SUMMER TRAINING REPORT ON

FINANCIAL ANALYSIS AND COST ACCOUNT OF PREPARED AND PRESENTED TO HAL

UNDER THE GUIDANCE OFSubmitted To: Ms. K.K. Mishra (H.O.D.) MBA Depart e!t Submitted For the Partial Fulfillment for the Degree of Master of Business Administration
S"# itte$ B%&

'ite!$ra K" ar Si!(h MBA) III &Se ester

(2007-2009)

CERTIFICATE
This is to certify that Mr./Ms. Jitendra K !ar sin"h # a st dent 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, d rin" 01123

0114 nder !y s &er%ision and " idance. The Pro(ect Re&ort of the st dent 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 f t re.

AC NO!"EDGE#ENT
Accomplishment of tasks and objective is achieved by guidance and blessings of God$ #% &'(e)t*$ 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 #(. Administration. !ish to ackno!ledge my deep sense of gratitude to #*. . . #i*-(' . . #i*-(' "ead# Department of Business

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 compilation# editing and other related !orks for

collection#

accomplishment of this project study.

TABLE OF CONTENT
E/e,uti0e Summ'(% %. &opic '. Brief introduction (. )esearch methodology *. Findings and suggestions #'i) 1od% '. I)du*t(% ')d Com&')% 2(o3i+e %. +ompetitive situation '. +ompany background (. ,rgani-ation chart *. Product range .. Balance sheet/ financial position b. t-e &(o4e,t &(o3i+e %. !hy this project !as undertaken 0relevance of topic1 '. problem environment1 ,. T-e &(o4e,t - Re*e'(,- #et-odo+o5% %. research problem '. research objective and related sub objective (. information re2uirement 3 in detail 4 source of information
8

*. 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('&-%

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<s finance department consists of eleven departments because of great volume of task. ,ur project considers major three departments i.e. budgeting bills and costing.

=e hope that this project gives an insight of the various finance sections of the organi-ation.

E6ECUTI7E 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"OG8 is 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
;

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)A ,n the basis of secondary data. findings %. "A: is listed among ;BavC)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.

INTRODUCTION

1RIEF HISTOR8 OF HINDUSTAN AERONAUTICS "I#ITED "UC NO! DI7ISION :uckno! Division of "A: !as established in %97D !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#DD#DDD s2uare feet of built area set in sylvan surroundings. At present it is turning out over 8.D 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

 ?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 Faguar and repair/overhaul of MirageC'DDD 4 SeaC"arrier accessories. n addition the Division manufactured systems for +ivil Aircraft i.e.# Avro# Dornier and ABC(' 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# Bavy 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
11

division has been in the forefront of accessories development and supply not only to ndian Air force but to Army# Bavy 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

2RODUCTS OF HA" Mig series nternational Faguar Mirage Sukhoi 0proposed1 SeaC"arrier ABC(' Giran MGC /MGC CI7I" AIRCRAFT Dornier AH), "S 7*8 HE"ICO2TERS +hetak 0Alouette1 +heetah 0:ama1

11

RANGE OF ACCESSORIES CO#2RISES: "ydraulics Facks Halves Filters =heels and Brakes Endercarriage +old Air Enits and ?lectrically operated Halves Servo Actuators Fuel content $auges A+/D+ $enerators and Motors $yro/Panel nstruments Solid State nverters / Protection units.
CUSTOMER PROFILE AND E*PORT PRODUCTS CUSTOMERS

ndian Air Force / Bavy / +oast $uard.

Defence )4D :aboratories / Department of Space. State $overnment# +ivil Aviation / ,rdinance Factories / +orporate Sectors.

10

 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. E62ORT 2RODUCTS Supply of )otables and spares of Faguar nternationally and +heetah 0:ama1 / +hetak 0Alouette1 "elicopter. )epair / ,verhaul of M $ series# Faguar nternationally +heetah 0:ama1 / +hetak 0Alouette1 and Dornier Accessories. $round Support ?2uipment. +omplete range of ?lectrical Po!er control system and other accessories.

17

Accessories Division of "A: !as established in %97D !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*#DDD s2m of built area set in sylvan surroundings. At present it is turning out over %%DD 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 Faguar and repair / overhaul of MirageC'DDD 4 SeaC"arrier accessories. n addition the Division manufactures systems for +ivil Aircraft i.e. Avro# Dornier and ABC(' 4 cheetah# chetak 4 Advanced :ight "elicopters.
18

&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# Bavy 4 +ivil1 C t!o prestigious aircraft programs in the country and F& 0 ntermediate Fet &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# Bavy and various Defence :aboratories as !ell as for Space applications.

19

&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. 2(o,e**

"eat &reatment facilities for all types of steels# Aluminum alloys# +opper# Bickel 4 &itanium alloys.

2(ote,ti0e T(e'tme)t

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

SP?+ A: types of Surface protection 4 Painting facility# i.e. ) :SAB +oating P&F? +oating# M,:@ DA$ +oating. !e+di)5

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.
1:

Rubbe($ 2+'*ti,$ Fou)d(%

&hese facilities are in C house to cater for the needs of various production / servicing re2uirements.

A**emb+% A)d Te*t

8DDD s2.mtrs of +lean/AirCconditioned room 0class %D#DDD !ith laminar flo! cabinets1 !here assembly 4 test activities for instruments# "ydraulics and Fuel factories take place.

Attached facilities to Assembly Shops areA Dedicated &est ?2uipment# ?nvironmental &esting facilities to meet the aeronautical acceptance standards.

E)0i(o)me)t'+ "'bo('to(%

Facilities for all types of ?nvironmental testing as per re2uirements of BS# M : 4 FSS# available to meet regular re2uirements of type testing of all types of units designed/developed in the inChouse ) 4D centre.

1;

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

Finance Department
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 12

8. Budget and )eporting Section 9. +ash ,ffice :. +osting# Pricing and Material Accounting Section ;. Finance Section 2. Payroll Section 4. Pension +ell 11. Provident Fund Section

14

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

01

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 Fune. &he budget is projected in a three year time frame covering estimates for

Cu((e)t %e'( ((e0i*ed e*tim'te*) 1ud5et %e'( (Ne/t %e'() Fo(e,'*t %e'( (bud5et e*tim'te*)

i.e. R. E i.e. 1.E

(3o(e,'*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
01

&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
00

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
07

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.

08

CAPITAL BU GET

9C'&it'+ bud5et i* 3',i+itie* &+'))i)5. T':i)5 i)to ',,ou)t t-e +e'd time (e;ui(ed$ t-e 3',i+itie* <i++ be '0'i+'b+e 3o( u*e +o)5 '3te( ,ommitme)t. He),e$ ')% 3',i+it% &+'))i)5 t':e* i)to 0ie< t-e +o)5 te(m (e;ui(eme)t to m':e *u(e t-'t t-e 3',i+it% i* m'de '0'i+'b+e i) time to *uit t-e &(odu,tio) (e;ui(eme)t.= t is the most important budget that involves huge funds 4 is prepared for long term investment. &his budget is related to the capital item i.e. items !hich are to be used for long period for the betterment of the organi-ation for many tasks< accomplishment# such as investment in plant and machinery# building# roads and vehicles# etc. n this !ay it is a long term budget. t is a base for all activities. t involves huge capital outlays projects and long term commitments. t affects decisions over a period of year. t involves large risks and uncertainties. &hus# its preparation is handed over to senior and e>perienced e>ecutives. n "A: this !ork is accomplished by the MSD i.e. management service department. t serves follo!ing purposesAC "elps to evaluate capital e>penditure proposals. "elps to formulate other organi-ational budget.
09

 "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 underAC %. Be! 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 underA %. plant and machinery '. civil !orks (. other
0:

Time *,-edu+e 3o( bud5et ,om&i+'tio) > '&&(o0'+: &he budgetary e>ercise starts in the divisions by Fune 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. Be! 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!ingA %. ,bjectives of the scheme. '. &echnology consideration choice. (. Project description. *. Si-e. .. ?nvironment. 5. +apital e>penditure. 7. Deferred revenue e>penditure.
0;

8. Manpo!er re2uirement. 9. Production planning. %D. %%. %'. 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 areA )eturn ,n nvestment Pay Back Approach Discounted +ash Flo! nternal )ate of )eturn. 2. Co)ti)ui)5 &(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

02

improvements and cost reduction are projected under the follo!ing categoriesA A1 &echnological up gradation B1 +ost reduction/?fficiency improvement. +1 Production diversification. ?. Re&+',eme)t 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 reasonsA A1 due to normal !ear and tear. b1 )easons like change in service re2uirement# technology#

obsolescence# uneconomical repairs etc.

04

@. !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 2uartersA a1 Details of manpo!er# category !ise# e>isting and for the future period.

71

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 Bo. of employees in receipt of ")A/ having o!n houses. f1 Phases of construction A. De3e((ed (e0e)ue e/&e)ditu(e (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

71

 Static test/long test/life test Bon 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. 2ERFOR#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. 2e(3o(m'),e bud5eti)5 i*$ i) e**e),e$ ' &(o,e** o( ' te,-)i;ue 3o( &(e*e)ti)5 e*tim'te* ')d e/&e)ditu(e i) te(m* o3 3u),tio)*$ &(o5('m*$ ',ti0itie*$ ')d &(o4e,t*. It b(i)5* out t-e tot'+ bu*i)e** o&e('tio)* t-(ou5- ' ,+'**i3i,'tio) b% 3u),tio)*$ &(o5('m* ')d ',ti0itie*. &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

70

cost of carrying them out. &his creates an inbuilt mechanism for !atching the progress in attaining the programmed targets and taking timely corrective actions. n brief # performance budgeting is a comprehensive operational document conceived # presented and implemented in terms of programs# projects# and activates !ith their financial and physical aspects closely inter!oven.

Fo++o<i)5 '(e *ome o3 t-e m'i) *te&* i) 3o(mu+'ti)5 t-e &e(3o(m'),e bud5et ?stablish a meaningful functional program and activity classification !hich represent the range of !ork of the unit. Bring the system of accounting and financial management into accord !ith this classification. ?volve suitable norms# yardsticks# !ork units of performance and unit costs# !herever possible under each activity or program to facilitate better estimates of financial re2uirements and later appraisal and evaluation. Stipulates time bound plan for e>ecution of !ork and incurrence of e>penditure.

77

 ?nsure the initiation of action for implementing schemes provided in the budget. ,versee the regular flo! of e>penditure and prevent cost overrun.

T-e ,o)0e)tio)'+ (e0e)ue bud5et -'* bee) (e*t(u,tu(ed '* &e(3o(m'),e bud5et <it- t-e 3o++o<i)5 ,o)t(o+ ,e)te(*: Profit and :oss Account ,rder Status Manpo!er and &raining Budget ,vertime Budget =elfare Budget Foreign ?>change Budget Purchase )esearch and Development Projected Balance Sheet =ays and means budget

78

B. ORDER STATUS

,rder status is compiled in respect of major products# jobs and indicates the follo!ingA %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. 2RODUCTION 1UDGET

Production budget is compiled product !ise/service !ise in respect of major products and services.

79

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. T-e 3o++o<i)5 '(e t-e *te&* 3o( 3i)'+iCi)5 t-e bud5et: &he production planning and management services department assess the availability of resources i.e. men# material and machinery # and estimate the 2uantity to be produced # product !ise and phase !ise .it is ensured that the production in the supplier division are not far ahead of re2uirement by the user divisions. &his is essential to avoid large inventory build up. &he production budget so finali-ed together !ith the manpo!er budget for achieving the planned production are submitted by the divisions to the corporate office after getting clearance from the respective managing directors for approval. &he corporate office e>amines 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.
7:

&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.(D 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
7;

0ii1

for anticipated orders. Further# the budget under each part lists services and products

phase !ise# customer !ise 0 AF# Bavy# +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

72

=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# Bavy# 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.M of labor and overhead# %DDM of deferred revenue e>penditure and imported material# stage payments are received in
74

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. A. #AN2O!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
81

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.

81

&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 %A %.'. &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. D. 2URCHASE 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.
80

&he purchase budget projects outstanding commitments during the year# value of anticipated receipts of material and payments there against and the commitments outstanding as at the end of the year. &he purchase department is responsible for compiling the purchase budget inn close co ordination !ith finance# planning and other departments on the basis of forecast given by various indenting departments. &he projections for all commitments should be scrutini-ed thoroughly by the ntegrate Material Management of all the divisions before they are approved by the Budget +ommittee .&he budget is to be prepared project !ise for each category of items such as ra! material# components# bought out items# tools# etc. &he likely commitments sho!n in the purchase budget are to be consistent !ith F? re2uirements projected. &he anticipated payments are !orked out separately for orders already placed and orders to be placed based on lead time. 7. !OR ING CA2ITA" 1UDGET =orking capital mainly comprises of inventory# sundry debtors# sundry creditors and loans advances. For gro!th# li2uidity and smooth functioning of the operating division# it is essential that the !orking capital is managed very efficiently. Budget is a tool to achieve management of !orking capital.
87

&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 'DM of sales to be progressively brought do!n to %5M. 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. E. FOREIGN E6CHANGE 1UDGET
88

&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 0B+)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 B+) re2uirements both on commitment and cash basis. For reducing variation bet!een Budget and actual it is ensured thatA %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. 2ROFIT AND "OSS 1UDGET
89

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. 2ROFECTED 1A"ANCE SHEET

8:

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. GERO 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

8;

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'DDD. t is necessary for top management to e>amine and endorse foundational assumptions of OBB. &he basic tenets of OBB areA Bot!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 PDoomCSayersP. n reality Peven best can be improvedP provided there is a = :: to do so.

82

 Encritical acceptance of past priorities# strategies# precedents# policies# procedures etc.# is inimical to gro!th as its sets inertia and prevents organi-ational rene!al. Past activities do not e>ist simply because they have ac2uired a history. &hey shall e>ist# only if# there is a need for their e>istence and at the same time someone can take the responsibility of justifying the need for their e>istence. Future activities must fit into the organi-ational objectives and strategy must pass the test of NnecessityN and costCbenefit analysis. t is not the e>penditure that should justify the outputK it should be the output that must justify the e>penditure. Budgeting is not accounting. t is accountability. As such it is not the e>clusive responsibility of Finance Manager or the top e>ecutive. nstead it commits everyone !ho has to or !ishes to take a decision. t is not for certain budget heads that funds are re2uired. &hus# it is a management tool !hich provides a systematic method for evaluating all operations and programs# old or ne!# allo!s for budget reductions and e>pansions !ithin the limits of affordability in a rational

84

manner and permits the reCallocation of resources from lo! to high priority programs. Finally# OBB is the ex-ante costCbenefit analysis of all decision making in an organi-ations. OBB re2uires each manager toA ?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

91

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 stepsA 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. BU GETAR% 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.

91

Follo!ing are some of the behavioral factors re2uiring attention for the success of the systemA 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 to have 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#
90

are broken into monthly budgets to facilitate comparison of monthly actual !ith the monthly budgets. n the process# care is taken to ensure uniform production to the last t!o 2uarters of year. n respect of the follo!ing budgets comparison of actual !ith the corresponding budgeted amounts has to be done. Production Budget Sales Budget ,verheads Budget =ays and Means Budget =orking +apital Performance ?valuationand reported to the Divisional +,M every month.

REPORTING

Budget and )eporting section of ".A.:. prepares different types of reports for reporting to its top management about various functions of the division. &hese reports are as follo!sC

%. '.

Flash report +apital +ommitment and ?>penditure )eport

97

(. *. .. 5. 7. 8. 9. %D. %%. %'. %(.

Foreign ?>change )eport +,M Meeting )eport Free Foreign ?>change )eport Sales &a> )eport M. .S. )eport Su 3 (D +ommitment and ?>penditure )eport :+A 3 :SP )eport D.).D.:. )eport =eekly +ash Flo! )eport Monitoring of BP? Epdation of :icense Fee Statement

B. F+'*- Re&o(t:C Flash report prepared by Budget and Audit section is just like a flash i.e. the briefest presentation of all the financial activities at "A:. t is the briefest form of profitability and monitoring of other financial parameters like 3 sales# value of production value added# profit# cost of production# cost of sales# etc. &his report is prepared !ith a vie! to give a summary of financial activities to top management. 2. C'&it'+ Commitme)t ')d E/&e)ditu(e Re&o(t:As the name suggest it is a report about the capital commitments made and the e>penditure incurred. &his report enables the management to
98

monitor the commitments and e>penditure made during the period# !ith respect to budget and actual# under the capital head. ?. Fo(ei5) E/,-')5e Re&o(t: 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.#. #eeti)5 Re&o(t:+,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. A. SU-?0 Re&o(t:SuC(D i.e. SukhoiC(D is a project undertaken by "A:. SuC(D report is prepared by "A: to monitor the progress i.e.SuC(D project and the sanctions made for the project. D. "CA-"S2 RE2ORT:99

:+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 RE2ORT:M S i.e. Management nformation System report is a report !hich is prepared to inform the management about the various activities being performed at "A: and their progress. t involves all the issues as !ays and means# performance of employees# overheads# inventory# sales# and cost of production# value of sales# profitability and other issues. t can be said the summary of all the reports made by this section. &his report is prepared !ith a vie! to give a brief idea of division.

9:

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,ti0e* &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.

9;

 &o ensure that all statutory payments e.g. Sales &a># ?>cise Duty# +ustoms duty is recovered from the customers and is deposited timely !ith the appropriate authority. "A: deals in three main areas# vi-C %C 'C (C Manufacturing/Production of ne! projects )epair and overhaul of products supplied to AF )epair# Maintenance and Supply of spares 4 rotables For all these areas the bills receivable section has separate pattern of !orking. Fu),tio)*: &he follo!ing are the functions of B ::S )?+? HAB:? SectionA )aising of invoices )eporting sales +ollecting payments and Sending M S reports to related sections a1 nitial Advances are recovered on the basis of +ustomer orderA i1 Firm/Forecast task given by the Air ForceK ii1 +.). . coordinated .D.&.,. for Divisional &ask. iii1 ).M.S order.
92

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 Bon 3 AF +ustomers in respect of follo!ing ActivitiesA i1 ii1 iii1 Development Sales for +ustomer Financed Projects Supplies and Services rendered to +ivil +ustomers Supplies against ).M.S. orders from Army# Bavy.

&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.

94

 &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',tu(i)5 2(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# Bavy# +oast $uards# Border Security Force

:1

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 '.M of total approved FPL on receipt of )MS,# 'nd StageC (DM of the batch 2uantity on start of manufacturing# (rd stageC (DM on start of assembly# *th stageC %DMon commencement of e2uipping at aircraft division# and .th stageC .M 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. !o(:i)5For 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.

:1

n case of delayed dispatch the li2uidity damage is charged by .A.F. at the rate of D..M to 'M 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 o0e(-'u+*:- (R > OHH): ,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 ,rder<. &his task order is loaded to customer department of "A: !hich sends it to concerned factory or shop. After proper repair the part/assembly/subCassembly is handed over to concerned department !hich prepares the ;Dispatch Advice< and the form L*'(/L.(D is filled for acceptance of repaired part. After its acceptance by .A.F. or other customer the invoicing is done. &hen all the related papers i.e. task order Form L*'(/L.(D# dispatch advice# invoices are sent to Ministry of

:0

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.M of total approved amount on loading of task# order# (.M 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($ #'i)te)'),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
:7

MoD for checking the replacements made by "A:. After the approval of +) the payment is done to "A:. "ere also the :.D. is charged by .A.F. after the scheduled period of delivery at the rate of D..M to 'M per !eek on per month as per laid do!n terms and conditions. T-e C-'))e+ 3o( &'%me)t:&he payment on behalf of .A.F. is done by MoD. MoD authori-es the +DA 0+ontroller of Defence Accounts1 for the payments. +DA further authori-es A, 0DAD1# Account ,fficer 0Defence Accounts Department1. Finally the payment to "A: is done by A, 0DAD1 on behalf of .A.F. T(')*',tio) <it- A(m% > N'0%:After .A.F.# ndian Army 4 Bavy are the main customers of "A:. But unlike AF# Army 4 Bavy deal in small number of projects only. &hey generally use C +heetah 0:ama1 "elicopter +hetak 0AlouetteC 1 "elicopter Sea "arrier DornierC''8 etc.

:8

&his is the reason behind limited transactions bet!een "A: and Army# Bavy. $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 Bavy has a very small portion of !ork done by "A: thus no advances are collected from Bavy the payment on behalf of Bavy is done by +DA 0+ontroller of Defence Accounts1 $oa/Mumbai. T(')*',tio)* <it- ,i0i+ ,u*tome(*:All other 0BonCDefence1 customers of "A: are treated as civil customer. &hey includeC Border Security Force +oast guard ndian Airlines

State $overnments nternational customers

:9

C)oyal Air force of ,man CAir Force of Mauritius CAir Force of Bepal 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 $uard. For these t!o the +ontractor Bills are made. ,n accepting the order or contract given by the customer a letter of order acceptance is sent to ordering authority/party. &hen the !ork is done as per the re2uirement of customer. f the !ork re2uires the material or help from foreign# the import is done on the !ish of the party for !hich party has to pay along !ith %DM packing 4 handling charges. After completion of all !ork# dispatch advice is prepared by dispatch section. ,n the basis of D.A. the B.). section raises the bills and collects the payments. For B.S.F. 4 +.$. 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.
::

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 D..M to .M 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.

:;

Bi&&s Pa)a(&e An organi-ation can survive if and only if it meets organi-ation<s liability timely. &he Bills payable section at "A: take care of all the payments that are to be made to suppliers# contractors or other parties so as to ensure the uninterrupted supply of material and timely services. =henever needed in furthering the organi-ations objectives. &he section also ensures the statutory deductions like &.D.S. etc. are made from the bills of service provider and are deposited properly !ith the concerned authority.

:2

Geeping

proper

accounts

of

payments

as

per

the

re2uirements and directions of corporate office is another function of this section. Ob4e,ti0e*: &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 0 ndigenous Bills1 Bills Payable 0+ivil !orks 4 services Bills1
:4

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 iv1 v1 Maintenance of commitment registers for budgetary purpose. Maintenance of Deferred :iabilities accounts. Pricing of ).D.) !ith P.,. rates and :oading of +ustoms duty# Freight and nsurance charges.

;1

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.

;1

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 B.,.+. 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
;0

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 &'%me)t to Fo(ei5) 2'(tie* 0i1 0ii1 0iii1 Sight Draft :etter of +redit Advances

;7

Si5-t 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 bank<. &he e>porting 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 Bational Bank or State Bank of ndia to open an :.+. in favour of the supplier for a certain period say (
;8

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:<s bank. &his mode of payment is preferred by vendors because as soon as they send the material and produce the invoices

air!ay/shipment bills they get the payment. Ad0'),e 2'%me)t*:n business deals# advances are paid as a type of security. ?>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. Bormally these advances are paid after obtaining the bank guarantee from supplier<s bank. After all above type of payments bank sends the debit advices to "A: and debits the amount to "A:<s accounts. &hese particulars of debits are noted in account books and remittance voucher

;9

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 0 nland1 SectionA 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.
;:

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
;;

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 Po<s !here Advance payment has been made so as to clear Advances. i>1 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

;2

 Accounting and Adjustment of earnest money and security deposits. +apitali-ation of buildings. Payment of all services bills e.g. &elephone# ?lectricity# =ater# +anteen# &ransportation and Sanitation etc. Payment to all consultants e.g. Architect# Advocates# Part &ime Doctors etc. Payment of Misc. Advances/ mpressed approved by the

competent financial authority and their adjacent. Payment to all casual employees. &his subCsection of B.P. section is further segregated into t!o subCsubC sections vi-C Bills Payable 0Services1 Bills Payable 0+ivil constructions1 Bi&&s Pa)a(&e *Ser'ices+ Bills payable 0services1 section# as the name suggests# makes payments for all the services other than salaries. n other !ords this subCsub section discharges all the bills related to all nonCproductive services and facilities !hich are run on contract basis such as transport#

;4

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 %DM 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.

21

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,ume)t*: &a> )egister BonC&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. %D lakhs# a bank guarantee from the contractor is prescribed !ith certain norms.

21

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 8DM of the contract is completed.

ii1

Material Advice to the e>tent of 7.M 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 M 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
20

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. De0i'tio) St'teme)t:&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 'DM deviation in actual from set targets is admissible in e>penditure but
27

in case of more than 'DM deviation the contractor is liable to give reason for deviation. 2e)'+t%:As per the conditions laid do!n in tenders on 2uotations or during negotiations %M to %DM 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 .DM 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. Te)de(i)5:For civil construction# different types of tenders are issued 0%1 ,pen &endersA &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 &endersA
28

&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 &endersA &hese tenders are issued in emergency cases. 0*1 PreCLualified &endersA &hese types of tenders are given to those !ho are preC 2ualified by "A: for a certain job.

29

2:

2;

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 company<s act# the memorandum and articles of association of the company and the relevant rules and regulations of the company and guidelines issued by the company. Fu),tio)*: to scrutini-e and give financial concurrence as per delegation of po!er for each proposal involvingC %. capital e>penditure
22

'. revenue e>penditure (. purchase of material store/tools and other services *. manpo!er re2uirement .. !aiver of dues/!rite off of losses 5. cases involving rela>ation of rules etc. as per the delegation of po!ers 7. sale # lease # alienation or disposal of company<s assets 8. contracts contractors 9. a!ard of contract in respect of civil/electrical !ork / other !ork/plant orders %D. Project report etc. entered into !ith suppliers/collaborators/sub

+ertification for availability of funds !ith reference to capital and performance budget and appropriation of funds. !o(:i)5:Finance section plays a vital role in finance and account department. t can be termed as the center point of all the activities because this section clears all the files for proceedings by the concerned authorities as per delegation of po!ers.

24

Finance section comes into play !ith the start of . stages of purchase i.e. 0i1 0ii1 ndenting stage from user department )e2uest to MM section for procurement of material 0MP) is made1 0iii1 0iv1 0v1 Floating of in2uiry i.e. inviting the 2uotations. )eceiving of 2uotation 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. 2(o,edu(e: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.

41

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 underA %. 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. After +M<s approval it is sent back to commercial department and then commercial department sends it back to finance section# including specifications !hich sho!s that it is suitable or not. Finance department approves purchase order files. &hen further proceedings go on !hich includes raising of in2uiry for tenders. Sealed tenders are
41

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 company<s policies. &hereafter further proceedings take place. Material purchase re2uest consists of description and

specification of item# part no.# code no.# 2uantity re2uired# carton specification# estimated cost# M.P.).# purchase order 2uantity of order# minimum# ma>imum# 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.

40

,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. III

47

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. %D. Participation in +ompany Audit.

48

!o(:i)5: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 "A:<s financial position. &hus# this section holds a great responsibility. Further# in company audit# this section helps in internal audit# system audit# $overnment audit and statutory audit. t is ama-ing but true that "A:<s Book Geeping section maintains %D#DDD fi>ed asset records and '.DD other records.

III

49

4:

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
4;

customer

for

the

products

manufactured

/repaired

overhauled/serviced/supplied by the division. Co*t A,,ou)ti)5: 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# Fob 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.

42

 &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 of completion of the job. &o keep track of the S & transactions !ith different divisions.

44

 &o keep record of all divisions.

.D.&., received from different

&o accept the debit raised by the different divisions for items received by the divisions in respect of re2uirements raised by the divisions through D&,. &o evaluate P+ memo for S & issues# )ussian consumption for overhaul and amorti-ation of D)?. &o !ork out the cost of sales and to reconcile the same !ith the design department for various customers financed projects. &o liaise !ith A,0DAD1 for verification of claims in respect of labor booking on production and D)? items and other issues like !age# arrears# idle hours etc. &o prepare fi>ed price 2uotation 0FPL1# price catalogue for the different items manufactured /repaired / overhauled / serviced/ supplied by the division and to get the same approved by the Air Force "ead Luarter. &o submit 2uotations in respect of en2uiries received from non AF and civil customers.

111

I)t(odu,tio) o3 Co*t: Co*t: n accounting a cost is used to e>plain the value of a product or services. ,ne may ask ho! much does it cost. n such a situation a cost reflects the value of the product or service. n general cost means Ithe benefits given up to ac2uire goods or services.J Accordingly the benefits given in terms of money may be called IcostJ. Shilling la! defines the term costAC Icost represents the

resources that have been or must be sacrificed to attain a particular objectiveJ nterpretation of cost depends upon 3 &he nature of the business# or industry 4 &he conte>t in !hich it is used. n a business !here selling and distribution e>penses are 2uite nominal# cost of article may be calculated !ith out considering the selling and distribution overheads. =hile in the business !here the nature of the product re2uires heavy selling and distribution e>penses may prove very e>pensive for the business. &hen cost may be the

111

factory cost# office cost# cost of sales and even an item of e>pense is termed as cost for e.g. Prime cost includes e>penditure on direct materials# direct labor and direct e>penses. &he !ork in progress is valued at the factory cost !hile stock of finished goods is valued at office cost. O&&o(tu)it% Co*t: &o an economist a cost may not necessary reflect the monetary value one is ready to surrender but rather !hat the foregone value of an action is. For e>ample# an economist uses the term opportunity cost to mean !hat is the foregone value of not taking a particular action. Co*t o3 C'&it'+: &o reflect the return e>pected by the investor in a firm# if the firm is financed by all e2uity then the cost of capital is the return !hich the shareholders of the firm e>pect to receive for the risk they have taken in investing in the firm. f the firm is financed by debt and e2uity then the cost of capital is the e>pected return to both the shareholders and the debt holders. Co*t S%*tem: Determination of cost is the basic objective of cost accounting. After the cost unit has been selected the 2uestion arises ho! to
110

accumulate these costs. IA system of cost accounting implies that there is a planned and coordinated arrangement of all matters relating to costingJ &he t!o system of cost accounting !hich is referred to very fre2uently in the cost accounting literature areA %. "istorical cost system '. Standard cost system A decision must be made as to !hether to compile or allocate cost to actual cost of production or to assign cost on a standard cost basis. f the latter method is chosen variance account !ill set of the differences bet!een the actual cost and the standard cost. Hi*to(i,'+ ,o*t:J &he actual cost of ac2uiring the assets# goods and services. An actual or historical cost system collects the cost as they occur but it must delay the presentation of results until manufacturing operations have been performed or service rendered. =hile the department or job is charged the actual 2uantities and costs of material used and e>pended# the factory overhead or the burden is often allocated based on certain pre determined rate. &hus actual cost systems often do not rely entirely on actual costs.
117

Standard cost on the other hand is the techni2ue of setting up of definite standards or targets of performance in advance of costing period# even before the production begins and the e>pression of these standards in monetary terms. n a standard cost system all the cost are predetermined in advance of production. Production processes and operations are costed using standards for 2uantities and amount. Accounts are designed to collect actual cost. Differences bet!een the actual and standard cost is determined as variance. Co*ti)5 > 2(i,i)5:As it has been mentioned# that "A: mainly !orks for ndian Air Force. &he pricing of different parts# assemblies and subCassemblies is done on the basis of either the 2uotations raised by "A: or on the basis of preC approved or negotiated prices by AF. t is a very small phenomenon as it is done after fi>ing the cost of the product i.e. costing. +osting is rather a difficult process to undertake. As mentioned earlier "A: manufactures products in ;batches<# for that ra! material is purchased and then the re2uired product is made. Say# a metal rod has been purchased at any cost and %%. small spares are
118

made from that rod having left some amount of metal rod as !aste. Bo! calculating the actual cost of each spare is the job of costing department. For calculating the cost of such parts the most important factor is to calculate the man hour rate because in production process there are only t!o things involved C Material and :abour. /an 0our Rate 1 2ours uti&i3ed 4 'a&ue of $o( &he e>ercise of calculation of M") 0man hour rate1 is done every year. M") is calculated distinctively for AF and for nonC AF customers. &he formula for calculation of M") is /0R 4 Tota& ad-issi(&e e1penses,Input 0ours +alculation of input hours is done by MSD i.e. Management Service Department. &he functions of MSD are described later. For materials the e>ercise is done differently. &he material is generally purchased in huge amount at one time and is used for a long time. &he cost of material keeps on changing from time to time. For calculating the cost of material at any particular point of time an agreed escalation or discalation percentage is used. f material !as imported then the e>change rate variance comes into play. ,ther than that# for calculating profit part the department has to calculate the P," 4 BP,"
119

i.e. Production overheads !hich include all the e>penses that are incurred on the production directly and BonCproduction overheads !hich include nonCproductive part !hich is re2uired to assist support and guide the production process. Such as MD office e>penses# corporate office e>penses etc. &he AF has agreed to give %DM profit on P," and ...M on BP,". Ot-e( ,'+,u+'tio)*:. !ills of material " ! component # $ component %. ! &omponent " !ought out material '&harged from (D() *. $ &omponent " $anufactured at +A, -. $ &omponent " .otal hours consumed x $+( /. .otal &ost " $aterial &ost # ,abour &ost 0. .otal hours " $anufacturing hours # Assembling & .esting hours 1. $anufacturing hours " $echanical set up time # 2perational time.

Co*ti)5 S%*tem* I) HA": +osting system that prevails in "A: is standard costing .the system of actual costing is also follo!ed here# !hich helps in determining the variance bet!een the actual and standards set.

11:

&he standards follo!ed in "A: are labour standard and material standard# !hich are used for various purposes. Management Service Department 0MSD1 maintains these standards. #'te(i'+ *t')d'(d: &he direct material cost is found out by multiplying the 2uantity of material to be purchased !ith the rate of price at !hich they are available and hence the standards are to be set. $enerally the material re2uirements are dra!n from the Bill of Material and variance in the material could be determined comparing standards re2uired and actually dra!n. Bills of Material 0B,M1 are the basis for determination of standard for material cost. n "A: material element is classified asC MC+omponent# BC+omponent# MCcomponents are those components# !hich are manufactured by the company or the division indigenouslyK !hereas BCcomponents are brought out component. &he company does not manufacture these components. "'bou( St')d'(d*A n "A: standards for labour are determined by calculatingC Q Standard Minimum "ours 0SM"1
11;

Q Man "our )ate 0M")1 Q ?fficiency Q Bet Available "ours n "A: Management Service Department 0M.S.D1 determines these standards. For the calculation of standard time# time to be consumed by the labour for a particular operation is measured. Standard time for each component/sub assembly / assembly is set by the division for different purpose i.e. determination of standard rates of the products# calculation of efficiency of direct !orkers# to find out the variance# for incentive payments# for proper utili-ation of resources etc. C'+,u+'tio) o3 #HR: &he M") is computed by taking into account the total budgeted e>penditure and estimated production hours. t is computed by dividing the total e>penditure of the division by the total direct labour hours of all direct departments. t is also calculated by adding non production overheads in gross divisional e>penses. &he M") at this division is calculated by dividing the gross divisional e>penditure by total labour hours. Annual divisional M") is !orked out in advance applicable for the year based on the e>penditure approved in the performance budget.
112

$+(

"

3ross divisional expenditure .otal hours of $+(

For the estimation escalation formulae is used to derive at budgeted figure# !hich is calculated in the basis of Actual figure. ?scalation is based on the indices of the government. t takes into account the +onsumer Price nde> 0+P 1# =hole Sale Price nde> 0=P 1 4scalation formulae for calculating DA " amount for x indices of current year 5 amount for # actual this year E33i,ie),%A Percentage of the efficiency of the direct !orkers is calculated by dividing SM" by actual hours consumed by the !orker. n "A: efficiency of direct labour is 55M presently. ?arlier it used to be 7.M then also efficiency of "A: !orkers as compared to other public sector units is better. 4fficiency " 6tandard $an +our Actual +rs taken Standard labour cost is determined by calculatingA 7 889 previous year this year amount

114

6tandard ,abour &ost " 6tandard $an +our x $an +our (ate9 efficiency St')d'(d mi)imum -ou(*: Standard minimum hours are calculated to determine the minimum hours re2uired to complete a particular job. &his is calculated by time# motion and fatigue studies. =orks and methods analysis can be adopted and operation time of every activity is noted do!n. &he total time re2uired is further adjusted for !astage and contingencies# so as to determine the standard time. &he standard of !ork# standardi-ation of products# efficient plant and e2uipment# efficient tools to handle# efficiency and skills of the !orkers# 2uantity to be manufactured etc. are certain factors !hich influence time to be taken for performing certain task. SM" includes manufacturing hours and assembly and testing hours for setting standard time. Man hour should be consumed in standard conditions. 6$+ " 6$+ for manufacturing # 6$+ for assembly & testing #') Hou( R'teA Man hour rate acts as a means for recovering e>penditure. t helps in determining the cost of a product# thereby helps in determining
111

the price of a product. n "A: M") plays a very important role in allocating e>penditure on various job orders. ?>change rate is calculated by conversion of foreign currency in to rupees. ?scalation clause# !hich is applied in "A:# follo!s the ratio of 0(.A5.1 in !hich value at the rate of (.M on the last year and 5.M on the same year is escalated. Costing /et2ods and /ode&s n this section different costing approaches !ill be discussed as they relate to the +& industry. U)it ,o*t:&his refers to the standard cost re2uired to produce a product or provide services.

Fi/ed Co*t ')d 7'(i'b+e Co*t: Q A fi>ed cost is that cost !hich does not vary !ith the level of activity !ithin a specified range. Q A variable cost is that cost !hich varies !ith the level of activity !ithin a specified range. Fu++ ,o*ti)5A All cost involved in producing a product or providing services are included. t is computed by adding all cost elements# that is# adding
111

the total per unit fi>ed costs plus total per unit variable costs as sho!n belo!A Fu&& Cost 4 Tota& Fi1ed Costs 5 Tota& 6aria(&e Costs I),(eme)t'+ ,o*ti)5 AC &hese are additional costs re2uired to produce a product or provide services. &he calculation of this type of costing involves adding only those costs !hich are additional 0both the variable and fi>ed1 and !hich increase as a result of increased volume of activity. Tota& Incre-enta& Cost 4 Tota& 6aria(&e Costs 5 Additiona& Cost Di(e,t Co*t*AC Direct costs are costs !hich relate directly to the cost of goods produced or the provision of services. &hese can be traced directly to the products or services. Such costs are direct materials for producing a product. ?.g. the phone chip# phone handset# and labour used to produce a telephone. I)di(e,t Co*t*: &hese are the costs !hich are not directly related to production of the good or service# such as utilities# administrative costs# etc. Such costs need to be apportioned. Hi*to(i,'+ Co*ti)5 AC
110

&his is a costing method based on historical prices. For e>ample if you are computing depreciation the cost of the asset at the purchase time is considered a historical cost. De&(e,i'tio):&his is a nonCcash e>pense 0also kno!n as nonCcash charge1 that provides a source of free cash flo!. Amount allocated during the period to amorti-e the cost of ac2uiring longCterm assets over the useful life of the assets. &o be clear# this is an accounting e>pense not a real e>pense that demands cash. &he sum of depreciation e>penses of prior year<s leads to the balance sheet item Accumulated Depreciation.

117

/et2ods of Costing &he principle in every type of costing is same but the method of analy-ing and presenting the cost differ !ith the nature of the business. &here are t!o basic method of costing. &hey areC Fob order +osting ,peration +osting All other methods are variations of either Fob costing or Process costing. B. Fob O(de( Co*ti)5 : &his method applies !here !ork is undertaken to customer<s special re2uirements. +ost unit in job order costing is taken to be a job or !ork order for !hich costs are separately collected and computed. 2. Co)t(',t Co*ti)5 o( Te(mi)'+ Co*ti)5 A &his is a variation of job costing and therefore principles of job costing apply to this method. &he difference bet!een job and contract is that job is small contract is big. ?. 1't,- Co*ti)5 : &his too is a variation of job costing. &he cost of a batch or a group of identical products is ascertained therefore each batch of products is a cost unit for !hich costs are ascertained.

118

*.

2(o,e** Co*ti)5: As distinct from job costing this method is used in mass

production industries manufacturing standardi-ed products in continuous processes of manufacturing. +osts are accumulated foe each process or department .. O&e('tio) Co*ti)5: &his is nothing but a refinement and more detailed application of process costing. A process may consist of a number of operations and operation costing involves cost ascertainment for each operation instead of a process. D. Si)5+e$ Out&ut o( U)it Co*ti)5 : &his method is used !hen production is uniform and consists of a single or t!o or three varieties of same products. 7. O&e('ti)5 o( Se(0i,e Co*ti)5 : t is used in undertakings !hich provide services instead of manufacturing products 8. #u+ti&+e o( Com&o*ite Co*ti)5: t is an application of more than one method of cost ascertainment in respect of the same product. &his is used in industries
119

!here a number of components are separately manufactured and then assembled into a final product. 9. A,ti0it% 1'*ed Co*ti)5 (A1C) A Activity Based +osting is a method for estimating costs for specific activities !ithin the organi-ation. For e>ample# a contractor may be interested in determining ho! much it costs one !ork cre! to install shingles on a house compared to a different !ork cre!. ,r# the contractor may be interested in determining ho! much it costs to install shingles on a certain house design# compared to a different house design. &o better understand Activity Based +osting it is sometimes helpful to think in terms of subdivided a project into discrete# 2uantifiable activities or phases. &he activity needs to be definable !here productivity can be measured in units 0e.g.# number of hours !ork compared to units produced# s2uare footage completed# or volume generated# etc1. As the project is segmented into its activities# a cost estimate is typically prepared for each activity. &hese cost estimates !ill typically contain labor# materials# e2uipment# and subcontracting costs# including overhead# for each activity. ?ach activity cost estimate is added to the others to produce an overall cost estimate for the entire project
11:

Te,-)i;ue* o3 Co*ti)5 Different techni2ues may be used for special purpose of control and policy in any business irrespective of the method of costing being used. B. St')d'(d ,o*ti)5A &his is a very valuable techni2ue to control the cost. n this techni2ue# standard cost is predetermined as target of performance and actual performance is measured as against the standard. 2. 1ud5et'(% ,o)t(o+A +losely allied to standard costing is the techni2ue of budgetary control. A budget is an e>pression of a firms plan in financial form and budgetary control is a techni2ue applied to the control of total e>penditure on material# !ages and overhead by comparing actual performance !ith planned performance. ? .#'(5i)'+ Co*ti)5 : Separation of costs into fi>ed and variable is of special interest and importance because marginal costing regards only variable cost as the cost of product. Fi>ed cost is treated as period cost and no attempt is made to allocate this cost to individual cost centers. &his techni2ue is used to study the effect on profit of changes in volume or type of output.
11;

@. Tot'+ Ab*o(&tio) Co*ti)5: t is a traditional method of costing !hereby total costs are charged to products. (. U)i3o(m Co*ti)5A t simply denotes a situation in !hich a number of firm adopts a uniform set of costing principles. &his helps to compare the performance of one firm !ith that of other firms and thus to derive the benefits of anyone<s better e>perience and performance. Integrated Accounting S)stentegrated accounting is defined as a single set of accounting !hich provides both financial and management accounting information. Fe'tu(e*: ,nly one set of book is maintained for both financial and cost accounting. &ransactions !hich effect cost accounts are recorded in the general ledger just as they are recorded in the cost accounts. "A: follo!s an ;integrated system of accounting<. &his system provides for accounting of income/e>penses and assets and liabilities in part A# !hich is referred to as the financial books. &he accounting under

112

part a 0financial books1 is in line !ith that follo!ed by any other commercial organi-ation. "A: has a system of absorption costing !here in the income/e>penses of financial books 0part A1 are absorbed separately in the costing books 0part B1. n other !ords the income/e>penses of part A and part B are to match. &he cost general ledger is designed to be self balancing itself. As a result for every debit/credit in the financial ledger there should be a corresponding debit/credit in the cost book of the same ledger.

As a conse2uence to the introduction of the revised master chart of financial accounts of part A # there is a need to dra! up a similar master chart of accounts for costing transactions of part B# !ith this objective# the revised master chart of accounts for costing has been compiled. Co*t 7'(i'),e A)'+%*i*:A helpful hint for teaching managerial and cost accounting is in the cost variance analysis area. =hen determining !hether the cost variance is favorable or unfavorable#

114

AB+ analysis is performed if an inventory organi-ation !hich uses +ycle +ounting to take inventory and is used to determine the fre2uency !ith !hich each item is counted. AB+ +ompile must be purged and run again in order to include ne!ly added items in the cycle count. &his process must be done periodically as determined by the BH Administrator. Re*&o)*ibi+it%:&he BH Administrator is responsible for determining the

relative value of items and ranking them using the AB+ analysis. Distribution Director of Procurement Services ,!nership &he Director of Procurement Services is responsible for ensuring that this document is necessary# reflects actual practice# and supports Eniversity policy. A,ti0it% 2(e3',e:&his activity is performed !henever a ne! inventory is created !hich !ill use +ycle +ounting and !hen a ne! item is added to an e>isting inventory that uses +ycle +ounting

101

2(i,i)5:Determining the right price level and structure is just one aspect of effective pricing. Building stakeholder support for the pricing strategy is often a significant barrier to successful implementation. Pricing Products and Services offers guidelines# lessons learned and objection handling techni2ues that help you field difficult 2uestions avoid common pitfalls and navigate tricky organi-ational issues. =ith practical insight and boardroom 2uality presentation templates# Pricing Products and Services helps youA Secure the approval and ongoing support of business

stakeholders and influencers. +raft a concise# persuasive overvie! of your pricing plan. Anticipate and effectively resolve the tough 2uestions and objections. Set manageable# effective policies and guidelines for negotiated pricing. Deploy best policies and practices for pricing transitions.

101

Pricing Products and Services creates a logical# actionable path to the best pricing strategy for your uni2ue business situation. t is a complete resource that takes you from pricing issue definition# through analysis and decision making# to successful deployment CC !ith time and cost efficiency that cannot be matched by seminars# selfCstudy# or consulting. /ateria& Accounting n the business !orld a company survives on the amount of profit earned. Prior to profit and sale the most important task is to calculate the cost of product manufactured. n "A: :uckno! division Ithe cost and material accounting section performs the above stated job. &he !ork of cost 4 material accounting section can be as follo!sC %. Material Accounting '. +osting (. Pricing *. Design and Development #'te(i'+ A,,ou)ti)5:-

100

As the name suggests it is the accounting of material in stores# !hether it is bought out material or manufactured item for sale# all the accounting of material is done in material accounting section. For the purpose of accounting of material in stores physical verification is done on the basis of AB+ control. For material accounting a monthly ledger kno!n as material ledger is prepared. #ATERIA" "EDGER

,pening balance

)eceipt of Material

ssue of Material

+losing Balance

,n physical verification if there is any storage or e>cess it goes to Profit and :oss Account. For posting in material ledger the FHs are prepared and are used for making entries in material ledger. esign and "A: has t!o types of projectsC %. +ustomer financed projects
107

e'e&op-ent Accounting

'. "A: financed projects Design and development account section takes care of customer financed projects. Because of its nature of job it can be called as )4D dept. &his section does the accounting of e>penditure i.e. calculation of testing and checking<s. ,n the basis of M") the labour overhead is calculated. ,ther than this it calculates the value of job for overall costing 4 pricing of the product. +alculation of M") on the basis of :abour &ime Booking is also done. &hen cost of sales is calculated based on M") !hich leads to sale of product. &he preparation of labour time booking is done through follo!ing channelR Preparation of :&B plays an important role in costing 4 pricing as on the basis of :&B the incentive for !orker is calculated !hich directly affects the cost of product.

III

108

109

Pa)ro&& section Payroll section is one of the most important sections in the finance department because this section is concerned !ith the payment of salary of the officers and employees !ho are employed on factory roll. ,ther than officers and employees payroll section also pays to the trainees and adChock !orkers !orking at ".A.:. as per their appointment contracts.

&he salary of officers and !orkers includes many allo!ances and facilities other than basic pay. &hese allo!ances are as follo!sC %. Dearness Allo!ance '. Services =eight age Pay (. ncrement *. "ouse )ent Allo!ance .. :eased Accommodation 5. +ity +ompensatory Allo!ance 7. BonCpracticing Allo!ance for +ompany Doctors 8. )eimbursement of e>penditure incurred on conveyance for official purpose 9. +onveyance Allo!ance

10:

%D. %%. %'. %(. %*. %.. %5. %7. %8. %9. 'D. '%. ''. '(. '*. '.. '5. '7. '8. '9.

+ycle Allo!ance Scooter Allo!ance Special Allo!ance to Blind and "andicapped employees ,utstation Allo!ance Bight Shift Allo!ance Split shift Allo!ance :unch/ Meal Allo!ance +anteen Allo!ance Eniform and !ashing Allo!ance to nursing staff in hospitals =ashing Allo!ance Special Allo!ance to +ash "andling Staff )eimbursement of School Fees =elders Bonus Attendance Bonus Fournals/maga-ines/Periodicals Allo!ance &raveling Allo!ance0 nland1 &raveling Allo!ance0Abroad1 Special allo!ance for call duties +ontingency Allo!ance Scooter maintenance Allo!ance ,ther than these allo!ances ".A.:. employees are entitled for

some benefits and facilities also such as 3 %. :eave &ravel +oncession '. :eave &ravel Assistance (. Medical Facilities
10;

*. :eave ?ncashment .. Eniform 5. &ransportation 7. Advances. 0a1scooter advance 0b1+ar advance 0c1 &emporary Duty Advance 0d1Medical Advance 0e1"ousing Allo!ance S,'+e* o3 2'%:E/e,uti0e*:G('de S,'+e o3 2'% 5..DC'DDC%%(.D 85DDC'.DC%*5DD %D7.DC(DDC%57.D %(DDDC(.DC%8'.D %*.DDC(.DC%87DD %5DDDC*DDC'D8DD %7.DDC*DDC''(DD %8.DDC*.DC'(9DD 'D.DDC.DDC'5.DD '(7.DC5DDC'8.DD '.7.DC5.DC(D9.D '77.DC7.DC(%.DD

H H H H H S S S+"CB S+"CA !o(:me):

102

S,'+e % '/A ( */B . 5/+ 7/D 8/? 9/F %D

S,'+e o3 2'% '9DDC*.C(%'.C.DC*87. (DDDC..C('7.C5DC.7(. ('DDC5.C(.'.C7.C5%.D (5.DC8DC*D.DC9DC555D (9.DC9.C**'.C%D.C7*7D *%DDC%%DC*5.DC%'DC75.D *.DDC%(DC.%.DC%*DC85.D *7DDC%.DC.*.DC%5DC897D .'DDC%7DC5D.DC%8DC95.D 5%DDC%8.C7D'.C%9.C%D.(.

&his section is also entitled for making necessary deductions and recovery against advances for personal use such as scooter advance# housing loan# car advance and deductions for income ta># employees provident fund and some other facilities as ".A.:. employees are entitled to avail facilities of purchase from EP +A# "DF+ etc for all these facilities deductions are made from employee<s salary and are deposited !ith concerned authorities. t also deducts for group insurance and terminal insurance of employees. &he section also deals !ith the payment of Bonus $ratuity Separation payment 0At the time of transfer1 Super Annuation 0Final separation/)etirement1 :eave ?ncashment
104

ncentives etc.

For payments of salary payroll section depends on ?.D.P. i.e. .&. department# !hich sends the attendance records to payroll section# and &ime office# !hich keeps the records of ;late coming<# ;early going< and leaves. =ith all these data salary of an employee is calculated. According to these calculations the vouchers are prepared for the payment of salary and are sent to cash office. Payment of salary up to )s. 'D#DDD is made in cash and above )s. 'D#DDDis paid in che2ue. At ".A.:.# officer<s salary is paid through bank and other employees are paid as per their option# either in cash or through bank. #edi,'+ Reimbu(*eme)t: ,n prescription by ".A.:<s doctor# medical reimbursement is made by payroll section as follo!sC Ep to )s. .DD is paid !ith ne>t month<s salary# From )s. .D% to )s. %#'DD is paid in cash# Above )s. %#'DD to )s. 'D#DDD# paid after verification by a committee# n cash and above )s. 'D#DDD# again after verification# is paid by che2ue. Co)ti)5e),% A++o<'),eA
171

&o meet any contingency# a contingency allo!ance is given as follo!s )s. .#DDD to ,fficers and )s. *#DDD to ?mployees. &his amount is deducted from salary in ten e2ual installments !ithout charging any interest.

"o,'+ Co)0e%'),e A++o<'),e: &his allo!ance is paid to officials !orking in local area for availing conveyance. t is paid asC Ep to 8 kilometers from office 3 )s. (D# From 8 kilometers to '. kilometers 3 )s. * per kilometer above 8 kilometers. "u),- A++o<'),e: A lunch is allo!ed to an employee only after * hours of duty !hen they are out of station for official purpose. t is paid as )s %. per day# ma>imum up to )s '*D per month. E+eme)t* o3 S'+'(% 't H.A.". 2'%me)t* Dedu,tio)*

171

Basic pay D.A. ".).A. +ity compensation allo!ance Service !eightage allo!ance +onveyance )eimbursement allo!ance =ashing allo!ance +anteen Subsidy ncentives ,ther mportant FunctionsA 0i1 0ii1

?.P.F. H.P.F. ncome ta> )ecoveries CCCCCCCC CCCCCCCC

Payroll section books the duty hours of !orkers. &otal duty hours are calculated by payroll section and total payment and other overheads are calculated by payroll section.

0iii1

Payroll section calculates the total cost of production.

Pro'ident Fund Section

170

Provident fund is a section under finance department !hich is not concerned or related !ith the activities of finance department of "A: directly or indirectly. :ike all other public sector undertakings provident fund sections of "A: is governed by the rules and regulations of ).P.F.+ 0)egional Provident Fund +ommissioner1 !hich is further headed by +.P.F.+. 0+entral Provident Fund +ommissioner1. Ob4e,ti0e*: &o ensure timely collection of provident fund money recovered from members every month by the employer. &o invest the provident fund accumulations in approved securities. &o make payment of loans to members as per the rules /guidelines / la!s. &o file the returns of provident fund to )PF+

177

Fu),tio)*: &he pf subscription of members is deducted monthly from their salary. &he amount so deducted !hich is %'M of the pay along !ith the company<s contribution is collected from the payroll section and credited to the funds account. Payment of loans 0refundable and nonrefundable1 to members as per the rules of the company subject to the availability of the funds. &he investment of provident fund money is made in the approved securities and the board of trustees approves a detail of investment &o !atch timely recovery of interest and keep !atch on the securities. nterest is credited in the account of each member at such rates as may be determined by the board of trustees# taking into account the income of trust during each financial year. &o maintain family pension account of each member and remittance to ).P.F.+. at the stipulated dates and monthly and yearly returns.

178

 &o remit the amount of P.F. deduction for contractual / casual !orkers by che2ue ).P.F.+. and file the return in respect of the same. &o distribute annual statement of P.F to all the members in the format prescribed by the )PF+. &o make final payment of the pf due to a member on his retirement / resignation or due to a nominee in the case of the death of a member as per the rules. &o maintain accounts of provident fund transactions and get it audited by the statutory auditor of the company and approved by the board of trustees. &o file the monthly returns in the prescribed format and submit to )PF+ by '.th of each month in respect of provident fund and family pension fund. &o for!ard insurance claim to : + Bangalore in respect of deceased members. !o(:i)5:For the purpose of provident fund collection an employee is liable to pay %'M of his Basic Pay and Dearness Allo!ance. &his amount is deducted from the salary of the employee by ;Payroll Section<.
179

&his amount is called as +.P.F. 0+ontributory Provident Fund1. &hen the company also pays the same amount to the P.F. of the employees kno!n as ?mployer<s +ontribution. &he total sum of +.P.F. and employers contribution is kno!n as ?.P.F. i.e. ?mployer<s Provident Fund. &his total amount is entitled to earn the interest. According to the government norms# interest rate applicable for this purpose is 9..M per annum. ,ther than this some employees voluntarily pay some e>tra money to so as to avail the ta> benefit. &his contribution is kno!n as H.P.F. 0Holuntary Provident Fund1. &he company also pays the interest on H.P.F. Finally the total amount collected as P.F. is invested in marketK financial firms etc. so as to earn some interest on the deposited money !hich can be paid as interest against such deposits. ,ther than this the P.F. section deals !ith 3 Fi)'+ *ett+eme)t:At the time of retirement or death of any non retired employee P.F. section pays all the accrued sum of the persons P.F. account !ith due interest. n death cases an amount of )s. 5DDDD collected under the

17:

head of B.P.+. by employees is also given to the family of dead employee to console them.

Re3u)d'b+e +o')*:&o meet an emergency or urgent need an employee can take a refundable loan from his P.F. account. &his amount can not be more than %' months Basic Pay and Dearness Allo!ance of that particular employee. &his amount is paid back by the employee in the form of deductions from his salary. An interest is also charged on this amount !hich is %..M more than ?PF interest rate. For the current year it !ill be 9..M T %..M U %%M No) (e3u)d'b+e +o')* (NR"):%1 ,n medical grounds an employee can take nonrefundable loans for treatment of himself or dependents up to ma>imum of )s.(DDDD. '1 For the marriage of the dependent children# dependent brother# sister loan can be taken !hich may be up to .DM of total +PF amount. (1 For further studies of the children# B): can be dra!n !hich !ould be given according to the prescribed fee structure and ma>imum up to .DM of +PF amount. *1 For housing loan purpose a person can take loan !hich is either (5 months Basic Pay and Dearness Allo!ance of that employee or total ?PF# !hich ever is less. t is given once in service period. t
17;

could be for purchase of land# purchase of house# construction of house etc. 1o'(d o3 t(u*tee*:Subject to provisions the fund shall vest in and administered by a Iboard of trusteesJ consisting of ten members# these members are called Iboard membersJ

172

C-'i(m'): $.M. of the company or a nominated A.$.M. Se,(et'(%: +hairman appoints t!o people as Secretary. #embe(*: Enion appoints . nonCsupervisory level members !ho might include a Secretary. Management appoints . Supervisory level members including +hairman and / or Secretary. &his board takes decision on investments# loaning and profit sharing. &his board is formed under the guidelines of )PF+ and !orks according to rules and regulations provided by )PF+. &he pf section in "A: reports the progress of the section to board and board interacts !ith management if needed. Do,ume)t* m'i)t'i)ed: +ash book :edger Stop register :oan<s record.

III

174

Pension Ce&& Pension cell at "A: is a ne! concept. &he pension cell in "A: started from Bovember 'DD* after the orders of Supreme +ourt. For the purpose of pension of an employee a certain amount i.e. 8.((M is deducted from the company contribution of P.F. and is paid as pension after final settlement of employee under certain government formula. n "A: pension cell is not a separate section but !orks under the P.F. section# !hich is further headed by Payroll section. :ike P.F. section Pension +ell also is under control of ).P.F.+. Many schemes of Pension have been introduced by government of such as Family Pension Scheme in %97%# !hich has been changed to Pension Scheme in %99.. &he rate of contribution in e>isting scheme is %.%5M of company contribution of P.F. +ontribution of employee is restricted to 8.((M subject to ma>imum of )s. 5.DD. f an employee contributes for at least %D years to!ards provident fund# he is entitled to get pension else not.

181

f an employee dies during his or her service period at "A:# his family is entitled to get the pension as follo!sC &o !ido! &o any of the t!o children till they attain the age of at least '. years. Note: &o retired employee .DM of basic pay is payable as pension. &o the !ido! of such an employee '.M of basic pay is paid as pension# and &o children half of the amount paid to !ido! is payable as pension of his/her parent.1 &his scheme is applicable for ndustrial employees of ndian $overnment. &here are t!o types of schemes at "A:# in pension cellAC Commut'tio):- 0Ma>imum %/(rd of the salary is deductible1 3 t returns %DD times of the commuted amount at the time of superannuation or after death# !hich ever comes first. C'&it'+ Retu():-

181

Ender this scheme total capital deposited is paid back at the time of retirement !ith some interest as per applicable rules.

III

180

Cas2 office Ob4e,ti0e*: &o ensure timely and accurate receipts and payments of cash and che2ues. &o ensure Accounting of cash /bank transactions is done as per the statute /corporate office guidelines. &o ensure safe custody of cash# che2ue books# bank guarantees# deposit receipts etc.

187

 &o ensure timely dra!l of cash from bank to cater to the daily needs of payments of cash vouchers. Fu),tio)*: All amounts collected by different sections either from employee<s o from e>ternal agencies is sent to the cash office through cash credit vouchers. +ash received in e>cess of re2uirement# che2ues# bank drafts# postal orders are deposited into the company<s bank account the same day for reali-ation. Payments to employees such as Medical )eimbursement# &A/DA advance# miscellaneous advance etc are made through payment vouchers !hich are punched into the computer through online system. &he cash office in turn after proper identification makes the payment through cash teller. For payment to outside parties che2ues are made on the basis of remittance vouchers sent by different sections these che2ues are handed over to the Purchase department for taking necessary action/sent to +entral )egistry for dispatch to the concerned party.

188

 ?ntries are made everyday on the basis of +ash +redit Houchers and )emittance vouchers and the cash balance is arrived at !hich is certified by the nCcharge of +ash ,ffice. Based on the analysis of payments and receipts transactions computeri-ed monthly Fournal Houchers are prepared and sent to Book Geeping section for adoption. Preparation of monthly Bank )econciliation statements and liasoning !ith the Bank authorities to check any discrepancy. Periodical physical verification of +ash is done by Systems Audit )epresentatives and by the nternal Auditors on the last day of the financial year.

Ti-e Office Ob4e,ti0e*: Maintenance of leave records and feeding of attendance records to computer department. Maintenance of attendance records of casual Mails# Project ?ngineers and contract Diploma &echnicians.

189

 )eceipt of approved leave applications. &o provide data for the vacation leave provision to be made in the Books of Accounts. Fu),tio)*: &o issue leave cards for the calendar year to all the employees/officers of the division. &o maintain leave ledger PB Bo. !ise for all personnel. +redit is given to each account according to his entitlement as per the guidelines laid do!n by the corporate office and the posting is done simultaneously from the attendance reports received from the concerned department.

18:

18;

OBSER6ATION

%. "A: is listed among ;BavC)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. *. "A: has listed amongst the top ten public sector units in the country. .. Main customers of "A: are AFK ADA is one other customer of "A:. )atio bet!een AF and other customers is 87A%( appro>. 5. All standards related to production more or less depend upon direct !orkers.

182

7. Pricing policy that is adopted on FPL %DM profit is taken on total cost !hich is fi>ed price of the company. 8. Production depends on the direct and indirect !orkers. 9. ?fficiency of direct !orkers is calculated 55M.?arlier it is used to be 7.M. t is decreased by 9M. t is one of the cause of increasing M"). %D. %%. %'. %(. Machine utili-ation rate U 88M )ejection of !ork U %..M )e!ork of job U %.*7M ?scalation factor that is taken into account follo!s the ratio (.A5.#

in !hich (.M is increased on previous year and 5.M increase on current year in application. %*. +ompany is performing its responsibilities by providing employment to *DDD people in their division itself. %.. Secrecy is maintained so actual figures are not disclosed in front of outside people. %5. Fuel and engine factory accounts for ma>imum !astage. III

184

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. *. ntranet facility should be fre2uently used so as save time and money. .. &he system of the company should be elastic and capable of adopting changes. 5. Similar kind of !orking condition should be provided to employees of same level. 7. Promotion criteria should not only be based on seniority basis. t should be based on certain performance standards. 8. &he company should try to set orders from other customers other than permanent customers so that company could get economy of scale 4 reduce cost of production to ma>imi-e its profit. 9. =hatever methods taught in :ean Management to eliminate !astage to be implemented in good spirit to reduce cost.

191

CONC"USION &he topic undertaken for study !as to be studied in detail in all aspects. Duration of the Summer training !as limited 4the sample si-e !as restricted to Accessories Division :uckno! only. &he data so collected For !riting this report is the result of direct personal intervie!s of the concerned authorities of different sections of the Finance Department. &his study not only made me familiar !ith a big company like "A: but also provided me the practical vie! ho! the Finance function and theories are applicable in an organi-ation. "A: is listed among the Public Sector units# !hich are running in profit . ts main customer is AF. ts other customers are A Defense )4D :ab/Dept. of Space State /State $ovt. /Dept. of +ivil Aviation /,rdinance Factories /+orporate officers . Flying Academies /?ducational nstitutions. Airlines/Air &a>ies /Air +argo. Defense Forces of countries from South ?ast Asia /Middle ?ast 4 Africa +ollaborator/:icensor.
191

RESEARCH #ETHODO"OG8
REASEARCH #ETHODO"OG8 is 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 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.

RESEARCH 2ROCESS:
Before embarking on the details of research methodology 4 techni2ues# it seems appropriate to present a brief overvie! of the research process. )esearch process consists of series of actions or steps necessary to effectively carry out research and the desired se2uencing of these steps. ,ne should remember that the desired se2uencing of these steps. ,ne should remember that the various steps involved in a research process are not mutually e>clusiveK nor are they separate and distinct. &hey do not necessarily follo! each other in any specific order and the researcher has to be constantly anticipating at each step in the research process. "o!ever# the

190

follo!ing order concerning various steps provide a useful procedural guideline regarding the research process

DEFINING THE 2RO1"E#:

&he objective of the project !as to undertake a study on financial Management and cost account# !ith a vie! to kno! the improvement in gro!th of "A:

DE7E"O2 A RESEARCH DESIGN:

)esearch design is the conceptual structure !ithin !hich research is conductedK it is basically the blueprint for the collection of data# measurement it analysis of data. A research design is the arrangement of conditions for collection and analysis of data in a manner that aims to combine relevance to the research purpose !ith economy in procedure. My research design is of descriptive type. A descriptive research includes survey fact 3 finding 4 en2uiries of different kinds# !ith a major purpose of description of affairs as it e>ists at present.

197

DA&A +,::?+& ,BA on the basis of secondary data SECONDAR8 DATA: nternet Books

198

DATA CO""ECTION:
&he task of data collection begins after a research problem has been defined and research design / plan chalked out. =hile deciding about the method of data collection to be used for the study# t!o types of data are usedA a1 SECONDAR8 DATA on the other hand are those !hich have already been collected by someone else and !hich have already been passed on. b1 2ROCESSING > ANA"8SIS OF DATA: &he data# after collection# has to be processed and analysed in accordance !ith the outline laid do!n for the purpose at the time of developing the research plan. &his is essential for a scientific study and for ensuring that !e have all relevant data for making comparisons and analysis.

199

19:

E7PEN ITURE FOR T0E LAST 8 %EARS

n :akhs 8EAR E62ENDITURE 0E-09 2A70 09-B0 2A90 B0-BB ?E70 BB-B2 ?EB@

*DDD (.DD (DDD '.DD 'DDD %.DD %DDD .DD D D8CD9 D9C%D %DC%% %%C%' ?SP?BD &E)?

19;

PROFIT FOR T0E LAST 8 %EAR

n :akhs %%C%' .9

@?A) P),F &

D8CD9 (5D

D9C%D (*.

%DC%% *78

A00 @A0 @00 ?A0 ?00 2A0

2ROFIT

200 BA0 B00 A0 0 0E-09 09-B0 B0-BB BB-B2

192

Bi(&iograp2)
"A: ?mployee<s "andbook Budget Manual CC "A: +osting 4 Pricing Manual CC "A: Financial Management A Mr.D.).Bahak Financial Management A Mr. Arun Barula 4 Mr. G. :al!ani

194