FYP Study Budget Budgetary Control

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Topic Study of Budget and Budgetary Control
Name Anuprita Ashok Kadu
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Table of Content
Sr No 1 2 3 Particulars Research Methodology Introduction to Fertilizer Industry Introduction to IFFCO Achievements Units Vision and Mission Statement Introduction to IFFCO KANDLA Introduction of F & A Department of IFFCO Introduction about Budget and Budgetary control Budget and Budgetary control at IFFCO KANDLA Revenue budget and Purchase budget Revenue / Purchase budget control Capital budget Capital budget control Loans and advances to employees budget Sales Budget Cash Budget Limitations of the study Findings and Suggestions Conclusion Recommendations Bibliography Statement and Annexure Explanation Annexures Page No. 6 7 9 13 14 15 17 21 26 48 51 59 62 73 76 78 79 80 81 83 84 85 86 108
4 5 6 7 8 10 11 12 13 14 15 16 17 18 19 20 21 21
PREFACE
This report is prepared at Indian Farmers Fertilizers Co-operative Limited (IFFCO), KANDLA Unit on functional areas of IFFCO KANDLA. It contains the brief description of the company and all its departments. It also covers the different functions performed in different departments at IFFCO KANDLA.
The report contains the details regarding the information related to BUDGET AND BUDGETARY CONTROL Of Indian Farmers Fertilizers Limited (IFFCO KANDLA). In this report it is mentioned that how budget is being managed at Indian Farmers Fertilizers Co operative Limited (IFFCO KANDLA).
ACKNOWLEDGEMENT
Debts can be certainly repaid, but co-operation extended and the guidance given by someone can never be repaid. I owe special thanks to Vishwakarma Institute of Management, Pune for giving me an opportunity to learn practically about the happenings in the field and my college guide Ms. Sheetal Purohit, without the help of whom this training was impossible. I as a student of Vishwakarma Institute of Management am very grateful to IFFCO KANDLA for providing me the base to complete my project. I am thankful to Shri. S. Srinivasan (Sr. G.M.), for providing me an opportunity to conduct training program as a part of study and essential for our bright prospects. I deeply express my gratitude towards Shri. S.K. Singh (Sr. Manager, Training) for giving me the maximum co-operation without which, the training would have been impossible. I am thankful to Shri. V.J. Mankodi (Jt.G.M. F&A), for preparing training schedule for me. I take this opportunity to express my sincere appreciation and gratitude to Shri. H.T. Bhambhani (Sr. Accounts Officer F&A) whose friendly co-operation made this analysis and study of project data information regarding IFFCO KANDLA a more fascinating and interesting experience. I express my sincere thanks to all employees of F & A Department of IFFCO KANDLA, who briefed me procedures and practices in the sections sparing time from their heavy work schedule and busy work hours.
I would also like to thank the Systems Department of IFFCO Kandla who provided me with the necessities like internet connection, computers and printing & stationery facilities on office expenditure. I would thank all those whose names and references does not occurs above but without their help and support it would not have been possible to carry out my training.
- Anuprita A Kadu
EXECUTIVE SUMMARY
Indian Farmers Fertilizer Co-operative Limited (IFFCO) today is a leading player in Indias fertilizer industry and is making substantial contribution to the efforts of Indian Government to increase food grain production in the country. Indian Farmers Fertilizer Co-operative Limited, popularly known as IFFCO emerged as a pioneer venture on the horizon of fertilizer production and marketing with the objective of attaining selfsufficiency in food grain production. Now a day there are 37,424 co-operative societies associated with IFFCO. They have diversified their business in the field of insurance, power plant and raw material production. This report is a study of BUDGET & BUDGETARY CONTROL OF IFFCO KANDLA. It contains detailed information regarding various types of budgets pertaining to IFFCO KANDLA. In this report I have mentioned how various types of budgets are prepared and how they are controlled. I have also studied the procedures and steps for preparing the budget and steps taken to control it. In this report I have covered all types of budgets prepared at IFFCO KANDLA namely Revenue budget, Purchase budget, Capital budget, Loans and Advances to employees. I have also mentioned various formats and tables Showing the Budget and Budgetary Control procedure.
RESEARCH METHODOLOGY
The Research method which I had adopted at IFFCO was conducting exploratory research and personal interviews. Exploratory research design is the unstructured and informal research undertaken to gain background information about the organization. Under exploratory research, the method adopted here was conducting experience survey. Experience survey had been conducted in order to gather information from the knowledgeable person on the issues relevant to the research project.
Required Information & Data
I have taken nearly every data from the annual reports and other related sources.
INTRODUCTION OF INDIAN FRTILIZER INDUSTRY

The Indian fertilizer industry has been meeting a substantial portion of the growing demand of fertilizer now. As on today the demand-supply gap in the fertilizer industry is very marginal.
The industry had a very humble beginning in 1906, when the first manufacturing unit of Single Super Phosphate (SSP) was set up in Ranipet near Chennai with an annual production capacity of 6000 M.T. The Fertilizer and Chemicals Travancore ltd. (FACT) at Cochin in Kerala and the Fertilizer Corporation of India Ltd, Sindhri in Jharkhand were the first large sized fertilizer plant set up in forties and fifties with a view to establish a base for industrialization and achieving self-sufficiency in food grains. The seventies and eighties witnessed a significant addition to the fertilizer industry.
Presently there are 66 large sized fertilizer plants in the country manufacturing a wide range of nitrogenous, phosphatic and other complex fertilizer. Besides there are about 80 medium and small-scale single super phosphate plants.
As of now the country is almost self-sufficient in case of nitrogen but in case of phosphates the scarcity of domestic raw material constraints the attainment of selfsufficiency in the country.
Indigenous rock phosphates supplies meet only a small percentage (5%-10%) of total requirement of P2O5. also there are no known commercially exploitable reserves of potash in the country and hence the entire requirement are met through imports.
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INTRODUCTION OF IFFCO: Indian Farmers' Success Story
During mid- sixties the Co-operative sector in India was responsible for distribution of 70 percent of fertilizers consumed in the country. This Sector had adequate infrastructure to distribute fertilizers but had no production facilities of its own and hence dependent on public/private Sectors for supplies. To overcome this lacuna and to bridge the demand supply gap in the country, a new cooperative society was conceived to specifically cater to the requirements of farmers. It was a unique venture in which the farmers of the country through their own Co-operative Societies created this new institution to safeguard their interests. The number of co-operative societies associated with IFFCO has risen from 57 in 1967 to 38,155 at present.
Indian Farmers Fertilizer Co-operative Limited (IFFCO) was registered on November 3, 1967 as a Multi-unit Co-operative Society. On the enactment of the Multistate Co-operative Societies act 1984 & 2002, the Society is deemed to be registered as a Multistate Co-operative Society. The Society is primarily engaged in production and distribution of fertilizers. The bylaws of the Society provide a broad frame work for the activities of Indian Farmers Fertilizer Cooperative Limited as a Co-operative Society.
IFFCO commissioned an ammonia - urea complex at Kalol and the NPK/DAP plant at Kandla both in the state of Gujarat in 1975. Ammonia - urea complex was set up at Phulpur in the state of Uttar Pradesh in 1981. The ammonia - urea unit at Aonla was commissioned in 1988.
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In 1993, IFFCO had drawn up a major expansion programme of all the four plants under overall aegis of IFFCO VISION 2000 . The expansion projects at Aonla, Kalol, Phulpur and Kandla have been completed on schedule. Thus all the projects conceived as part of Vision 2000 have been realized without time or cost overruns. All the production units of IFFCO have established a reputation for excellence and quality. A new growth path has been chalked out to realize newer dreams and greater heights through Vision 2010 which is presently under implementation. As part of the new vision, IFFCO has acquired fertilizer unit at Paradeep in Orissa in September 2005. As a result of these expansion projects and acquisition, IFFCO's annual capacity has been increased to 3.69 million tonnes of Urea and NPK/DAP equivalent to 1.71 million tonnes of P2O5.
Head Office
Kandla
Kalol
Aonla Marketing Aonla -1 Aonla-2 Phulpur-1
Phulpur
Phulpur-2
IFFCO has made strategic investments in several joint ventures. Godavari Fertilizers and Chemicals Ltd (GFCL) & Indian Potash Ltd (IPL) in India, Industries Chimiques du Senegal (ICS) in Senegal and Oman India Fertilizer Company (OMIFCO) in Oman are important fertilizer joint ventures. Indo Egyptian Fertilizer Co (IEFC) in Egypt is under implementation. As part of strategic diversification, IFFCO has entered
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into several key sectors. IFFCO-Tokio General Insurance Ltd (ITGI) is a foray into general insurance sector. Through ITGI, IFFCO has formulated new services of benefit to farmers. 'Sankat Haran Bima Yojana' provides free insurance cover to farmers along with each bag of IFFCO fertilizer purchased. To take the benefits of emerging concepts like agricultural commodity trading, IFFCO has taken equity in National Commodity and Derivative Exchange (NCDEX) and National Collateral Management Services Ltd (NCMSL). IFFCO Chattisgarh Power Ltd (ICPL) which is under implementation is yet another foray to move into core area of power. IFFCO is also behind several other companies with the sole intention of benefiting farmers.
The distribution of IFFCO's fertilizer is undertaken through over 37,000 cooperative societies. The entire activities of Distribution, Sales and Promotion are cocoordinated by Marketing Central Office (MKCO) at New Delhi assisted by the Marketing offices in the field. In addition, essential agro-inputs for crop production are made available to the farmers through a chain of 158 Farmers Service Centre (FSC). IFFCO has promoted several institutions and organizations to work for the welfare of farmers, strengthening cooperative movement, improves Indian agriculture. Indian Farm Forestry Development Cooperative Ltd (IFFDC), Cooperative Rural Development Trust (CORDET), IFFCO Foundation, Kisan Sewa Trust belongs to this category. An ambitious project 'ICT Initiatives for Farmers and Cooperatives' is launched to promote e-culture in rural India. IFFCO obsessively nurtures its relations with farmers and undertakes a large number of agricultural extension activities for their benefit every year.
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At IFFCO, the thirst for ever improving the services to farmers and member cooperatives is insatiable, commitment to quality is insurmountable and harnessing of mother earths' bounty to drive hunger away from India in an ecologically sustainable manner is the prime mission. All that IFFCO cherishes in exchange is an everlasting smile on the face of Indian Farmer who forms the moving spirit behind this mission.
IFFCO, to day, is a leading player in India's fertilizer industry and is making substantial contribution to the efforts of Indian Government to increase food grain production in the country.
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ACHIEVEMENTS
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UNITS OF IFFCO Kandla
Phulpur
Kalol
Aonla
Paradeep
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VISION AND MISSION

VISION
.To augment the incremental incomes of farmers by helping them to increase their crop productivity through balanced use of energy efficient fertilizers, maintain the environmental health and to make cooperative societies economically & democratically strong for professionalized services to the farming community to ensure an empowered rural India.
MISSION
To provide to farmers high quality fertilizer in right time and in adequate
quantity with an objective to increase crop productivity To make plants energy efficient and continually review various scheme to
converse an energy Commitment to health, safety, environment and forestry development to
enrich the quality of community life Commitment to social responsibility to strong social fabric To institutionalize core value and create a culture of team building,
empowerment and innovation which would help in incremental growth of employees and enable achievement of strategic objectives
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Building a value driven organization with an improved and responsive
customer focus. A true commitment to transparency, accountability and integrity in principle and practice To acquire, assimilate and adopt reliable efficient and cost effective
technology and sourcing raw materials of production of phosphatic fertilizers at economical cost by entering into joint venture outside India in the country To ensure growth in core and non-core sector A true cooperative society committed for fostering cooperative movement
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INTRODUCTION OF IFFCO-KANDLA
Kandla Unit Location State State Capital District Distance from New Delhi Distance from Mumbai Nearest Airport Railway Station Gujarat, India Gandhinagar Kachchh Approx. 1100 kilometers by rail Approx. 800 kilometers by rail Kandla Airport, Near Gandhidham,and Bhuj Airport 65 KM from Gandhidham. Gandhidham ( 12 Km from plant and 3 Km from IFFCO's township at Gandhidham) and Kandla (3 Km from the plant) Adjacent to Kandla Port Trust on National Highway 8-A , 365 Km. from Ahmedabad 70.61 Hectares 79.65 Hectares 47 (Max.) in summer to 7 (Min.) in winter. Scarcity 70o 13'26" E 23o 00'00" N IFFCO, Kandla Unit, Post BoxNo.12, Gandhidham - 370201, Kandla (Kachchh), Gujarat, INDIA :91-2836-270381,-270382,-270539 ,-270639, -270641. : 91-2836-270642, -270658, -270685. : www.iffco.nic.in : iffco_kandla@iffco.nic.in
Road Area under Plant Area under Township Temperature ( o C ) Rainfall (mm) Longitude Latitude Address
Phones FAX Website E-Mail
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IFFCOs NPK plant is located on the water front adjacent to Kandla Port
Trust Oil Jetty. The plant was built at a cost of about Rs. 30 crores with two streams (called train A and train B) and with the licensed capacity of 127000 tonnes of P2O5. This plant was designed by the M/s Dor Oliver-Inc., to produced three grade ok NPK based on DAP, the plant was commissioned on 26th November, 1974 and its commercial production started on 1st January, 1975.
With increase in demand for complex fertilizers, the capacity of NPK has
been doubled at a cost of about Rs. 28.6 crores. Two more streams (Train C and Train D) had been added with the increased licensed capacity from 127000 MT P2O5 to 260000 MT P2O5 per annum. The new two streams are called Kandla Phase II was completed one month ahead of the projected schedule. This is a rare phenomenon not only in India but in entire South East Asian region. Kandla Phase II commissioned on 4th June, 1981 with the production record for IFFCO. The production of Kandla Phase II was started from 6th September, 1981.
IFFCO went for expansion of their unit at Kandla in 1996-97. Kandla
phase-II NPK/DAP project conceptualized the setting up of two additional streams (train E and train F) for manufacture of the same grades of NPK/DAP fertilizers with an annual production capacity of 2,10,700 MTPA thus increasing the total capacity from 3,09,000 MTPA of P2O5 to 5,19,700 MTPA of P2O5. The actual cost of the project was Rs. 205.30 crores against a budgeted cost of Rs. 212.20 crores.
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The total annual production of the Kandla unit was 127000 MTPA as on
26th November, 1974 with two streams (train A and train B), which was increased by 182000 MTPA as on 6th September, 1981 by starting two more stream (train C and train D), which was further increase to 210700 MTPA as on 1999 by introducing two more streams (train E and train F). So currently the total production capacity of the both plant at Kandla unit is 519700 MTPA. Currently all six streams (train A, B, C, D, E and F) is working in its full-fledged capacity and giving its optimum output.
In 1974 when the Kandla Unit was started IFFCO was importing its raw
material with help of Kandla Port Trust Oil Jetty and currently Kandla unit has its own Oil Jetty
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Achievements of IFFCO Kandla Unit
Nineteen Safety Awards from National Safety Council - U.S.A. Fourteen Safety Awards from the National Safety Council, Bombay,
Government of India. Twenty six Safety Awards from Gujarat Safety Council, Baroda. Six Fertilizers Association of India (FAI) Awards for the best overall
production performance during the years 1981, 1982, 1996-97, 1997-98, 1998-99 & 2002-03. One National Productivity Council (NPC) Best Productivity Award for the
year 1997-98 in the category of Fertilizers Industry - Phosphatic Sector presented in August'2000. One Safety award from FAI for Excellence in Safety for 1999-2000. One Safety award from Directorate General Factory Advice Service &
Labour Institutes, Ministry of Labor, Government of India Runner, National Safety Award 1999. One Labour, Government of India Runner, National Safety award - 1999"
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INTRODUCTION TO F & A DEPARTMENT OF IFFCO
INTRODUCTION
Finance is the life blood of the business. According to Howard and Upton Finance is that administrative area or set of administrative function in an organization which relate with the arrangements of cash and credit so that the organization may have the means to carry out of its objective as possible.
FUNCTIONS OF FINANCE AND ACCOUNTS DEPARTMENT
Finance & Accounts Department of KANDLA Unit is controlled by Head Of the Department i.e. CM (F & A). His main function is to co-ordinate all activities related to Finance & Accounts and report to Head Offices Finance & Accounts Department / Finance Director as well Unit Head. Finance & Accounts Department function various type of activities as per the Guidelines issued by Head Office, Purchase Procedure, Service Rules, Powers of officer etc.
At present to carry out all the related activities, following Four sectional heads are reporting to him for work connected to their Sections. All the four sectional heads independently report to Departmental Head. However, in case, Departmental Head happens on tour or on leave, the next senior sectional head takes the charge of the
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department and remaining here sectional head will report to him for all the work connected to their Sections. Finance department comprises of PAY ROLL SECTION RAW MATERIALS FIXED ASSETS & INSURANCE WORKS BILL SECTION PURCHASE BILL SECTION BOOKS & BUDGETS FINANCIAL CONCURRENCE
PAY ROLL SECTION Pay roll section takes care of all the financial issues of employees in co-ordination with Administrative & Personnel Department. Its functions includes management of salaries, TA/DA, loans & advances, misc payment related to employees, Perk/There allowance payments etc. Here records of each employee are maintained regarding basic pay, leave encashment, medical, salary, increments, promotion based perks , etc.
RAW MATERIALS Different types of Raw Materials that are required at IFFCO KANDLA Unit are as follows :
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1. 2. 3. 4. 5. 6.
P2O5 Imported Ammonia Imported & Indigenous Potash - Imported MAP - Imported Urea Kalol Filler
Raw Material section in F & A department does the accounting of above mentioned raw material which includes receipt of raw material are purchased, monthly consumption as per the production department and payment to the suppliers.
MISCELLANEOUS ACCOUNTS The miscellaneous jobs can be broadly divided into following categories: 1. 2. 3. Passing of bills of miscellaneous nature; Accounting of cash imprest and advances for expenses; Miscellaneous recoveries from outside agencies.
Miscellaneous bills includes rates contracts for service contract for air conditioner, water coolers, weighing machines, franking machines, knitting of chairs, etc. Others miscellaneous bills includes telephone rentals, STD calls, local calls, teleprinters, fax, service bills, advertisement bills, electricity bills, printing and block making bills, bills of travel agents, bills of canteen purchases, etc. Annual Contracts and Hiring of taxi, motors, etc. is also included in this.
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WORKS BILLS Work bills section is entrusted with the task of checking and authentication of APF received from various departments such as Civil, Plant, and Township etc. They have to keep record and maintain account. They have to verify W.R.T. measurements, Tax provisions like TDS and other deductions like EMD, Security and penalty etc.
PURCHASE BILLS In purchase bill, treatment is given to the bills on purchase of machinery and tools and spares etc. for accounting requirements and book keeping as well as record maintenance and tax deductions and authentication of AFP on purchase of Goods and Services.
FINANCIAL CONCURRENCE Financial concurrence deals with crosschecking and green signaling the requisition for purchases made by various indent departments of the unit. They check for the availability of budget and ascertain its necessity and critically for regular and smooth operations of the plants and activities of various departments.
BOOKS & BUDGETS Books and budget deal with revenue budget compilation, monitoring and control, reconciliation of inter unit accounts, maintenance of books of accounts and submission of
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monthly / quarterly / annual reports, COP processing and attending internal / statutory / tax auditors.
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BUDGET AND BUDGETARY CONTROL
INTRODUCTION
Complexities are increasing in running the modern business and management has to face a number of problems, which are to be solved with utmost care. Number of new tools and techniques are being evolved and used by management in modern times to solve such complex problems of business. Budgeting is one of such effective tools in the hands of management. Now planning has become an inevitable part of business management. They have come to realize that success in business depends to a large extent on the planning of its activities with great care and foresight. The management gets ready to face the challenges of future contingencies by peeping into the future. They are thus able to keep off the heavy financial losses and fatal errors. It is through budgeting that the management is able to guide the business in proper direction. Budgeting is both planning and controlling, two most important functions of management. It is perhaps a very important tool for achieving business objectives.
What is Budget ?
A budget is a financial and / or quantitative statement, prepared prior to a defined period of time, of the policy to be perused during that period for purpose of attaining the given objective.
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An analysis of this definition will reveal the essential features of the budget, namely that:
1. 2. operated. 3. 4.
A budget can be expressed in terms of money or quantity, or both. It should be developed prior to the period during which it is to be
It is set for definite period. Before its preparation, the objective to be attained and the policy to be
pursued to achieve that objective are required to be laid down.
The Objectives Of Setting The Budgets:
A budget is blue print of desired plan of actions or operations. Plans covering the entire organization and all its functions like purchase, production, sales, financial management, research & development are expressed through budget. The budget serves as a declaration of policies and also defines the objective for executives at all levels of management. Budgets provide a means of co-ordination of the business as a whole. In the process of establishing budgets, the various factors like production capacity, sales possibilities, are procurement of material, labour, etc. are balanced and co-ordinate so that all the activities proceed according to the objective.
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The budgets inculcate team spirit and are like putting so many heads together to solve a common problem. Budgets are means of communication. Complex plans lead down by the top management are passed on to those whole are responsible for putting them into action. Budgets facilitate centralized control with delegated authority and responsibility. Group according to the responsibilities of different executive levels, they facilitate decentralization of work. Budgets are instruments of managerial control by means of which the management can measure performance in every part of the concern and take corrective actions as soon as any deviations from budgets comes into light.
Budgeting:
Institute of Cost and Management Accountants, England defines A Budget is a financial and/or quantitative statement, prepared and approved prior to a defined period of time, of the policy to be pursued during that period for the purpose of attaining objectives. It may include income, expenditure and employment of capital
Budgeting is an exercise in allocating scarce economic resources among alternative uses. The necessity of budgeting arises out of the scarcity of economic resources and the number of alternative uses in which these scarce resources can be deployed.
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Concepts of budgeting:
In brief, Budgeting can be defined as The statement of plan of activities of an Organization expressed in financial and quantitative term for a definite future period approved in advance by Top Management. Objectives of budgeting:
The following are some of the important objectives of budgeting: 1. 2. 3. of plants. 4. 5. To ensure adequate return on capital employed. To identify and bring to the light areas where prompt action/ remedial To prevent wastes To control economic expenditures To ensure availability of adequate working capital for efficient operation
actions are required to be taken up by the management
Budget Period:
Budget can be prepared for any definite future period. Generally period of 12 months is treated as normal period for the purpose of budgeting. In IFFCO budgeting exercise is done for the financial year April to March every year.
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Types of Budget:
There are various types of budgets, which are formulated in various organizations for different purpose. In IFFCO budgeting exercise is done for the area as per the chart given bellows
Corporate Plan
Sales Budget
Production Budget
Capital Budget
Loans to Employees Budget
Cash Budget
Consumption Budget
Procurement Budget
Although the smallest of small business may be able to compile a budget for the business in one document, other businesses commonly split up the budget into areas so that it is more manageable. Such areas will include sales, production, marketing and so on. Once these individual budgets has been created, they will all come together to create the Master Budget.
Budgeting Cycle: Four distinctive phases can be identified in the budgeting process as follows: 1. 2. 3. 4. Budget formulation Implementation Control Evaluation.
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Budget Interlinked:
Sales Budget
Loan to Employees Budget Capital Expenditure Budget Marketing Budget
Head Office Administration Cost of Production Budget Production Budget Purchase Budget Consumption Budget Overheads Budget
Cash Budget
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Steps in Fixation of Budget.
At IFFCO the following steps are followed for compilation of Budgeting procedure:
1.
Fixation of Targets
A.
While initiating the budgeting exercise at the head office level, sale targets
are fixed in consultation with marketing division. B. Production targets are fixed in consultation with Unit Head after giving
due consideration to various constraints some of which are given below: Plant capacity i.e. production and storage capacities for raw materials, finished stock etc. Capacity utilization. Availability of raw materials particularly imported raw materials like phos. Acid, Ammonia, Potash etc. Availability of power and related policy of Gujarat Electricity Board. Availability of water and related policy of state water supply board. Availability of packing materials. Industrial relation position. Availability of railway wagons and other transportation media for distribution of finished products form plants etc.
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2. Communication of Targets. After taking into consideration the above parameters and constraints, Units are advised to communicate their production plan, consumption norms and other proposals which are reviewed at Head Office. Having due regard to other constraints and parameters with in the knowledge of top management, production targets are fixed for individual production units and same are communicated to concerned units. Norms of consumption of raw materials, utilities, fuel and other items proposed by the units are also reviewed and after obtaining approval of the top management, the same are also communicated to the concerned units.
Detailed circular for initiating the budget exercise is issued to all the units by Executive Director (Finance) from Head office. The circular contains necessary
information and guidelines required for the purpose of preparation of budgets.
Commercial Department at Head office intimates anticipated rates and quantities of major raw material for adopting the same in the units budgets proposals particularly in respect of the following items: 1. 2. 3. 4. Imported Phos.Acid (P2O5) Imported Ammonia Imported MOP (Potash) Bags and other packing materials.
Part of ammonia requirement for Kandla unit is met from Kalol unit. Balance requirement is either imported or procured indigenously from KRIBHCO, GNFC and
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other suppliers. Quantity requirements to be met for ammonia from different sources are intimated by Head Office. Commercial department consults to Head Office finance department. Urea requirement for Kandla unit is partially fulfilled from Kalol/Aonla Plants & Partially by way of Import.
3. Delegation of responsibility for formulating revenue budget proposals at unit level.
On receipt of the communication from Head office regarding formulation of budget, a meeting is arranged by Unit Head with all Head of the Departments to explain various important aspects of budget to be prepared. The compilation of revenue budget is coordinated by Head of Finance and Accounts Department, who is responsible for collecting the required data from all the concerned and compiled budget proposals, discusses the same with the unit head and submits the budget proposal to Head Office within the scheduled date prescribed in the Head office circular/communication.
Budgeting process at unit level:
Based on the preliminary discussion, detailed circular is issued by the Unit Head for initiating budgeting exercise at unit level to all the Head of Department. The budgeting exercise at unit level to all the concerned departments like sanctioned budget and actual expenditure up to the period of the year and other particulars/information are furnished to the concerned departmental Heads and they are advised to formulate the budget requirements for their activities on Conventional Budgeting Concept i.e. not by adopting percentage increase or decrease on the past data but all activities proposed to be
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taken up for the ensuring budget period, are required to be identified and budget requirements are required to be furnished accordingly with complete details and working separately item wise for each activity proposed to be taken in the ensuring budget period.
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CONTRIBUTION OF VARIOUS DEPARTMENTS IN BUDGETING PROCESS

Contribution of various Departments for the purpose of compilation of budget is as described below:
1. PRODUCTION DEPARTMENT
Production Department is responsible for calculation the requirement in terms of the quantity for the budgeted level of production based on approved consumable items in respect of the following major inputs:Raw materials Chemicals Water Fuel oil- LSHS Packing Materials- bags & stitching threads In addition to the above, production department is also responsible for furnishing the following information:
I.
Transportation cost of various raw materials and utilities e.g.
transportation cost of urea from Kalol to Kandla, cost of transportation of potash from jetty to plant site, transportation of fuel oil from oil installation to plant site etc. II. III. IV. Cost of hose handling for raw material receipts. Cost of internal movement of potash. Cost of internal movement of the finished product within Plant. 38
V. VI.
Cost of product bag handling including empty bags. Survey fees for Ammonia and P2O5 and other cost for Raw Material,
packing materials, utilities etc. VII. Consumption of chemicals & deformer.
While estimating the budgeting requirement of various raw materials, utilities, packing materials etc. the following points are considered:
I.
Quantities for various raw materials, utilities, and packing materials etc.
Rehired for production of finished products are calculated by applying the approved norms of consumption. II. In case of raw materials and utilities having more than one source of
supply for example, receipt of Ammonia, this has more then three sources viz. Kalol unit, Import and Indigenous supply form GNFC, KRIBHCO etc, the total production is first ascertained. Then the total requirement is broken into various sources as per Head Office guidelines /price considerations. If abnormal variations are observed in the
consumption norms as compared to the earlier periods actual, details/justifications are recorded for the same.
2. MAINTENANACE DEPARTMENT: Maintenance Department is responsible for estimating the expenditure of repairs and maintenance of plant and machinery equipments for mechanical maintenance, instruments maintenance & Electrical maintenance. The Electrical section of the
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maintenance department for plant & Township power requirement also estimates consumption of power for the budgeted level of production. Estimated power cost is worked out for the ensuing budget period by Electrical Maintenance Department.
Detailed budget proposals for repairs and maintenance of plant & Machinery equipment is worked out item wise by the maintenance department under the following broad heads:
Consumption of Stores and Spares Maintenance works to be done through contractors/under SOR jobs. Procurement budget requirement for purchases of non-stock items of stores and spares for maintenance.
3. TECHNICAL SERVICE DEPARTMENT:
PROCESS ENGINEERING SECTION Process engineering section of technical services department which is responsible for compiling record of Daily Production, production reporting, Monitoring the consumption of Raw materials, Flues and other process parameters, is also responsible for compiling actual consumption norms of all the raw materials, utilities fuel and other inputs consumed in the production process on day to day basis.
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Budgeted norms of consumption of various inputs are compiled and intimated by process engineering department which are adopted while preparation of budget after approval of top management.
GENERAL ENGINEERING SERVICES SECTION The General Engineering services section is responsible for introducing new and improved equipments and instruments coming out as a result of technological development for increasing efficiency and decreasing cost of production. Hence many of the budget requirements of engineering service departments are of capital nature. However, for routine management works of Technical Service Department, drawing, photocopying and other facilities, revenue budget requirements are worked out and furnished by engineering services section.
SYSTEMS SECTION This section is responsible for furnishing budget requirement for EDP charges, repairs and maintenance expenditure for systems and resultant procurement budget for the same.
LABORATORY SECTION This section is responsible for furnishing budget requirement for laboratory for testing of input and finished product and R&D activities carried out at Plant level.
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CIVIL DEPARTMENT Civil section under the Technical Service Department is responsible for civil maintenance in plant and township. Their budget requirement for maintenance of
buildings, roads, drains and culverts, railway siding and other facilities of civil nature in plant and township are worked out and item wise details are furnished under the following break up: Consumption of stores spares and steel consumption. Contractual jobs Procurement budget for non-stock items of spares and Stores.
TRAINING SECTION
This section compiles budget requirement for training activities for in house/outside training programmes and corporate training programmes to be conducted at unit level and furnished budget requirements for the same and other related activities.
4. PERSONNEL & ADMINISTRATION DEPARTMENT Repairs and Maintenance for furniture, fixtures and office equipments and other appliances at Plant and at Guest House and other locations in Township under their charge. Expenditure on maintenance and up keep of township properties. Estimation of salaries, wages, allowances, overtime, medical and other welfare expenses, awards etc expenditure on direct and indirect and indirect employees.
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Other establishment expenses like communication expenses printing & stationery, rents, rates & taxes vehicles hire charges and running expenses, courtesy and entertainment expenses, legal expenses, celebration expenses, traveling and conveyance expenditure, professional charges and such other expenditure, which are directly controlled by personnel & administration department.
5.
MATERIALS DEPRTMENT :
Materials Department is responsible for furnishing budget requirement for stores overheads expenses. It also controls the expenditure on purchase of stock items to be kept in main Stores for which procurement budget is furnished by materials department after working out normal stock levels and estimated consumption for stock items within the budget period.
6.
FINANCE & ACCOUNTS DEPARTMENT :
In addition to coordinating compilation and submission of the annual budget, Finance & Accounts Department is responsible for estimating the following:
INCOME/OTHER REVENUE In respect of receipts from employees e.g. Interest on house building Loan, conveyance advance etc. The budget estimate is prepared in consultation with personnel & Administration Department. Other revenue items are estimated based on the past data and operation estimated for the ensuing budget period.
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INSURANCE EXPENSES This is estimated in consolation with the Engineering Services Department
DEPRECIATION ON FIXED ASSETS On receipt of detailed budget requirement for variable cost. Fixed cost and overheads from the concerned section/department, Finance & Accounts Department is arranging the compilation of Departments wise summary of fixed cost and overheads.
Initial discussions are held at each department level with concerned HODs and Sectional Heads. Section wise individual items of budget requirements are discussed. Supporting details and documents wherever required are obtained. Revisions are made wherever required based on the discussion.
After the meeting with the concerned departments for finalization of departmental budget proposals for revenue budget and procurement budget, the following draft budget documents are prepared for the unit operations. Revenue Budget. Procurement Budget Since variable cost part of the operations for revenue budget is worked out based on the production plan and consumption norms and other parameters already approved by the top management and by adopting procurement rates and quantity requirements intimated/finalized by Head Office, the same is compiled accordingly as per Head Offices directives.
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Fixed constant and overheads portion of the revenue budget is further discussed in the meeting of all Heads of Departments with Unit Head. Individual items of fixed cost and overheads are reviewed by the Unit Head with reference to planned production priorities, resources constraints, maintenance requirement and other parameters and after discussion; fixed costs and overheads part of the revenue budget are finalized. After Compiling of Production/Consumption/Purchase Budget, same is sent to Head Office for further compilation & Approval of Board of Directors.
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PROCEDURE FOR USING THE BUDGET APPROVED.
After approval of budget by board of directors same is intimated to Unit Head and concerned Finance Head of the Unit. In turn finance Head inform the Budget allocation to respective Departmental Heads/Section Heads.
An entry for each individual department is made with there respective code provided to the individual department in FAS (Financial Accounting System) Department wise/Section wise. After receiving intimation/ allocation of Budget from Finance all actual user/indenting department make their requirement on monthly basis. All stock items are controlled by Stores Section of Materials Department. Where as Non-stock items are purchased by respective section/department through Materials Department (Purchase Section).
Stores Section raise MPR based on Safety Level / Re-Ordering level. Other user sections raise MPR based on as & when on requirement basis. All Work of Indent (WOI) is raised by actual user only. Based on MPR received by Materials Departments (Purchase Section) take action for sending enquires to Approved Vendors, receive Quotation, prepare QCS (Quotation Comparative Statement) & place Purchase/Work Orders after obtaining Financial Concurrence & Budget availability.
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All MPR/WOI related to Capital nature are routed through Finance by obtaining Budget Availability Certification, where as all MPR/WOI related to Revenue nature items are directly forwarded to purchase section. At the time of placing order Financial Concurrence / Finance Department assures & made entry in FAS for control of Budget.
REVISION OF BUDGET ESTIMATES
After approval of budget estimates for the ensuing period, actual expenditure vis-vis budget allocations are reviewed on monthly basis and quarterly report is submitted to Head Office as above.
Due to various factors like raw materials constraints, economic factor, marketing factors and other variable factors, generally necessity arises for revision of the approve budget estimates based on the actual trend observed, since budgeting process for the ensuing period normally start about 5/6 months before start of the budget period.
Accordingly, there is a system of revision of the budget proposals. Normally actual expenditure for the first 6 months are reviewed and based on the same, revised estimates for the next six months are compiled.
Budgeting process for revised revenue budget is more or less same as of compiling the revenue budget. The following steps are taken:
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Revised production plan, consumption norms and other parameters based on actual for the first six months along with revised estimates for next 6 months are worked out and communicated to Head Office for approval. On receipt of approval from Head Office, actual for first six months are compiled by Finance & Accounts Department costs and fixed cost and overheads is furnished to the concerned departments to work out their revised budget proposals for next six months period.
Concerned departments are arranging review of actual performance against budget provision for the first six months and rework the requirements for the next six months based on approved revised production level and other norms.
The revised budget requirements if any along with the complete justifications are furnished by the concerned departments to Finance & Accounts Department. Wherever, actual expenditure against budget requirement is very much on positive or negative side, detailed justification/reasons of the same along with the revised budget requirements, if any, are to be furnished.
Commercial Department of Head Office is furnishing quantitative requirement and estimated rates of raw materials utilities, packing materials etc. Applicable for the next six months, Kalol unit from where part of ammonia requirements and total urea
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requirements for production process of KANDLA unit are met intimates revised transfers quantity price in respect of ammonia and urea to be adopted for revised budget proposals.
Based on the above, revised budget proposals are compiled. The fixed cost and overheads are thoroughly discusses with concerned HODs and with Unit Head and after approval, the following documents are prepared and submitted to Head Office.
1. 2.
Revised Revenue Budget. Revised Purchase Budget.
On approval of the revised budget, monthly break-up of fixed cost and variable cost are also worked out and submitted to Head Office for approval. On approval, budgetary control is exercised on monthly basis based on the revised monthly budget allocations.
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BUDGET AND BUDGETORY CONTROL AT IFFCO: KANDLA UNIT
METHOD OF BUDGETING AT IFFCO-KANDLA:
IFFCO-KANDLA follows Zero Based Budgeting system to prepare its budgets
What is Zero Based Budgeting????
The technique of Zero Based Budgeting starts with the premise that the budget for next period is Zero so long the demand for a function, process, project, or activity is not justified for each rupee from the first rupee up. The assumption is that without such a justification, no sending will be allowed. The burden of proof thus shifts to each manager to justify why the money should be spent to all and to indicate what would happen if the proposed activity is not carried out and no money is spent. In this way, he is required to carry cost-benefit analysis of each of the activities etc. under his control for which he is responsible. Such analysis would reveal that some activities may be eliminated or curtailed or made into productive and profitable ones. Thus Zero Based Budgeting affords a choice amongst the alternatives so that the activities would be selected in the order of their importance. However, Zero Based Budgeting is particularly suitable discretionary cost areas such as marketing, administration, production services, research, etc. and in Govt.
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departments where the decision for the extent of spending rest with the management or authorities and it is here that each rupee of the budget had to be justified.
Zero Based Budgeting at IFFCO???? IFFCO as whole follows Zero Based Budgeting system. As IFFCO-KANDLA is a manufacturing Unit and it is also cost centre so in the process of conversion of raw material into finished goods cost cannot be zero because for the manufacture of goods for sale cost have to incurred for: Purchase of raw material like: Phosphoric Acid Potash Ammonia Urea Sulphuric Acid Filler MAP Utilities (power, fuel oil, water) Bagging
Such situations are met by IFFCO by asking the managers to determine the minimum or basic requirements for running their departments; any cost above the basic requirement would be treated as added increments which would be critically reviewed and justified, they are to be eliminated resulting in cost saving to IFFCO.
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At Kandla Unit, budget is prepared, got approved from Head Office and controlled at Plant level cost. Being Manufacturing Unit, budget is prepared only for Production activities. At Kandla unit following types of budgets are prepared. 1. 2. 3. Revenue & Purchase Budget Capital Budget Loans to Employees Budget
We can break the Budget Process into following stages. 1. Directors. 2. 3. budget. Approved budget to be allocated amongst actual user / indenters. Monthly / Quarterly / Yearly control on actual expenses v/s Proposal to be sent to Head Office for approval of Board of
We will see the above aspects in detail of various budgets in following pages.
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Section I
Revenue & Purchase Budget andBudgetary Control
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BRIEF DESCRIPTION OF REVENUE BUDGET
Revenue Budget is also called as Production Budget / Consumption Budget. All type of expenses pertaining to the concerned year and related to production activity whether direct expenses or indirect expenses are estimated in this budget. Budget is prepared for next financial year commencing from April to March.
PROCESS FOR PREPARATION OF BUDGET:-
1. 2. 3. 4. 5. 6.
Intimation from H.O. to send proposals for next financial year. Collection of various estimates from indenters / H.O. Collection of various data in specially designed statement / annexure. Put-up to Unit Head for consideration Meeting by unit Head with various HODs / SHs. Final proposal to be sent to H.O.
1. Intimation from H.O. to send proposals for next financial year:-
Generally in Oct / Nov, intimation is received from Finance Director, Head Office asking all manufacturing units / marketing offices to send their respective budgets. In this intimation all concerned are asked to submit data to respective Head of Finance at unit level. The Head of Finance of respective unit can compile the budget and sent it to Head
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Office through respective Unit Head. In this intimation, general guidelines and specific instructions are also issued to all units so that all units can keep uniformity in submitting their data.
2. Collection of various estimates from indentors / H.O.:On receipt of intimation from Head Office, Unit Head of Kandla Unit is intimating Finance and Accounts Department to compile Revenue Budget & put up the same to him for review and final decisions. On receipt of intimation from Unit Head, Finance and Accounts Department came into action to get all related details from various department / Head Office. Following are major informations which are to be collected from various Departments / Head Office:A. B. C. D. E. Production Targets. C& F Price of imported Raw Materials. Rates to be adopted for packing material. Exchange rates to be adopted for US $. Norms of actual input Qty of various raw material, utilities and Packing materials. F. G. Stream days estimates for production targets. All estimates of various types of direct / indirect expenses related to production activities.
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A: Production Targets. On receipt of above referred intimation from Head Office through Unit Head, Tech Department of Kandla Unit works out the production estimates for next financial year. Production Targets are estimated based on licensed capacity of production in terms of P2O5 output. At Kandla Unit, three type of fertilizer is produced 1. NPK (10:26:26) (Grade I) 2. NPK (12:32:16) (Grade II) 3. DAP (18:46:00)
Production is estimated in bulk keeping in the mind the term P2O5 ratio. In above fertilizer N stands for Nitrogen P stands for Phosphorous and K stands for Potash. DAP stands for Dia Ammonium Phosphate. Technical Department estimates grade wise production which normally equals for 100% capacity utilization in terms of P2O5 output. Technical Department before estimating estimate of production target keeps in mind the estimate of shut down of Plant due to shortage of raw material , shut down of plant due mechanical maintenance, power failure etc. This production estimates are sent by them to Tech service, H.O. through Unit Head for approval. Since production Targets are to be approved by Head Office, Head Office at the same time get sales estimates from their respective Central Marketing Office .Production Targets are reviewed by H.O. in consideration with sales Targets . Since production of
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various grades is to be done as per Market demand, Head Office is the final authority to approve Production Targets. On receipts of Production Target from Head Office, Tech services Department intimate the final Production Target to F&A Department.
B. C& F Price of imported Raw Materials To manufacture all the three type of Fertilizer, following Raw Materials are required:1. Phos Acid (P2O5) 2. Ammonia 3. Potash 4. Urea 5. MAP 6. Filler Since major Raw Materials like Phos Acid, Ammonia, Potash, Urea, MAP is imported by Head Office from various countries, Head Office is to provide the estimated C&F rate of above 5 Raw Materials (SrNo.-1 to 5) to Kandla Unit. Head Office intimate C&F cost per MT in US $ to Kandla Unit after considering long term contract with major suppliers , upward / downward trend of major Raw material cost in Global Market . C&F cost varies with various suppliers distance of loading port from Kandla Port & Credit facility for payment of C & F cost. (NH3) (MOP)
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C: Rates to be adopted for packing material Like major Raw Materials, Head Office also Procure / finalize Purchase Orders for purchase of packing material from indigenous suppliers. At Kandla Unit bags are procured in various sizes depending upon the general demand of packing materials i.e. HDPE Bags:HDPE Bags: 50 Kgs HDPE Bags: 40 Kgs HDPE Bags: 25 Kgs Head Office intimate per bag rate of above sizes to Kandla Unit after considering long term contract with major suppliers , upward / downward trend of above bags .
D: Exchange rates to be adopted for US $. At Kandla, major raw materials are imported and the C&F rate for above raw material is communicated by Head Office to Kandla Unit. All foreign exchange payments are done by Head Office, they intimate the Foreign Exchange Rate of US $ to be adopted for conversion of US $ into Indian Rupee. Head Office estimates the exchange rates in consultation with various Foreign Exchange Trading Banks, RBI Bulletin and also upward / downward trend of foreign exchange rate. This exchange rate is communicated to all units so that a uniform exchange rate can be applied to Foreign Exchange payments in respect of purchase of imported raw materials , Major Equipments , Spare Parts etc.
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E: Norms of actual input Qty of various R.M., Utilities and P.M. To ascertain the requirement of the input of the various Raw Materials, utilities and Packing Materials, norms are communicated by Tech Services Department to Head Office. Input norms means the Qty of input to get exact output results like Nitrogen, Phosphorous, Potash etc. as per ratio of individual grade. Also utilities norms indicate the respective units to be consumed for mixing of above raw material and packing norms means exact bags required to be packed for one MT fertilizer. Based on above, norms are estimated by Tech Services for following 1. Raw Materials Phosphoric Acid Ammonia Potash Filler MAP Urea
2. Utilities Power Water Fuel Oil
3. Packing Materials - HDPE Bags: 50 Kg - HDPE Bags: 40 Kg - HDPE Bags: 25 Kg
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F: Stream Days estimates for production targets Kandla Plant runs all the days in three shifts. To achieve the production target, Technical Department estimate the actual running of plant considering holidays, Shortage of raw materials, shut down of plant due to electrical maintenance, mechanical maintenance, power failure etc. These stream days figures are required for allocating various fixed expenses amongst total cost to grade wise cost. Stream Days varies with each grade wise production.
G: All estimates of various types of direct / indirect expenses related to Production To produce the targeted Production Raw Material, Utility and packing cost is derived based on production, norms and per MT / KL cost. Other than this direct cost, many fixed cost are involved to run plant. For this, all actual users / indenter estimate their area cost based on estimated requirement and previous / last 3 years actual expenses. Such type of expenses is booked in various account codes and further into respective fixed cost groups.
3: Collection of various data in specially designed statement / annexure. The various data collected from various sources are compiled in specially designed Proformas / Annexures to derive profitability of Plant, total cost of production, grade wise cost of production and further per MT cost of production.
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REVENUE / PURCHASE BUDGET CONTROL
After receiving the copy of approved Revenue / purchase budget, F & A Dept intimate all departments / sections about the approval of their areas budget. Budget for each & every account code is entered in the budget module meant for budget control in Financial Accounting System. Each type of expenses has separate account code.
All commitments made vide purchase order / work orders are entered against respective account heads while giving financial concurrence of proposed po/wo. At the same time all payments which are not against any purchase order / work order are entered against respective budget Heads / Codes. It is to be ensure that no payments or commitments exceeds to sanctioned budget.
In case of commitments / payments are required to be made beyond sanctioned amount, necessary action is to be initiated by indenter / actual user to get it re-appropriate from other budget head of same group with the approval of unit head & from other budget head of another group with the approval of Head Office / Competent Authority.
To further rearview of budget sanctioned & commitment made a monthly report is generated for actual expenses versus budget sanctioned. This report is prepared to control the budget on monthly basis. Here total budget sanctioned is shown as per estimated
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monthly budget. Wherever monthly actual expenses are higher than monthly budget, justifications / reasons are asked from intender & further steps are taken to control the budget in subsequent months. At Head office level, quarterly meeting is arranged to review/discuss about the budgetary control & measures taken at Unit level to control the budget.
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Section II
Capital Budget & Budgetary Control
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BRIEF DESCRIPTION OF CAPITAL BUDGET
Capital Budget is prepared for Procurement of Capital nature items or for Capital nature works to be done during Budgeted year. The items so procured or work so to be done are not the part of Profit & Loss Account, but are to be shown at Assets side of Balance Sheet. However, Depreciation calculated for Assets already having with Organization and Assets procured during the year is calculated and is to be shown in Profit & Loss Account for particular year. Capital Budget is prepared for next Financial Year commencing from April to March.
Process for preparation of Capital Budget:1. 2. 3. 4. 5. Heads. 6. Final proposals to be sent to Head Office. Intimation from Head Office to send proposals for next F.Y. Collection of various estimates from Indentors. Compilation of various data in specially designed Proformas. Put-up to Unit Head for consideration. Meeting by Unit Head with various Head of Departments / Sectional
1.
Intimation from Head Office to send proposals for Next F.Y. :-
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Generally, in Oct/Nov, intimation is received from Finance Director, Head Office asking all manufacturing Units / Marketing Offices to send their respective budgets. In this intimation all concerns are asked to submit data to respective Head of Finance at Unit level. The Head of Finance of respective Unit can compile the Budget & send it to Head Office through respective Unit Head. In this intimation general guidelines and specific instructions are also issued to all Units so that all Units can keep uniformity in submitting their data.
2.
Collection of various estimates from Indentors :-
On receipt of intimation from Head Office, Unit Head of Kandla Unit is intimating Finance & Accounts Department to compile Capital Budget and put up the same to him for review and final decision. On receipt of intimation from Unit Head, Finance & Accounts Department came in to action to get all related Capital nature proposals from various department/ Sections.
3.
Compilation of various data in specially designed Proformas :-
Capital Budget proposals are to be compiled in following ProformasA. B. C. D. Proposals for New Items. Proposals for On going items Completed items of current year Budget. Dropped items of Current year Budget.
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E. F.
RE-appropriated items. Reconciliation of current year Budget.
A.
Proposals for New Items :-
All proposals received from various Departments / Sections are thoroughly checked by Finance & Accounts Department and same is financially concurred before incorporating the same in the Performa for New Items. Estimates are checked with Budgetary Quotations received from Suppliers or with Previous Procurements.
Proposals are to be incorporated into following groups:Sr No. N-I N-II N-III N-IV N-V N-VI N-VII N-VIII N-IX N-X N-XI N-XII Energy Saving System / Schemes Operational Necessity Reliability Improvement Safety Equipments Replacement Of Aging Equipments Pollution Control / Environmental Protection Schemes Minor Modification Inspection Facilities Research & Development Equipments Admn. Office Building , Furniture , Fixtures , Vehicles etc. Associated Areas Like Welfare Colony Amenities, G.H.etc. Computer & Computer Systems Items
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Following are some assets which are to be procured / Capitalized under each group:-
N-I: Energy Saving System / Schemes:Against this group those items are to be estimated which are meant for introducing a new schemes to save energy or any equipment which relates to saving of energy. Example:- 1. Replacement of Energy efficient street lighting fixtures 2. Lighting Transformer with stabilizer for K-1 Plant. 3. Installation of economizer in Boilers.
N-II: Operational Necessity Against this group those items are to be estimated which are meant for running of plant smoothly or necessary operation of the plant. Example: - 1. Diesel operated Fork Lifts. 2. Voltage Stabilizers 3. Flame Photometers.
N-III: Reliability Improvement:Against this group those items are to be estimated which are meant for increasing/improvement in reliability of plant operation / plant equipments.
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Example: - 1. Retrofitting of Air circuit breaker of Voltas make at C- D Load centre 2. Retrofitting of MOCB by VCB. 3. Replacement of Raw Material feeders.
N-IV: Safety Equipments:Against this group those items are to be estimated which are meant for protection against Fire & keep the safety of Plant, its employees, contract labours etc. Example: - 1. Installation of sliding / barriers type gate system for Railway Crossings in the Plant. 2. Multi purpose encapsulated protection suit for Handling Acids & Ammonia. 3 . Fire Extinguishers.
N-V: Replacement of Ageing Equipments:Against this group those items are to be estimated which replace the old aged equipments in Plant who have completed their useful life or are beyond economical repairs. Example: - 1. Diesel operated Fork lift. 2. Pay loaders. 3. Copying Machines. 4. Lathe Machines. 5. Air Coolers, Air Conditioners, Fridges etc.
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N-VI: Pollution Control / Environmental Protection Schemes:-
Against this group those items are to be estimated which are to be kept in Plant as per Statutory requirement or as per directives of Central Government or state government increasing / improvement in Pollution Control / Environment Protection Schemes.
Example: - 1. Spiro meter. 2. Construction of Check dams etc.
N-VII: Minor Modification:This group is used for procuring those minor capital items which are not covered in other groups. Normative budget of Rs. 15 lakh for Plant and Rs. 5 Lakh for Township is sanctioned for these groups.
Example: - 1. Lawn Movers. 2. Mobile Phones. 3. Two wheelers, cycles etc...
N-VIII: Inspection Facilities:Against this group those items are to be estimated which are meant for inspection of various equipments, metals, atmosphere etc.:Example: - 1. Induction heater. 2. Machine condition Analyzer.
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3. Measuring Instruments & Tools.
N-IX: Research & Development Equipments:Against this group those items are to be estimated which are meant for Laboratory and Research & Development equipments:-. Example: - 1. Chemistry Modules. 2. Multi purpose Pilot Plant. 3. Misc. R & D Equipments like PH Meter, KF Titrator etc.
N-X: Admn. Office Building, Furniture, Fixtures, and Vehicles etc.:Against this group those items are to be estimated which relates to run Administration Building Office, Furniture, Fixtures etc.
Example: - 1. Xerox Machines. 2. Franking Machines. 3. Cars. 4. Security items
N-XI: Associated Areas Like Welfare Colony Amenities, Guest House etc. Against this group those items are to be estimated which relates to welfare of employees, township, Public Buildings, Guest House etc. Example: - 1. Horticulture Equipments
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2. Baarat Ghar 3. Playing Gadgets in the Gardens.
N-XII: Computer & Computer System:Against this group those items are to be estimated which are directly or indirectly relates to Computer Systems / Information Technology System. Example: - 1. PCs / Printers. 2. Back up devises. 3. Web / Network Application Servers. 4. Fire wall for oracle database.
B. Proposal for ongoing items: While proposing new items to be proved in next budgeted year, all section/Departments are requested to review the physical progress of current year budget items. After reviewing physical progress of current year budget, if they feel that the scheme/ procurement shall not be completed during this year. They may propose to carry forward their budget to the next budget year with same estimate or revised estimate. However, all efforts should be taken to complete the budget during the year, but in some exceptional care, if it is not possible to complete, than only those items to be carry forward to next year. Here indenter shall provide the expected budget to be utilized during current year & balance to be utilized during the next year, with all justification for carry forward of
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the budget to next year. Here also for ongoing items, same groups of new items are to be used for presentation in preformed prescribed for the purpose.
C. Completed items of current year:While proposing new items to be procured in next budgeted year, all section/ Departments are requested to review the physical progress of current year budgeted items. After reviewing physical progress of current year budget, if they feel that the scheme/procurement shall be completed during this year they may propose to show this scheme/ procurement as completed during the budget year. Such schemes/procurement shall be shown in this proforma with final cost. Any utilized amount/ savings shall be surrendered.
D. Dropped items of current year:In this proforma those items/schemes are shown which were not required/ to be implemented after due re-consideration. Some times to reduce cost or to cut down expenditure, less priority items are reviewed and dropped.
E. Re-appropriated items:Many time it happens that there is a short fall of budget for any item or a new item is to be purchased which do not cover in approved budget. In this situation budget can be re-appropriated from one head to another head with the approval of competent authority. In this proforma, items are to be shown which were re-appropriated to/from another budget heads for information of competent authority.
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F. Re-conciliation In this proforma a statement is prepared to show re-conciliation of current year budget as under:1. 2. New items. Ongoing items ___________ Total Budget ___________ 1. 2. 3. Ongoing items Completed items. Dropped items. __________ Total Budget __________
This proforma help top management about the utilization of budget already sanctioned.
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4. Put-up to unit head for consideration:Once budget estimation as given by various section/ Department is complied in all proforma 1 to 6, same is put-up to unit head by Departmental head of Finance & Account assuring all items are covered in respective groups. 5. Meeting by Unit Head with various HODs/SHS:-. After receiving complete capital Budget proposals from F & A Department, Unit Head review the same & call a budget review meeting with all Heads of Department/ Sectional Heads. In this meeting Unit Head discuss all the items & their estimates with respective Department Heads/Sectional Heads. Unit Head once is satisfied with Capital items to be procured/ capital nature jobs to be awarded, he gives clearance to F & A Dept to send the proposal to Head office through him.
6. Final proposal to be sent to Head Office:Once Unit Head give clearance to send the capital budget estimation to Head Office, Finance & Accounts Department prepare final proposals with changes, if any, as suggested/agreed by Unit Head. On receiving Capital Budget proposals from all unit of the organization, Head office prepare consolidated budget of all the Units including marketing & Head Office & put up to the Board of Directors through Finance Director and managing Director. In due course, once capital Budget proposals are approved by Board of Directors, Head Office intimate all units and marketing Department about the approval of Capital Budget of respective Unit.
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CAPITAL BUDGET CONTROL
After receiving the copy of approved Capital Budget, Finance & Accounts Department intimate all Departments/Sections about approval of items related to their area. Budget for each & every item is entered in the Budget Module meant for Budget Control in Financial Accounting Systems. Each items of capital budget is given 10 digit code where first two digit indicate group, next two digit indicate Rs No. of item in that particular group & last 4 digit indicate the year in which budget is sanctioned. Example 02 0010 0708 ,Here, 02 indicate group II, 0010 indicate Sr No of item of group II, 0708 indicate year 2007-08 in which budget is sanctioned. After receipt of intimation of sanctioned budget & these 10 digit code, indenter raise MPR/WOI (Material Purchase Requisition / work of indent) and send it to F & A Department through Materials Department for Budget Availability Certification. F & A Department certify Budget Availability after scrutiny of MPR/W01
comparing the same with Budget sanctioned & sent it to materials Department for further action for procurement. Once material Department completes all formalities for placing of order on supplier/contractor, proposal sent to F&A for entering the landed cost in Budget Module. F&A dept is responsible to assure that the material is not procured/contract is not placed beyond the sanctioned budget. To control Capital Budget commitment, monthly meetings are held under the Chairmanship of Unit Head with all HODs / SHs and measures are taken to utilize the
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budget timely. For this monthly commitment/expenditure report is prepared by F & A Dept & is circulated to all HODs/SHS. To appraise Head office about the progress of capital Budget, Quarterly report for high value items are sent to Head Office in prescribed proformas.
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Section III Budget for Loans & Advances to Employees
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BRIEF DESCRIPTION OF LOANS & ADVANCES TO EMPLOYEES
As per service rules of IFFCO, employees are given following type of advances from time to time and as per employees requirements:1. 2. 3. House Building Loan Conveyance Loan Personal Loan /One month salary advance
loans /
1.
House Building Loan
All permanent employees are given House Building Loan as per their entitlement. This Loan is given only once during tenure of employees service period. Loan is given forA. B. C. D. Purchase of plot Purchase of ready build house Construction of house on plot Additional work is to be done on present house property.
Administration Section of P & A Department is responsible to get budget sanctioned from Head Office through F & A Department. For this, they send the estimate amount / budget required for budget period based on various data of employee who have yet not availed HBL. 2. Conveyance Loan
All permanent employees are given conveyance loan as per their entitlement. This loan is given more than once during tenure of employees service period. Loan is given forA. B. Purchase of car Purchase of scooter / motor cycle / moped.
P & IR Section of Personal & Administration Department is responsible to get budget sanctioned from Head Office through F & A Department. For this,
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they send the estimated amount / budget required for budget period based on various data of employees who are entitled to avail this facility.
3.
Personal Loan /One month salary advance:-
All permanent employees are given one month salary advance (personal loan) once in a year. This advance is recovered in a year. This advance is recovered in ten equal monthly installments from employees salary. It is also a interest free loan.
Here also, P & IR section of Personal & Administration Department is responsible to get budget sanctioned from Head Office through F & A Department. For this they send the estimated amount / budget required for budget period based on present employees strength & their yearly basic + D.A.
After getting budget estimates from P & A Department for above 3 type of loans / advance, F & A Department prepare data in following format and send it to H.O. for approval of competent Authority :S
Con BL v loan Loan
Personal
r no
1 2
Op. Balance Commitment(Bud get)
3 4
Total Less:EstimateRec overies
Cl Balance
Head office get this budget proposals approved from competent. authority and intimate F & A department about the approved budget. Pay roll section & P & A Department are jointly control this budget.
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BRIEF DISCRIPTION OF SALES BUDGET
The marketing division after receiving the intimation from the Head Office asks the zonal offices to prepare the sales estimations, the State Offices asks the Area Offices and the area offices asks the Co-operative societies to prepare the sales estimations for the next financial year. This way after completing all the procedure the sales estimates are prepared and forwarded by the Co-operative societies to the marketing division and the marketing division forwards it to the Head Office for the approval. The Head Office co-ordinates the budgets prepared by the marketing division (Sales Budget) and the budgets prepared by the Manufacturing Units (Production
Budget). If in the case the sales budget increases the production budget the Head Office imports the goods from the other countries to fill up the gap. This way the Head Office co-ordinates the production budget and sales budget. Usually the first of all budgets to be compiled is the sales budget: this particular budget will be dependent for creating the other budget proposals. These figures will have been calculated by multiplying the expected number of sales by selling price of the product. Perhaps the most important of all budgets is the sales budget. It is a statement of planned sales in terms of quantity and value, and analyzed into different grades of products. The area officer with his intimate knowledge will gather the information from the Govt. office at particular area about the previous record of rainfall, Demand and Utilization of the fertilizer and also current years projection for rainfall in that area. All information gathers are sent to higher authority of marketing officer on that basis the higher authority prepare the rough estimate for next year sales.
They also prepare separate sale budget according Grade wise production and also shown State wise sales to be achieved.
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BRIEF DESCRIPTION OF CASH BUDGET
The budget is the link between all the individual budgets and the master budget. Cash budget forms the core of budgetary control. If adequate cash resources are available, even the best schemes are bund to fail. This budget is prepared on the basis of all the above budgets ad summaries the estimated receipts for each month from debtors, is receivable and other incomes along with opening balances shows the total receipts. It should also indicate month-wise disbursement for wages and salaries, purchases of materials and overheads charges, etc. On the basis of this budget, the financial controller is able to determine the need for additional funds and bank borrowings, if any, and also plan the allocation of working capital. If proper care is not exercised in preparing this budget, serious troubles are likely to arise at anytime during the year, particularly if long-term cash forecast is not properly made, future progress may be frustrated due to lack of funds.
AT IFFCO THE PROCEDURE OF CASH BUDGET:
All the units of IFFCO will make forecast there expenditure such as Capital Expenditure, Revenue Expenditure, Loans & Advances etc. for whole year and the same is divided into monthly requirement and send to the Head Office. Head Office will combined all the forecast of all Units (at KANDLA, PHULPUR, KALOL, ANOLA, Marketing and his own) and prepared Master Cash budget for the year. Where it shows details all the sources of income and where it will be disturbed for expenditure full detail planning is made monthly wise for whole year.
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LIMITATIONS OF THE STUDY
This study has been carried out only based on information obtained by interviewing personals in F & A Department IFFCO KANDLA. Information received was based on secondary data and on the primary guidance given by the employees there at IFFCO KANDLA. So any Error in source data that may change the Actual Scenario. This study has been carried out in a period of 15 days which is very less to know and understand an organization like IFFCO KANDLA. Major sources of structured information and data or Records up to last 10 Years have been used. Also to evaluate and ascertain financial position correctly of organization like IFFCO, a student like me of 22 years age is too less. I was interested to study following topics but couldnt make it, in absence of any information, as is handled by Head Office, New Delhi. o cash budget o sales budget It was advised to go through only in procedural information & Net to use any financial data pertaining to IFFCO as a whole or for IFFCO KANDLA UNIT. However at many places figures shown are as sample/Estimate figures & not the actual figures.
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FINDINGS & SUGGESTIONS FINDINGS: Sales are main source of Income. Raw Materials Cost consists of 95% of Total Cost. So Change in Raw Materials Price will strongly affect the Total Cost. For Continuity in Production there should be continuous Raw Material supply. So any deficiency in supply of Raw Materials will affect the Production. Whatever Project is undertaken at IFFCO KANDLA up to date all Projects duration and cost were achieved within the specified limit or budget figure. Continuously from last 15 Years IFFCO is providing the Dividend at the rate of 20% per Year. Punctuality in Timings and Management work is excellent at IFFCO. A well equipped System facility providing the LAN and VAN access for speedy communication. Environment control policy adopted by ISO - 14001 Certified. Best Employees welfare facility(As per the interviews of employees) (E.g. Residence for all the employees working at IFFCO) Every Employees Work is interlinked. EMD Security Retention Money and other amount an average of Rs. 4 5 Crores every Year at IFFCO Kandla. No Interest is paid to vendor and same amount is being lying in the society current Account. Strong Marketing Distribution Network. A well Future Set Plan MISSION 2010. A Strong Team of Directors from all over India. Great Support of Government of India & Fertilizer Ministry. A Strong Financial Status. A team work from Top Management to Lower Grade Staff to achieve the targets. A Chain (H.O.) between Management Plants (Kalol, Kandla, Aonla & Phulpur & Marketing office) all over India. IFFCO seems a good pay master for employees as well as suppliers.
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A good atmosphere to work at & with IFFCO. Safety level is at highest point. A good training to employees.
SUGGESTIONS: Media Support should be taken to change the minds of farmers to use fertilizer in their farms. IFFCO one of the countrys largest producer of fertilizer in industry fertilizer is situated at Kandla -Kachchh but then also there are many villages in Kachchh only where still Concept of using Scientific fertilizer in farms is not Clear & popular. Still there are many farmers using the old concept of Cow Dunk as the only way of fertilizer in there farms. So proper suggestion and guidance should be given to change there mind set up. Work Load on employees should be equally divided. No body should be loaded with too much work and too less work equal distribution of work should be there. Employees should motivated to invest in IFFCO itself during their service & even after retirement in FDR scheme of IFFCO at H.O. If employees agree at the time of retirement to convert his PF, Gratuity etc. in to FDR & as a special care Ex-Employees should be paid higher rate of interest on his investment interest to be paid to Ex-Employees on monthly basis so the fund remain safe in the hand of IFFCO &Ex-Employees gets its return on monthly basis to pull out his remaining life happily & safely.
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CONCLUSION.
I have carried out my training in a period of two months in Finance and Account Department (F&A), IFFCO KANDLA). During this period I have studied in brief and have taken overview of the activities of each section of F&A Department at IFFCO KANDLA. And after the study I conclude that practices and procedures followed here at par with the industry standard and comply with legal and regulatory requirements.
During my training I have studied and analyzed IFFCOs annual report for the financial year 2006-07 and found that IFFCO is financially very strong due to its large reserves and has good credit in market, due to its high share of equity. It has paid 20% dividend which is ever highest by any P.S.U. or co-operative society in India.
Successful realization of VISION 2010 and MISSION 2005 will definitely made the society to emerge at top position in India. Also this would solve to its objective of being a socially responsible organization and work for welfare of farmers not only in India but also in abroad.
IFFCO is also Socially Responsible Organization who dose not only look after the wellbeing of their employees and share holder only but they also look after the welfare of farmers by many promotional programmers carried out under the schemes of IFFCO Kisan Sewa Trust and by the Indian Farm Forestry Development Cooperative (IFFDC).
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RECOMMENDATIONS
I undersigned, have no experience and my age 22 is too less to valuate any industry giant like IFFCO. Also the training period of two months is too less to understand and analyze the vast functions procedure and regulatory requirements that needs to be carried out in cash section of finance and account department of IFFCO KANDLA. Yet I have tried my best and declare that the below mentioned few
suggestions that can be better coated than recommendations are no way on attempt or intention to criticize organization like IFFCO & its management or employees, but only they are to serve as indicators of level of my understanding of the activities carried out in various sections of Finance and Account Department of IFFCO KANDLA.
The whole process of implementing zero based budgeting is not only a tedious job, but also a costly affair. Moreover, the insight of experience gained in several years of preparing budget is not being used. All the cost are allocated to a single factory overhead. Moreover, budget for Township is combined with Plant which doesnt give a clear picture of the expenses to be incurred in the budgeted year for the plant only. Trend of re-appropriation of budgets is not a healthy task
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BIBLIOGRAPHY.
Books:
Name Financial Management Financial Management Financial Management Financial Management Research Methodology
Author I. M. Pandey Khan and Jain Prasanna Chandra S. N. Maheshwari C.R. Kothari
Magazines : BUSINESS INDIA, JUNE ISSUE, SAHYOG, IFFCO KANDLA
Website
: www.iffco.nic.in
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Following are the main proforma / Annexures for compilation of various data:Sr No. STATEMENT / ANNEXURE reference 1 2 3 4 5 STATEMENT I STATEMENT II STATEMENT III STATEMENT IV ANNEXURE- I Production And Sales Targets Profitability Statement Total Cost Of Production Purchase Budget Break up of Unit price of Raw Materials / Utilities / Packing Materials 6 ANNEXURE- II Norms of consumption for raw materials /utilities/packing material 7 8 ANNEXURE- III ANNEXURE- IV Township recoveries and other revenues Consumption of raw materials / Utilities / packing materials 9 10 11 12 13 14 ANNEXURE- V ANNEXURE- VI ANNEXURE- VII ANNEXURE- VIII ANNEXURE- IX ANNEXURE- X Employees remuneration & benefits Repairs and maintenance expenses Chemicals Insurance expenses a) Factory overheads & b) R & D expenses Grade wise cost of production Particulars
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Brief explanations of Statements / Annexures:-
STATEMENTS:
STATEMENT I: PRODUCTION AND SALES TARGET In this statement the data relating to plants installed capacity in terms of P2O5, stream days estimates, production target in bulk & in terms of P2O5 is estimates. Based on plant capacity and estimates production capacity utilization in % is derived. Sales estimate figures are shown by H.O. after sending this budget proposal to Head Office for approval. Also for comparison purpose last three years actual, current year budget and revised budget estimates are also shown in this statement. Based on this statement, Total cost of production is estimated / derived.
STATEMENT II: PROFITABILITY STATEMENT In this statement at plant level miscellaneous income like Township recoveries and other revenuer as well as cost of production (including Depreciation) figures are shown. Other revenue / income like income from sales, subsidy, ERF on ECB loans, ERF on imported raw materials etc are shown by Head Office. Similarly other expenses like Distribution Expenses, Selling Expenses, Financing Cost etc. are also shown by Head Office after sending these Budget proposals to Head Office for approval. Based on this statement, Head Office derives profit estimates at their level.
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STATEMENT III: TOTAL COST OF PRODUCTION In this statement based on Annexure 4 to 10 total cost of production is shown in various groups and final figure is shown at statement 2. Total cost of production is shown in 3 groups and sub groups as under:A. B. C. Raw Materials :Phos. Acid Imported Potash Ammonia Urea Sulphuric Acid Filler MAP Operating Expenses :Chemicals Utilities Employee Remuneration And Benefits Repairs And Maintenance Insurance Factory Overheads Depreciation Bagging Expenses :Bags And Thread Cost Other Expenses like handling, diesel, demurrage etc.
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In above A and B makes cost for Bulk production and A+B+C makes cost of bagged production. We will further highlight the details of above variable and fixed cost in details explaining Annexure for above expenses.
STATEMENT IV: PURCHASE BUDGET This statement is prepared to estimate the likely purchase of following Raw Material / Utilities / Packing Material etc based on estimated consumption of items , opening inventory and closing inventory based on storage capacity :A. B. C. Raw Materials :Phos Acid (P2O5) Ammonia (NH3) Urea Potash Filler MAP Sulphuric Acid Utilities :Fuel Oil Packing Materials :HDPE Bags : 50 Kg HDPE Bags : 40 Kg HDPE Bags :25 Kg
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D.
OTHERS Stores
Spares Tools Cement Steel etc.
Generally while preparing this estimate inventory of raw material, fuel oil and packing material is estimated as per maximum level of storage capacity so plant should not be shut down due to any shortage of raw material. On other hand other items like stores , spares tools, cement, steel are controllable inventory and it is always tried to keep theses stock at minimum level so unnecessary fund is not blocked and there should not be increase in inventory carrying cost.
ANNEXURES:
ANNEXURE I: Break-up of unit price of raw materials / utilities / packing Materials: In this statement, landed cost is derived by taking all possible expenses for purchasing the material. Landed cost is derived for all raw materials / utilities / packing materials taking into consideration of following elements. 1. 2. C & F price / basic price Insurance
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3. 4. 5. 6. 7. 8. 9. 10. 11.
S tamp Duty Service Charges Freight (in case of indigenous items) Custom Duty Excise Duty Wharfage / Port Expenses etc. Sales Tax Thread Miscellaneous bank charges directly related to Purchase.
Landed cost so derived is further considered at statement -4 (purchase budget) to ascertain total purchases to be made during the financial year to produce the targeted production. Based on purchase Qty / rate and opening stock of Qty / rate, weighted average rate is derived for applying the same to consumption Qty.
ANNEXURE- II: Norms for consumption for raw material / utilities / packing Materials In this annexure the norms received from technical services department is incorporated. As already explained earlier norms are the input Qty for getting targeted output Qty in case of raw materials , required Qty to mix / produce the targeted production Qty in case of utilities and bags required to pack the bulk production in case of packing materials . Since per MT cost of production can be kept at the minimum level when norms are kept in minimum level norms are to be derived very carefully. These
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norms figures are further utilized at annexure -4 to derive quantity requirement of all raw materials, utilities and packing materials.
ANNEXURE III: Township recoveries and other revenue Kandla Unit is manufacturing unit only and all sale of production is made at marketing office and sale proceedings are accounted at Head Office, However, at plant level there are some incomes which are detailed as under
I.Township Recoveries: from staff Rent Electricity Water
II. Other Revenue: Interest from staff HBL (House Building Loan) Conveyance Loan Hire Charges (pay loader, cranes etc.) & Interest. Insurance Claim Realized. Sale Of Scrap Transport Recoveries Fro Staff, Contractor. Interest Received on Deposits Income from Liquid Cargo Jetty. Provision No Longer Required Written Back
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Tender Fee / Sale Of Tender Forms Depreciation Charges Sundries / Miscellaneous Income Rental Income : from township , from plant Profit On Sale Of Asset Unclaimed Amount Written Back Penalty Recovered Other Claims Lease Charges Under Own Your Own Wagon Miscellaneous Recoveries from Staff
All above income are estimated by individual actual receiver based on past experience and future activities. The total of this revenue is shown at statement -2 (profitability statement) on revenue side.
ANNEXURE IV: Consumption of raw materials, utilities and packing material At Kandla Unit cost of production is estimated in two categories as under 1. 2. Variable Cost. Fixed Cost
Variable cost is the cost which generally varies with the production activity. Variable cost consists of following three items. 1. Raw Materials
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2. 3.
Utilities Packing Materials
Since variable cost is linked directly with production figures there is no control on the cost of variable cost. In case of nil production, variable cost will also be nil. In this statement grade wise cost of production and total cost of production is derived based on production targets, norms and average unit rate. Production Targets are taken from statement 1, norms are taken from annexure -2 and average unit rate is taken from statement -4. Based on above grade wise Qty (production x norms) and grade wise cost (Qty x Average rate) is derived. By Totaling of all the three grades cost , total cost of individual raw material , utilities and packing material is derived. By totaling all Raw Materials, utilities and packing materials total cost of production is derived. This total cost of production is shown at statement -3 items wise. Raw materials are shown under A: raw material cost, utilities are shown at B: operating expenses & packing materials are shown at C: bagging expenses: bags & thread.
ANNEXURE V: Employees remuneration and benefits Employees remuneration and benefits is a fixed cost type expenses. Fixed cost is cost which generally not varies with the production activities. Whether there is any production or not, this types of expenses occur. Here employees remuneration and benefits remains constant irrespective of production.
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In this group all type of expenses are covered which directly or indirectly pertains to the employees including railway staff. Budget estimates are given by personal & administration department for almost expenses: To simplify the format expenses are shown under following groups: Salaries & Wages PF & FPF Contribution Welfare Expenses.
Following are the major budget head & their respective user / indenter:-
Sr No. A-1 1 2 3 4 5 6 7 8 9 10 A-2 A-3 A-4 A-5
Particulars Salaries & Wages Basic Personal pay / Allowance DA (Dearness Allowance) Special Allowance House Rent Allowance(HRA) EL Encashment on Actuarial Basis Kandla Allowance Stipend To Trainees / DA Railway Staff Salary Employees Furnishing Allowance Incentive Payments Indirect Wages Contractor / Labour Provision For Salary Revision Non Practicing Allowance To Medical Officers
Indenter
Personal & Administration Personal & Administration Personal & Administration Personal & Administration Personal & Administration Personal & Administration Personal & Administration Personal & Administration Transportation Section Personal & Administration Head Office Personal & Administration Head Office Personal & Administration
A-6
LTC Employees
Personal & Administration
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A-7 A-8 A-9 A-10 A-11 A-12 A-13 Sr No. B B-1 B-2 B-3 B-4 B-5 C C-1 C-2 C-3 C-4 C-5 C-6 C-7 C-8 C-9 C-10 C-11 C-12 C-13 C-14 C-15
Shift Allowance Washing Allowance Children Education Allowance EL Encashment Cash Handling Allowance Overtime VRS Expenses Particulars PF & FPF Contribution PF Contribution FPF Contribution / Pension Employer PF Administration Charges Group Gratuity-Cum-Life Assur. Societys Contribution To Insu. Welfare Expenses Reimbursement Of Medical Exp. Medical Expenses : Recruitment Fixed Medical Assistance Hospital Supplies Doctors Honorarium Liveries Protective Clothing - Shoes - Stitching Charges - Others Staff Welfare Expenses Family Planning Incentive Children Transport Subsidy Awards To Employees Cinema Show Celebration Expenses
Personal & Administration Personal & Administration Personal & Administration Personal & Administration Personal & Administration Personal & Administration Personal & Administration Indenter
Personal & Administration Personal & Administration Personal & Administration Head Office Head Office
Personal & Administration Personal & Administration Personal & Administration Personal & Administration Personal & Administration Personal & Administration Personal & Administration Personal & Administration Personal & Administration Personal & Administration Personal & Administration Personal & Administration Personal & Administration Personal & Administration Personal & Administration
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C-16 C-17 C-18 C-19
Club House Expenses Transfer Expenses School

Employees Contribution To
Personal & Administration Personal & Administration Personal & Administration Personal & Administration
Benovelent Fund C-20 Honorarium To Staff Personal & Administration
Above budget estimates are given by concerned section based on last 3 years actual, present strength of employees, next year retirement cases, transfers, natural death of employees & new recruitment etc. As mentioned above at Sr Nos A-2, A-4, B-4 and B-5 since payments are made by Head Office directly estimates are asked from Head Office and incorporated in Kandla Units budget.
The total of above three groups is shown at B-3 statement III (Cost of Production) under operating expenses.
ANNEXURE- VI: Repairs and maintenance expenses Repairs and maintenance expenses are also a fixed cost type expenses. Repairs & maintenance expenses remains constant irrespective of production. In this group all type of expenses are covered which directly or indirectly pertains to Repairing & Maintenance of Plant & Machinery , Equipments , Civil Works , Jetty , Furniture , Fixtures etc. Budget estimates are given by all departments for their areas or where they are custodian of the equipments. Repairs & Maintenance expenses are covered under 2 categories: - (1) Consumption of stores, spares etc & (2) Job done by outside agencies. For any items
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issued from stores for particular work is charged to consumption of stores , spares where as for any type of Repairs and Maintenance job is done by outside agencies are booked against contractors job .
To simplify the format expenses are shown under following groups A. B. C. Plant Machinery Civil Maintenance Factory , Township Furniture & Fixtures
Following are the major budget heads & their respective user / indenters:-
A. Plant Machinery
Sr No 1. 2. 3. NPK Offsite
Particulars
Indenter Maintenance Department / NPK Maintenance Department /Offsite Maintenance Department /Bagging & Material Handling
Bagging And Handling
4. 5. 6. 7. 8. 9. 10. 11. 12.
Electrical Installation: Factory Electrical Installation: township Mobile Equipments Rolling Stock Air Conditioner & Cooler etc General Emergency DG Plant Water Supply Installation Computer System EDP
Electrical Department Electrical Department Auto Section / Maintenance Department Maintenance Department AC Section / Maintenance Dept. Maintenance Department Electrical Department Maintenance Department /Civil Section. System Department
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13. 14. 15. 16. 17. 18. 19. 20.
Workshop Equipments Weighing Equipments Instrumentation Laboratory Equipments Other Non Plant Equipments Audio Visual Equipments Communication Equipments Guest House Equipments
Workshop Section Instrumentation Section Instrumentation Section Lab / R & D Section Maintenance Department Instrumentation Section Electrical Section Personal & Administration
Sr. No. 21. 22. 23 24.
Particulars Stores Equipments Canteen Equipments R & D Equipments Hospital Equipments
Indenter Stores Section / Maintenance Department Personal & Administration Lab / R & D Section Personal & Administration / Medical Section
25. 26.
Fire & Safety Equipments R & M Stores (ERF)
F & S Section / Tech Services Stores Section
C. Civil Maintenance Factory, Township
Sr. No 1. 2. 3. 4. 5. 6. 7.
Particulars Factory Liquid Cargo Jetty Factory- Railway Siding Factory- Office Building Factory- Factory Building Factory- Roads ,Culverts Township : Buildings Civil Section Civil Section Civil Section Civil Section Civil Section Civil Section
Indenter
Township: Roads, Culverts & Civil Section Drains
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D. Furniture & Fixtures
Sr. No 1. 2.
Particulars Furniture & Fixtures Office Equipments
Indenter Personal And Administration Personal And Administration
Above budget estimates are given by concerned sections based on last 3 years actuals , present volume of assets , next years additions , deletion of assets etc . The total of above three groups is shown at B .4. a) Of statement 3 (cost of production) under operating expenses.
ANNEXURE-VII: Chemicals Consumptions of various chemicals are also treated as fixed cost expenses. Consumption of various chemicals remains constant irrespective of production activities.
In this group all types of chemical are covered which directly or indirectly pertains to consumption of chemicals to be used in plants, tanks, lab etc. Budget estimates are given by all departments for their area or where they are custodian of particular chemicals.
In this group some chemicals are of stock item in nature & some chemicals are of non stock type items. Stock type items of chemical are being procured through stores & non stock type of chemicals are being procured directly by actual users. Following are major budget heads & their respective users / indenters
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Sr. No 1. Spent Acid 2. Defoamer 3. Chemicals 4. Sulphuric Acid
Particulars Utilities
Indenter
Production Dept/Stores Lab/R & D Utilities Utilities
5. Ammonia Bi-Sulphate
Out of above items, Sr no. 4 i.e. Sulphuric Acid was procured 2-3 years back under consumption of chemical group , but at present sulphuric acid is being procured as a raw material item due to heavy Qty of this sulphuric Acid is mixed with other raw material for nutrient purpose. Above budget estimates are given by concerned sections based on last 3 years actuals and present requirement of respective chemicals. The total of above chemicals is shown at B-1 of Statement III (cost of production) under operating expenses.
ANNEXURE- VIII: Insurance Expenses Insurance expenses are also treated as fixed cost expenses. Insurance expenses remains constant irrespective of production activity since insurance expenses are to be incurred to cover all type of risk for material and loss of profit in case of any incident occurs due to major fire or natural calamity etc. To cover all type of risk, budget is estimated by finance & Accounts Department in consultation with technical service department .Since technical service department is the custodian of main plant & machinery.
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Following are the major policies to cover different types of risks prevailing in day to day transactions:1. Fire & Allied Peril Policy a. New admin building & furniture & fixtures. b. Township &public utilities / buildings
2. Marine Policies a. Marine open cover- imported spares b. Marine open cover- Inland (rail / road) Transit 3. Mega Policy a. All buildings, plant and machinery, stocks, jetty, pipelines etc. (Everything
which is in ground) b . Loss of profit policy 4. Miscellaneous Policies a. Cine project at cinema ground, township b. Cash in transit, case in safe / burglary c. All risk policy for laptop & mobile phones d. Vehicle policy e. Cordet Pantia farm f. Contractor all risk-ammonia tank Some policies are taken by Head office for all the plants jointly & proportionate expenses are to be accounted by Kandla Unit. Following are some policies taken by H.O. Public liability as per Public Liability Act
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Public liability for industrial risk Terrorist cover.
All above policies are taken by Kandla Unit from their sister concern M/S IFFCO Tokio general insurance Co.Ltd.
Above budget estimates are estimated by F & A Dept based on last 3 years actuals & re-instate value of the assets. The total of insurance expenses is shown at of Statement III (cost of production) under operating expenses.
ANNEXURE- IX: Factory overheads & research and development expenses. Factory overheads & research & development expenses are also treated as fixed cost expenses. These types of expenses are remaining constant irrespective of production activities. In this group those fixed cost type expenses are covered which are not covered in Annexure 5 to 8 budget estimate are given all departments for their area or where they are custodian of particular items . However in this group major expenses are of service nature. Following are the major budget heads & their respective user / indenters Sr.No 1. 2. 3. 4. 5. 6. 7. Particulars Traveling Expenses Local Conveyance Fixed Local Travel Concession Ground Rent Rent , Rates & Taxes Postage Charges Telephone Charges Indenter Personal And Administration Personal And Administration Personal And Administration Personal And Administration Personal And Administration Personal And Administration Personal And Administration
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8. 9. 10. 11. 12.
Telex / NIC / Lease Charges Courier Charges Printing & Stationery Periodicals,Books&Newspapers Subscription to membership fees for society
Personal And Administration Personal And Administration Personal And Administration Personal And Administration Personal And Administration
13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30. 31 32. 33. 34. 35. 36.
Seminar Expenses Vehicle Running Expenses Advt. for tender &recruitment Legal Expenses Professional &Consul Charges Entertainment expense Courtesy Expenses Laboratory Expenses Bank Charges Pocket Expenses (Auditors) Other Sundry Expenses Stores Overheads EDP Charges Product Advertisement Vehicle Hire Charges License Fees Loose Tools Written Off Horticulture Expenses Electricity Expenses Water Township Guest House Expenses Training Expenses Provision For Bad Debt Loss on Disposal of asset
Training Section Personal And Administration Personal And Administration Personal And Administration Personal And Administration Personal And Administration Personal And Administration Laboratory / Technical Services F & A Department F & A Department Personal And Administration Materials Dept System Department Personal And Administration Personal And Administration Personal And Administration Stores Section / Material Dept. Personal And Administration Electrical Department Personal And Administration Personal And Administration Training Section Finance & Accounts Dept Finance & Accounts Dept
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37. 38. 39. 40. 41. 42. 43. 44. 45. 46.
Assets Written Off Emp. Contribution To KSF Honorarium To Visitors Township Expenses-Others Vehicle Maintenance
Finance & Accounts Dept Personal And Administration Training Section Personal And Administration Auto Sec. / Maintenance Dept
Cost of Diesel for Pay loader/Mobiles Auto Sec. / Maintenance Dept Gifts Expenses (Emp / Others) IRDP Expenses R & D Expenses Security Expenses Personal And Administration Personal And Administration Laboratory / R &D Dept Personal And Administration
Above budget estimates are given by concerned section based on last 3 years actuals & normal increase in activity as well as normal like in rates of various procurement & services etc.
The total of above groups is shown at of Statement III (Cost of Production) under operating expenses.
ANNEXURE X: Grade wise cost of production This Annexure 10 is prepared to derive grade wise cost of production and further to Per MT cost of each grade. In this Annexure total variable cost and fixed cost is appropriated as per norms & stream hours respectively. Grade wise stream hours based on budgeted production is given by technical service department. Fixed Cost is divided by total stream hours run & multiply by grade wise Stream hours. Thus grade wise fixed cost is derived.
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Once grade wise cost is derived, the same is divided by grade wise production. All raw materials, utilities, packing material & fixed cost are divided by grade wise production to get Per MT cost. In this statement first we get cost of bulk production first and subsequently by adding bagging expenses we get total cost of bagged production. This is an important statement to take final decision about profitability of the org.
GENERAL:Following type of expenses directly taken at statement III for which no annexure are prepared. Depreciation which is directly calculated by finance & accounts
department by considering assets in books , estimated additions & deletion of the assets during the budgeted year. Bagging expenses cost of diesel loco which is estimated by production
department based last 3 years consumption of diesel used for running of locomotives for moving of railway wagons etc. Bagging expenses cost of demurrage which is also estimated by production department based on last 3 years demurrage incurred for loading of railway wagons.
4. Budget to Put-up to Unit Head for consideration:Once budget estimation as given by various sections / departments / is compiled in statement I to IV and in annexure 1 to 10 , same is put-up to Unit Head by
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departmental head of Finance & Accounts assuming all estimates are covered in respective groups.
5. Meeting by Unit Head with various HODs / SHs:After receiving complete budget proposals from F & A Dept, Unit Head review the same & call a budget review meeting with all Head of Department / Sectional Heads. In this meeting Unit head discuss all the points related to budget estimates with respective HODs / SHs , Unit Head once is satisfied with budget estimates, he give clearance to F & A Dept to send the proposal to Head Office through him.
6. Final proposal to be sent to H.O.:Once Unit Head gives clearance to send the budget estimation to Head office , F & A Dept prepare final proposals with changes , if any, as suggested / agreed by unit Head. Revenue budget proposal are sent to Head Office. Head office further add Head Office expenses, Marketing expenses etc, compile all other Units budget, marketing departments budget & put-up a consolidated budget to the Board of Directors through Finance Director and Managing Directors.
In due course once budget proposals are approved by Board of Directors, Head Office intimates all Units and Marketing department about the approval of budget of respective Units.
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ANNEXURES
110

FYP Study Budget Budgetary Control

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Topic Study of Budget and Budgetary Control

Name Anuprita Ashok Kadu

Required Information & Data

INTRODUCTION OF INDIAN FRTILIZER INDUSTRY

INTRODUCTION OF IFFCO: Indian Farmers' Success Story

Aonla Marketing Aonla -1 Aonla-2 Phulpur-1

UNITS OF IFFCO Kandla

VISION AND MISSION

To provide to farmers high quality fertilizer in right time and in adequate

converse an energy Commitment to health, safety, environment and forestry development to

Building a value driven organization with an improved and responsive

Phones FAX Website E-Mail

IFFCO went for expansion of their unit at Kandla in 1996-97. Kandla

Achievements of IFFCO Kandla Unit

INTRODUCTION TO F & A DEPARTMENT OF IFFCO

FUNCTIONS OF FINANCE AND ACCOUNTS DEPARTMENT

BUDGET AND BUDGETARY CONTROL

pursued to achieve that objective are required to be laid down.

The Objectives Of Setting The Budgets:

actions are required to be taken up by the management

Loans to Employees Budget

Loan to Employees Budget Capital Expenditure Budget Marketing Budget

Steps in Fixation of Budget.

information and guidelines required for the purpose of preparation of budgets.

3. Delegation of responsibility for formulating revenue budget proposals at unit level.

Budgeting process at unit level:

CONTRIBUTION OF VARIOUS DEPARTMENTS IN BUDGETING PROCESS

Transportation cost of various raw materials and utilities e.g.

packing materials, utilities etc. VII. Consumption of chemicals & deformer.

3. TECHNICAL SERVICE DEPARTMENT:

FINANCE & ACCOUNTS DEPARTMENT :

PROCEDURE FOR USING THE BUDGET APPROVED.

REVISION OF BUDGET ESTIMATES

Revised Revenue Budget. Revised Purchase Budget.

BUDGET AND BUDGETORY CONTROL AT IFFCO: KANDLA UNIT

METHOD OF BUDGETING AT IFFCO-KANDLA:

IFFCO-KANDLA follows Zero Based Budgeting system to prepare its budgets

What is Zero Based Budgeting????

Revenue & Purchase Budget andBudgetary Control

BRIEF DESCRIPTION OF REVENUE BUDGET

PROCESS FOR PREPARATION OF BUDGET:-

1. Intimation from H.O. to send proposals for next financial year:-

2. Utilities Power Water Fuel Oil

3. Packing Materials - HDPE Bags: 50 Kg - HDPE Bags: 40 Kg - HDPE Bags: 25 Kg

REVENUE / PURCHASE BUDGET CONTROL

Capital Budget & Budgetary Control

BRIEF DESCRIPTION OF CAPITAL BUDGET

Intimation from Head Office to send proposals for Next F.Y. :-

Collection of various estimates from Indentors :-

Compilation of various data in specially designed Proformas :-

RE-appropriated items. Reconciliation of current year Budget.

Proposals for New Items :-

N-VI: Pollution Control / Environmental Protection Schemes:-

Example: - 1. Spiro meter. 2. Construction of Check dams etc.

Example: - 1. Lawn Movers. 2. Mobile Phones. 3. Two wheelers, cycles etc...

3. Measuring Instruments & Tools.

Example: - 1. Xerox Machines. 2. Franking Machines. 3. Cars. 4. Security items

2. Baarat Ghar 3. Playing Gadgets in the Gardens.

CAPITAL BUDGET CONTROL

Section III Budget for Loans & Advances to Employees

BRIEF DESCRIPTION OF LOANS & ADVANCES TO EMPLOYEES

House Building Loan

Personal Loan /One month salary advance:-