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Project Analysis and Assessment of Term Laon

Project Analysis and Assessment of Term Laon

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PROJECT ANALYSIS AND ASSESSMENT OF TERM LAON

Project finance involves providing credit and other facilities to a borrower , for setting up new projects, expansion, diversification and modernization of existing industrial units. While considering the project for assistance, we evaluate technical feasibility, commercial and economic viability and financial soundness of the project. The repayment of the loans and facilities is normally fixed on case to case basis depending on projected cash flow of the borrower.

Infrastructure
 Road and Urban Development  Power & Utilities  Oil & Gas, Other natural Resources  Ports and Airports  Telecommunication

Non- Infrastructure
Cement, Steel, Mining, Engineering, Auto Components, Textile, Pulp & Paper, Chemicals, Pharmaceutical ……. Etc

Services
Tourism & Hospitality, Educational Institutions Etc.

Various aspects of project analysis:
1. Technical Analysis. 2. Commercial Analysis – Analysis of Demand forecast. 3. Financial Analysis I. Capital cost of Project & Sources of Finance. II. Financial Projections – Cash Flow and profitability Estimates. III. Ratio Analysis IV. Break Even point V. IRR 4. Analysis of Management. 5. Monitoring

Technical Analysis:
Technical analysis is essential to ensure that necessary physical facilities required for production will be available and the best possible alternatives is selected to procure them. These are to be assessed by common sense, experience and discussions with the promoters 1. Manufacturing Process / Technology 2. Technical arrangement 3. Size of the plant 4. Product Mix 5. Selection of Plant and Machinery 6. Procurement of Plant and Machinery 7. Plant lay out 8. Location of the plant. I. Land II. Raw Material III. Market IV. Labour V. Utilities such as water, Power, fuel etc. VI. Effluent disposal VII. Transportation 9. Schedule of Project Implementation

Steel. installation and operation of the plant. availability of raw material. . Power looms. Cottonseed expeller unit.  Any restriction imposed by collaborator (Exports etc. necessary study should be done about the success of the process in other countries. 2.1. training etc. Cement. Sugar Mill.  Collaborator has agreed to provide the benefits of research and development. demand of the product and other circumstances. price structure.  Support to be provided by technical collaborators in planning and designing of the project  Selection and procurement of equipment. Size of the plant Size of the plant depends on the manufacturing process. capital investment. its end use. Solvent extraction plant. Technical arrangement  Technical arrangement made to obtain technical know how required for the proposed project. The concept of economic size of the plant changes with the changes in technology.  If a product is to be manufactured by a particular process for the first time in the country. size of the market.) 3. Spinning Mills. Size of the plant or capacity can be expressed in one of the following terms: 1 2 3 With Respect to the output ( quantity of finished product) With Respect to input ( quantity of main raw material used) With respect to number or machines Pulp and paper. etc.etc. availability of raw material. Manufacturing Process / Technology  If a product can be manufactured by using alternative raw materials with alternative process routes. a comparative study should be done to choose the most suitable process depending upon the quality of product required. Textile Mills etc.

If plant may have flexibility to change product mix according to changes in the market conditions.4. delivery schedule. 6.  A product has to pass through 4 stages and the capacity of proposed machinery for each stage is as under Raw Material I Stages Capacity 90 Production Cycle II 80 III 60 IV 80 Finished Goods The total capacity of the plant in above case will be considered as 60 units because the capacity in the third stage of process is only 60 units. such flexibility may need additional investment. Different stages of manufacturing process should have proper balance of capacity. Product Mix Product mix or product range depends upon market requirement of certain items may have to be done in different sizes and quality to suit different consumers. main terms and conditions of contract to be analyzed. present performance. 5. performance guarantee and other relevant matters. water. the reputation of the suppliers. payment terms . the reputation of EPC contractor. Procurement of Plant and Machinery  The machinery suppliers should be decided keeping in view the quality of the machine.  If promoters proposes to import second hand machinery a certificate from chartered Engineer giving details of its history. .  Adequate provisions should also be made for tools and spares.  Equipments for utilities (Power. its impact on the viability of the project be analysed. Selection of Plant and Machinery  Selection of plant and machinery should be done according to manufacturing process and size of the unit. fuel etc) should also have sufficient capacity to meet the requirements of main plant and machinery.  It is not always necessary to procure machinery from suppliers whose quotations are the lowest.  If the project is being implemented on turnkey basis .

III.  If raw material is bulky and difficult to transport.  In order to have uninterrupted production. economic life and suitability of second hand machinery should be obtained. a comparative study regarding transportation of raw material and finished products should also be done. it is better to locate the plant near the source of raw material. Raw Material  The requirement of raw material at full capacity should be ascertained and it should be ensured that necessary raw material will be available at reasonable price. raw material. it should be ensured that satisfactory arrangements for repair have been made and necessary spare parts will be available in time.  If transportation of finished products is more difficult than its raw material. II. . Plant layout  Proper plant lay out can reduce manufacturing cost by savings time and money . I.  Regular supply of raw material is very necessary for the successful operation of the plant. it may be better to set up project near to the market. Market  While deciding location of the project. 8.  Plant lay out be done in such a way that minimum time is taken in handling equipment . consumables.valuation.  Proposed land should be non agriculture and approved for Industrial use. Location of the plant.  Load bearing capacity of the land should be ascertained. 7. goods –in –process and finished goods. Land  Land should be sufficient for the proposed project and the future expansion plans.

water. an approach road may have to be laid from the site to the main road. scheduling and controlling various activities essential for the execution of the project. fuedl etc to be ensured.  It should be ensued that all the activities have been included and the time schedule given by the promoter is reasonable. Power. fuel etc. power. Labour  Sometimes skilled labour is not available at a particular place.  All possible activities from project identification to commencement of production should be listed. If labour has to be obtained from outside .  Arrangement should be made to procure necessary raw material inputs like raw material.  Arrangement for utilities power. Transportation  If the proposed site is not connected with main road. Utilities such as water . .  If the unit proposes to buy their own vehicles cost benefit analysis be made. labour etc appropriate time so that plant does not remain idle and the implementation may commence soon as the installation of the plant is completed.arrangements to provide housing facilities analyzed. If there is shortage of power supply alternative arrangement be way of Gen Sets etc be ensured. Effluent disposal  The problem of effluent differs from industry to industry depending on nature and quantity of effluent. interest and other expenses of maintaining vehicle compared to vehicles engaged on hire basis. by calculating deprecation. VI.IV. Schedule of Project Implementation  The Project Evaluation and Review Technique ( PERT) or Critical Path Method (CPM) helps in proper planning . VII.  The quality of road may be decided keeping in view the quantum of goods to be transported.  It should be ensured that necessary treatment is provided the effluent unit. V. 9.

. likely consumption in future and exports Production Capacity. Channels of Distribution involved. imports. duties and taxes Government Policies regarding industrialization. Imports and likely future capacity. the consumers.Commercial & Market Analysis: Major Headings Demand Supply Distribution Pricing External forces Information Needed Product. actual production. Capacity utilization. exports. the cost of distribution and the mode of transport Domestic and international price trends. Plan outlay etc. foreign collaboration. Uses. actual consumption. control on prices.

Land and Site Development. VI. 3. VII. IV. Current Ratio III. VIII. Capital Cost of Project I. Sources of Finance. Projected Balance Sheet 4. Profitability Estimates II. Cash flow Estimates III. Buildings Plant and Machinery Engineering and consultation fees Miscellaneous Fixed Assets Preliminary and Pre operative Expenses Provisions for contingencies Margin Money for Working Capital 2. Debt Equity Ratio II. Debt Service Coverage Ratio IV. Ratio Analysis I. V. II. Break Even Point .Financial Analysis: 1. Financial Projections I. Fixed Assets Coverage Ratio 5. III.

Lenders generally are taking an undertaking from the promoter to meet the cost over run . But such an undertaking does not have much practical meaning. If the cost of a project is overestimated. the Financial Institution may have to make unnecessarily higher commitments and the promoters may divert resources for other purposes . interest and dividend will change with the change in the capital cost of the project. if any. Many a times a promoter is not in a position of tobring additional resources sto finance the overrun.Capital cost of Projects and sources of Finance Estimation of capital cost of the project provides the basic information to decide its pattern of financing and viability. in the implementation of the project. Overestimation of the cost of the project is also equally bad as underestimation. If cost of project is not estimated correctly. ultimately Lenders have to provide the additional resources to safeguard the money already invested in the project. the preparation of cash flow and profitability estimates will be futile exercise because the amount of deprecation .

Sr No B Particulars Buildings Items to be included  Main factory building  Ancillary factory building  Administrative building  Godowns  Canteen. DETAILS OF CAPITAL COST OF PROJECT AND METHODS OF ANALYSIS Sr No A Particulars Land and Site Development Items to be included  Cost of Land  Legal Charges and Registration  Cost of levelling  Cost of laying Roads  Cost of fencing  Cost of Gates Documents/Particulars Scrutinized to be  Ascertain from plant layout and proposed construction of buildings that land is sufficient for the project and possible future projections.  Rate per square meter of each construction  Agreement with building Contractor.  Total area of fencing and the basis on which provision has been made. Documents/Particulars to be Scrutinized Sr No C Particulars Plant Items to be included and Imported Plants . tanks. if any  A note on past record of building contractor and Architect. drainages ec  Architect’s fee Documents/Particulars to be Scrutinized  Design of buildings  Different types of construction and area under each type of construction  Ascertain from plant outlay whether proposed construction of building is sufficient and also no unnecessary construction is done.Estimation of the capital cost of the project is necessary not only in the interest of the promoter but also in the interest of the lender. Guest Houses etc.  Quarters for essential staff  Soils .  Agreement for purchase of land  Rates of legal charges  Total area of road and cost per sq meter. wells etc  Garages  Cost of sewers.

delivery dates credit terms. if already placed of plant to be imported. reputation of suppliers. freight and insurance  Import duty  Clearing Loading .  Quotations of plant to be imported  Orders. List of main items of machinery to be purchased – Ensure that all items ae included and they have proper balance of capacity Cross check with some reputable potential suppliers From whom the promoters could have asked. Orders of machinery if any placed Contact entered between the company and machinery suppliers.  Import license  Report of an independent Engineer. etc. but have not asked to bid or quote Selection should be done on the basis of not only price but also technical sophistication. if second hand plant is being imported.Machinery  FOB value of plant to be imported  Shipping. unloading and transportation charges  Foundation and installation charges  Ensure that proposed plant is necessary  Ensure that necessary stores and spares are also imported. Indigenous Plant  Main Plant and other Machinery  Machinery stores and spares  Sales tax  Transportation charges  Foundation and installation charges .

Sr No E Particulars Misc Fixed Assets Documents/Particulars to be Scrutinized  Contract between company and foreign collaborator  Contract between company and consultants  A note on past record of consultants  Relationship. office machinery. Price list of equipment . if any. Items to be included  Furniture  Office machinery and equipments  Vehicle Cars. etc and cost thereof.Sr No D Particulars Engineering & Consultancy Fees Items to be included  Expenses of foreign technicians  Expenses of training for Indian technicians  Technical Know how fees  Expenses on drawings  Consultancy fees for preparing project report. air and steam  Laboratory Equipment  Workshop Equipment  Fire fighting Equipments  Effluent collection. Capital Issue and Project Report calculate charges thereon  Brokerage and Commission on capital issue  Find the construction period and calculate  Other Capital issue interest for that period Expenses . treatment and disposal arrangements  Misc fixed assets. piping etc. equipment etc. equipment. between promoters of a project and consultants. Documents/Particulars to be Scrutinized Details of various items of furniture. Contract regarding electric installation.  Find the total amount of Feasibility Report. if outside vehicles are hired. trucks etc. laboratory workshop Sr No F Particulars Preliminary and Pre operative Expenses Items to be included Documents/Particulars to be Scrutinized  Market Survey.  Cost of electric installation  Equipments and pipes for distribution of water . Ascertain whether it is necessary to invest in vehicles for the project. Estimate cost of maintaining vehicles (s) and compare with transportation charges to be paid .

 Make provisions for fluctuation in foreign exchange contingencies for non rates etc. working expected production in first Capital  Imported Raw Material year. firm items of cost at the rate of 5% to 15% depending upon inflationary trend and period of project implementation.  Longer the project implementation. However.  Particulars Documents/Particulars to be Scrutinized Provisions for Probable increase in cost due to  Divide total cost Contingencie new additions estimates into two s groups – considered Probable increase in cost due to Firm and Non Firm rise in prices. sales tax. Sr No H . The level of raw materials. excise duty.Sr No G  Calculate other expenses during construction period. if profitability estimates of first year indicate required cash loss. consumable stores. finished goods and debtors should be decided  Commitment charges  Interest on Term Loans during construction period  Mortgage Expenses  Misc Expenses during construction period  Cash losses if any Items to be included  Calculate the amount of mortgage expenses. higher the contingencies required. Particulars Items to be included Documents/Particulars to be Scrutinized Margin  Indigenous Raw Material Calculate total requirement of money for working capital on the basis of required. transportation charges. goods in process. take working capital requirement on the basis of the  Consumable stores production for second or third  Stock of goods in process year when the project is likely to get the profit.  Outstanding debtors.

. process time and practice prevailing in the industry.keeping in view of production requirements. 25% of the total current assets should be financed by long term resources and included in the capital cost of the project.

however in some specific schemes this norm may be flexible. it is not counted as promoters contribution because the finance does not come from promoters.equity is 2:1. Promoter’s contributions include. However in case the promoters are short of own capital.  Higher debt equity is allowed for projects promoted by Technocrats.1 depending upon nature of the project .  Debt equity ratio is generally allowed about 2. The maximum amount of assistance shall be lower of the two amounts worked out on the basis of Debt-Equity norm and the security margin norm. The entire promoter's contribution envisaged in the project is desired to be raised by way of capital before first disbursement of the loan installment. projects located in backward areas etc. Promoters contribution 2.  If it is felt that the Subsidy form center or state will not be available during the project implementation period.  Central or State Subsidy is treated as equity for debt equity ratio. its location. The normal lending norm for debt. some amount may be raised as unsecured loans in the form of quasi-capital. bridge loan to be set off against the subsidy receivables may be considered. The debt equity ratio is the ratio of loan component and the equity contribution in the total project cost.Means of Finance: 1. 1) 2) 3) 4) 5) Share Capital to be subscribed by promoters Unsecured Loans from promoters Equity shares issued as rights to existing share holders Convertible debentures/bonds issued as rights to existing share holders. promoters background etc. Debts Promoter’s contributions The minimum promotor's contribution envisaged in the project is worked out on the basis of Debt-Equity norm and the security margin norm applicable at the time of sanction of the loan. Cash Accruals. however. The quantum is ascertained during the appraisal of loan proposal. capital intensive projects. .

 Depreciation to be calculated on straight line method for the purpose of profitability estimates and on written down method for the purpose of tax calculations. Water etc) Repair and Maintenance Wages and salaries Rent insurance etc. Excess of sales realization over expenses indicates the expected profit of the unit. the excess portion and also pre –operative expenses should be added to fixed assets proportionately to ascertain that value of fixed assets for calculating deprecation on them. fuel.          .5% of the project cost ( excluding margin money for working capital ) can be written off from profits at the rate of 10% every year over a period of 10 years. Utilities ( Power.  If preliminary expenses are more than 2. Items to be included in profitability estimates:        Sales Realizations Raw Materials and Consumable Stores. Depreciation 5% on Building 10% on Plant and Machinery ( Add 5 % for every extra shift) 20% on Misc fixed Assets Contingencies provided in the estimation of capital cost of project should be added to the fixed assets proportionately to ascertain the value of fixed assets for calculating depreciation. Administrative expenses Selling Expenses Interest on Term Loan Interest on Bank Borrowings Profit.5% of capital cost .Profitability Estimates Profitability estimates are estimates of expected sales realizations and expenses to be incurred by the unit.  Preliminary expenses upto a limit of 2.

12) Any other Source. Repayment of bank borrowings Interest Taxation . and current liabilities will remain in the same proportion once the utilization of capacity and expected production is presumed stable at a particular level after first 2. 6) Deferred Credits 7) Trade Credits 8) Bank Borrowings 9) Capital Subsidy from Government. Sources of funds: 1) Share Capital 2) Term Loans/ Debentures 3) Net profit after deprecation and writing off preliminary expenses but before interest and taxes. 3 or 4 years. 10) Development Loans / Sales Tax Loans in notified areas. Decrease in Term Loans /debentures/deferred credits Decrease in secured loans/ public deposits.CASH FLOW ESTIMATES Cash flow estimates are prepared to ensure that unit will have necessary cash with it and it will not face liquidity problems While profitability estimates are prepared only from the year in which unit os likely to commence production. current assets. Cash flow estimates are necessary for the construction period also to ensure availability of cash according to the requirement of the project. It is presumed that level of production . Uses of funds:         Capital Expenditure Preliminary Expenses. 4) Depreciation 5) Preliminary Expenses written off. Curent assets – Increase in level of inventories/ deferred credits. 11) Unsecured Loans and deposits.

The level of inventories and book debts will increase in first 2-3 years with the increase in the level of production. The difference between sources and uses of funds indicates the net cash surplus or deficit arising out of movement of funds in the year. Dividends  Any other items. Decrease in Term Loans/debentures/ unsecured loans /deferred credits is to be shown as per proposed repayment schedule. .

sundry creditors. according to the movement shown in cash flow and profitability estimates. .  The position of share capital .  Fixed Assets are taken after deducting depreciation provided in profitability estimates.Projected Balance Sheet Projected balance sheets are prepared on the basis of profitability estimates and cash flow estimates. term loans.  Preliminary expenses are taken after deducting the amount which is already written off from the expected profits of the unit.  Closing balance shown in cash flow estimates represents the position of cash and bank balances at the end of each year.  Cumulative surplus shown in profitability estimate represents the position of reserve at the end of each year. current assets etc is ascertained at the end of each year. bank borrowings.

. similarly Proposed term loans are added to existing term loans if both have pari passu charge on fixed assets. the amount of such fixed asset and loan should be excluded.Ratio Analysis: Debt Equity Ratio: Current Ratio: Debt/ Equity Current Assets/ Current Liabilities Debt Service Coverage Ratio: The ratio indicates the capacity of the unit to repay term debt and interest thereon . Profit after tax + Depreciation+ Interest on term Debt + Lease rentals if any Repayment of term debt + Interest on term debt + lease rentals if any. Fixed Asset coverage Ratio is calculated as under: Net Fixed Assets + Capital work in progress Deferred Credits + Term Loan + Secured Debentures + other loans having first charge on fixed assets.  If any fixed asset is having specific charge for a particular Loan. fixed assets to be created for implementation of the project are added to the present fixed assets. The excess of fixed assets over Term Loans secured by them provides margin on security.  In case of exiting units . Fixed Asset Coverage Ratio: Term Loans are generally sanctioned against the security of fixed assets. The ratio is calculated for the entire repayment period separately for each year and also as an average for the entire repayment period. In order to find out the available security cover .

Royalty payments linked to sales VI. Interest on Term Debt VII. Interest on working capital . Administration and Misc Expenses IV. Packing material IV. proposed fixed assets will cover the proposed Term Loan. Raw materials II. In case of New units. Break Even Point. Fixed portion of selling expenses V. Variable selling expenses VII. Salaries and wages II. lower will be the margin available because the amount of term loan will be higher for creation of fixed assets. The cost of production is just recovered at break even point. Repairs and Maintenance III. Higher the debt equity ratio. Power fuel and water V. Proposed fixed assets will be equal to the entire capital cost of the project except those preliminary expenses which will not be capitalized. Break even point is the point at which the unit is neither earns profit nor incurs losses.  The fixed assets coverage ratio depends on debt equity ratio. Consumable Stores and spares III. The break up of fixed and variable cost: Fixed Cost: I. The cost of production is divided into two categories: Fixed Cost and Variable Cost. Fixed Royalty and know how payments VI. Depreciation on straight line basis. Variable Cost: I.

Various discounting rates are applied to the net present cash flows until a rate is found that reduces the net present value to zero.00 Sale Price Rs. 12 per unit Variable Cost Rs.000 at the production of 1000 units. Break Even Point: = Fixed Cost Contribution Contribution: Difference between sale price and variable cost is called contribution. Break even point can be expressed in terms of : 1) Volume of production : BEP is multiplied by volume of production 2) A percentage of installed capacity : BEP is multiplied by % age of capacity utilisation 3) Amount of sales. 6 per unit will recover the entire cost of Rs.VIII.: BEP is multiplied by sales realization. The level of production at which the contribution recovers entire fixed cost is called break even point. Internal Rate of Return Internal Rate of Return (IRR) is that rate of discount which would equate the present value of investments (Cash Outflows) to the present value of benefits ( Cash in flows) over the life period of the project. 6 Break even Point = Fixed Cost Sale Price – Variable Cost = 6000 =1000 12-6 The break even point will be at 1000 units. 6000. the contribution of Rs. The contribution helps a unit to recover its fixed cost. . Fixed Cost Rs. 6. IRR can not be determined by just looking at the cash flows. It is calculated by trial and error method. Other variable expenses varying directly in proportion to output.

VIII. economically viable and financially sound may run into difficulties if it is not backed by sound and efficient management. Corporate Sector . Various forms of organization. Partnership firm III. Therefore . II. Qualities of an entrepreneur I.Management Analysis A project which is considered technically feasible. Honesty and Integrity Involvement in the project Financial Resources Competence Initiative Intelligence Drive & Energy Self confidence Frankness Patience 2. Man behind the project is very important. IV. V. II. proper evaluation of management is a highly essential part of appraisal 1. VI. VII. III. Proprietary Concern I. Experience shows that may of the projects have been rendered sick owing to inefficient or dishonest management. X. IX.

awaits decisions Takes time to understand the implications of any action . Although the same is highly subjective .Qualities of Entrepreneur Each promoter has to come in contact with the appraising officer several times for discussion regarding the project. Excellent (10) Highly alert to opportunities Very quick in understanding pertinent points of a problem Good (12) Makes sincere efforts to honour his words Has other source of Income Has sufficient financial resources to meet the requirement of promoters contribution Poor (4) Does not bother much to honour his words Does as part time activities May have to borrow to meet the requirement of promoters contribution 1 2 3 Character Involvement in the project Financial Resources 4 Competence Has knowledge or experience relating to the project. Good (6) Performs work with just the general guidance Understand the problem after reasonable explanation 5 6 Initiative Intelligence Has neither experience nor knowledge relating to the project. A check list giving 10 qualities of an entrepreneur is given below to judge promoter of a project. Poor (2) Routine worker. Appraising officer should evaluate the qualities of the promoter after interviewing him two three times. Excellent (20) Honest and keep its word under all circumstances Highly Involved – Only source of Income Has enough financial resources to meet not only the requirement of promoter’s contribution but also to finance small overrun in the project cost Has knowledge and experience relating to the project. it gives and idea about the qualities of the promoters.

the disbursements were made to the credit of borrower’s Current Account instead of direct payment to the suppliers. Monitoring: Term Loan component in the total advances ( As per Schedule 9 of the balance sheet ) has been at 51.03. 11. 2. Similarly. The Central Statutory Auditors in their preliminary audit reports for the year 2006-07 have pointed out that in several cases branches are relying upon Chartered Accountant Certificates in ensuring end use of funds in borrowal accounts. As per the Bank’s guidelines.2007) End use of Funds in borrowal accounts Verification of the end use of funds is a basic requirement in lending. In such cases.2007 Commitment charges of 1% applicable on undrawn portion of Term Loan. if the date of commencement of commercial production extends beyond a period of 6 months after the completion of the . branches are advised to ensure that disbursement in borrowal accounts is made strictly as per the terms of the sanction as per the Bank’s extant guidelines. (LAC 80 dtd. the end use of funds has to be ensured in all cases. Monitoring of Industrial Projects under implementation In terms of RBI guidelines on income recognition.7 8 9 10 Drive & Energy Self Confidence Frankness Patience Always highly energetic Believes strongly in himself and his abilities Talks frankly about the weak points of the project Has patience and does not expect quick results Fairly Energetic Has faith in his abilities Prepared to talk on weak points of the project Appreciates the time taken by lending institutions in appraisal Avoids Hard work Believes in luck Avoids talking on weak points of the project Wants quick results. It is also observed that in some cases. disbursement of Term Loans through current account should be avoided as far as possible as it is difficult to track end use of funds in such cases. the date of completion of the project should be clearly spelt out at the time of financial closure of the project.17 % as on 31. asset classification and provisioning on advances. particularly Term Loans. Though Chartered Accountant Certificate helps in assessing the end use of funds but in any case it does not dispense with our own assessment for confirming end use of the funds lent unless specifically provided in the sanction.07. In this regard.

75 2.13 27. In view of the above guidelines.95 0. the account should be treated as Sub-standard Asset. 41. Exercise for Break even point: Installed Capacity : 80 lakhs jewels Capacity utilization: 93. The Cost of production: Particualrs Raw material Consumable Stores Power fuel water etc Repairs and maintenance Wages and Salaries Selling Expenses Interest on working Capital Rent Insurance etc Depreciation Administrative Expenses Interest on Term Loan Total Calculate BEP in terms of  volume of production  % age of Installed Utilization  Amount of Sales Rs/ Lakhs 5.86 1.50 0. It is also important to monitor the progress of the project under implementation on an ongoing basis to ensure commencement of commercial production in time and as per the schedule approved at the time of financial closure/sanction.30 3.75% ( III rd year of operation) Production : 75 Lakhs Jewels Sales Realisation: Rs. date of implementation of the project/commencement of commercial production envisaged initially should be reviewed afresh and final decision should be taken and documented under intimation to sanctioning authority.project as originally envisaged at the time of initial financial closure of the project.50 1.75 4. At the time of financial closure. there is a need to decide the date of commencement of commercial production very discretely and realistically.25 4.15 0.06 .25 Lakhs.92 1.

71 X 75 Lakhs jewels 27.30 3. Contribution : (C – A) Rs/ Lakhs 0.A.92 1.75 4.15 1.13 13.25 27.90 X Production = 13.35 BEP Production = Fixed Cost Contribution = 36.25 4. Variable Cost: Particulars Raw material Consumable Stores Power fuel water etc Selling Expenses Interest on working Capital Total B Fixed Cost: Particulars Repairs and maintenance Wages and Salaries Rent Insurance etc Depreciation Administrative Expenses Interest onTerm Loan Total C.71 41.50 0.86 0.95 13.75 2.50 1.85 lakhs Jewels .90 Rs/ Lakhs 5. Sales Realisation : D.

71 27.90 X 93.71 27.07 % of installed capacity BEP % age of Capacity = Fixed Cost X Sales Contribution = 13.27 Lakhs .75 = 46.BEP % age of Capacity = Fixed Cost X Capacity Utilised Contribution = 13.25 = 20.90 X 41.

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