and distribution for use of management in planning and control.

Accounts related to costing and pricing of items are prepared in this

section. &his section acts as a central hub of accounts department. &his

section is also responsible for determination of price reali-ed from the

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customer for the products manufactured /repaired /

overhauled/serviced/supplied by the division.

Co*t A,,outi5:

dentification# measurement 4 reporting of product

manufacturing 4 service costs# )ole of product costs in income

determination. +ost classification# product costing# and treatment of

materials# labor and overhead# ob costing# Process costing# integrated

financial and costing records. +ost classification systems 4 recording of

cost flo!s. +ost apportionment# allocation 4 absorption including service

departments. Standard cost systems# including variance analysis#

variance investigation# and correction

+ost accounting is the process of tracking# recording and analy-ing

costs associated !ith the activity of an organi-ation# !here cost is

defined as re2uired time or resources.

Fu,tio*:

&o determine the rate of absorption / recovery of labor and

other overheads for recovering the labor cost on the different

jobs undertaken that is man hour rate computation.

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&o accumulating the labor and overhead content of each

activity project !ise based on evaluated :&B generated by

?DP from !ork order / time dockets.

&o keep track of different jobs computed and jobs lying

incomplete in different stages over a reasonable period of

time and to co ordinate !ith concerned production

controllers for justification for jobs lying unfinished beyond a

reasonable period of time and to ensure their early

disposition.

&o revie! !ork order on !hich no material / labor cost has

been recorded and finding out the reasons for the same.

&o get the =P statement as on (%

st

march from the ?DP

from all the manufacturing components# sub assemblies#

=P assembly# =P for the physical components verification

by the concerned production shops.

&o ensure that the valuation of =P has been done correctly

keeping in vie! the percentage