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SUMMER TRAINING REPORT

WITH SPECIAL EMPHASIS ON


COSTING & COST CONTROL
IN PARTIAL FULFILMENT OF
MASTER OF BUSINESS ADMINISTRATION
2008-10
SUBMITTED BY-
UTTAR PRADESH TECHNICAL UNIVERSITY,
LUCKNOW

UNDER THE GUIDANCE OF UNDER THE SUPERVISIOOF


MIS HUMA IQBAL MR. D.R. NAHAK
Chief finance Manager of HAL

SUBMITTED BY-
JAGESH SINGHAL
MBA 3rd semester
FROM
ACKNOWLEDGEMENT
First of all I thank God for giving me this wonderful opportunity to undertake this
research which is a part of my MBA program.

I wish to express my profound thanks to respected Director, H.O.D. &


management faculty of Institute Of Engineering & Technology ,Sitapur for giving
practical tips and contour to my quest.

I would like to express my thanks to M/s Hindustan Aeronautics Ltd, Accessories


Division, Lucknow Division, who gave me an opportunity to study in such a large
organisation.

I am grateful to Mr. A.K.Srivastava, Chief Manager (Fin), Mr. D.R.Nahak,


Sr.Manager (Fin), Mr Santosh Bhatnagar, Sr.Manager (Training) and I wish to express
my deep sense of gratitude to Mr. Arun Narula, Dy. Manager (Budget & Audit),
Mr.S.Z.A.Rizvi, Manager (Costing), who inspired, guided and gave their valuable
suggestions.

I convey my thanks to all those whose name do not appear but who contributed
significantly. Their valuable suggestions considerably helped me in the final drafting of
this report. They helped me at every stage of project work. Their contribution, lesson of
wisdom have therefore been affectionately appropriate rather then grateful
acknowledged.

Many thanks to all of them, for their patience and support to help me on this
project work. Because of all their help only my effort base fruits and made me able to
present this report.
JAGESHSINGHAL
MBA (2nd year)
I.E.T. Sitapur

PREFACE

With respect to the allotted period, I had the privilege of having a formal
relationship with the organization as trainee but informally it is a sacred place for me as it
is my first practical exposure to an organisation to know and get aware to an
organizational real practical stressful environment. It was a great opportunity extended to
me to work with such a large organization. Since the duration of my summer training
was short, in comparison to the monolithic level of functioning in the organisation, so it
became difficult to cover each and every aspect in detail but I have tried my best to see
all the important points related to my study. This study gave me a practical exposure of
the functioning of Accounts and Finance department. The information so gathered for
the presentation of this report is collected by the personal contact with the concerned
person of different departments.

The project report is the mere constitution of varied functions, which are handled
by the Accounts Department. In the due course of my study I became aware of the
concepts, which are used in HAL, with respect to the pricing and costing function. The
system of accounting, which prevails in HAL, is known as Integrated Accounting
System and is unique to the organization.

The whole study is bifurcated in four major parts as different sections of Finance
Department, Budget Section, Costing section and Capital Budgeting system. Although
these sections are separate and perform their separate operations but these are interrelated
with each other.
INDEX

S.NO. PARTICULARS PAGE NO.


1 Introduction of HAL 1
2 History and Growth of HAL 2-5
3 HAL Mission & Value 6
4 Board of directors, Corporate Organisation 7-8
5 HAL Customers, Present set up of organization 9-12
6 HAL Lucknow Division 13-17
7 HAL a Financial Perspective 18
8 Finance Section 19-23
9 Payroll Section 24-26
10 Bills Receivable Section 27-30
11 Bills Payable – Indigenous 31-33
12 Bills Payable – Foreign 34-36
13 Bills Payable – Services 37-38
14 Cash Section 39-40
15 Time Office 41-44
16 Book Keeping Section 45-49
17 Budget Section 50-54
18 Material Accounts Section 55-58
19 Cost Accounts Section 59-70
20 Method of Costing in HAL 71-85
21 Budgetary Controls 86-88
22 Inventory and Material Management 89-92
23 Provident Fund Section 93-95
24 Abbreviations 96
INTRODUCTION

Hindustan Aeronautics Limited is the only organisation of kind engaged in the

development, production, maintenance and overhauling of Aircraft & Helicopters. MiG-

21, MiG-27, Mirage-200, Dornier-228, Jaguar, Cheetah, Chetak, Light Combat Aircraft

(LCA), SU-30MKI, IJT, Advanced Light Helicopters (ALH) are some of the major

Aircraft / Helicopters, which are manufactured/overhauled by HAL. Organisation is also

involved in the manufacture and assembly of system for India’s space program. It has

got a rare distinction of holding the capability spanning from the entire range of design

conceptualization to production and after sale product support.

HISTORY AND GROWTH OF HAL

Hindustan Aeronautics Limited was formed on 1st October 1964 with the merger
of Hindustan Aircraft Limited and Aeronautics India Limited. Hindustan Aircraft Limited
was promoted by Late Sri Walchand Hirachand in December 1940 in association with the
government of Mysore as a Private Limited Company with its registered at Bangalore
and the interest of the Company and took over its management. Sri Walchand Hirachand
had the vision to start this Company for the manufacture of aircraft for the first time in
India.
The Harlow Trainer and Curtis Hawk fighter aircraft were the first two aircraft
produced by Hindustan Aircraft Limited and they were successfully test flown in 1942.
However, soon after the aircraft manufacturing programs were abandoned in favour of
overhaul and repair of aircraft to support the war effort during World War II.
In August 1962 government of India entered into a collaboration agreement with
Soviet Union for the manufacture of MiG-21 FL aircraft including its engines and
Avionics India Limited was formed to undertake manufacture of MiG-21 aircraft and
factories were set up at Nasik in Maharashtra for the airframes and Koraput in Orrisa for
the MiG aircraft. Hindustan Aircraft Limited and Aeronautics India Limited were
merged in October 1964 to form the present Hindustan Aeronautics Limited.

Today, HAL has 16 Production Units and 9 Research and Design Centers
in 7 locations in India. The Company has an impressive product track record - 12 types of
aircraft manufactured with in-house R & D and 14 types produced under license. HAL
has manufactured 3550 aircraft (which includes 11 types designed indigenously), 3600
engines and overhauled over 8150 aircraft and 27300 engines.

HAL has been successful in numerous R & D programs developed for both
Defence and Civil Aviation sectors. HAL has made substantial progress in its current
projects:

• Dhruv, which is Advanced Light Helicopter (ALH)


• Tejas - Light Combat Aircraft (LCA)
• Intermediate Jet Trainer (IJT)
• Various military and civil upgrades.

Dhruv was delivered to the Indian Army, Navy, Air Force and the Coast
Guard in March 2002, in the very first year of its production, a unique achievement.

HAL has played a significant role for India's space programs by participating in
the manufacture of structures for Satellite Launch Vehicles like

• PSLV (Polar Satellite Launch Vehicle)


• GSLV (Geo Stationary Launch Vehicle)
• IRS (Indian Remote Satellite)
• INSAT (Indian National Satellite)

Apart from these three, other major diversification projects are Industrial Marine Gas
Turbine and Airport Services. Several Co-production and Joint Ventures with
international participation are under consideration.

HAL supplies / services are mainly to Indian Defence Services, Coast Guards and Border
Security Forces. Transport Aircraft and Helicopters have also been supplied to Airlines as
well as State Governments of India. The Company has also achieved a foothold in export
in more than 30 countries, having demonstrated its quality and price competitiveness.

HAL has won several International & National Awards for achievements in R&D,
Technology, Managerial Performance, Exports, Energy Conservation, Quality and
Fulfillment of Social Responsibilities.

• M/s Global Rating, UK in conjunction with the International Information and


Marketing Centre (IIMC), awarded the “INTERNATIONAL GOLD MEDAL
AWARD” HAL for Corporate Achievement in Quality and Efficiency at the
International Summit (Global Rating Leaders 2003)
London U.K.
• HAL was presented the International - “ARCH OF EUROPE” Award in Gold
Category in recognition for its commitment to Quality, Leadership, Technology
and Innovation.

• At the National level, HAL won the "GOLD TROPHY" for excellence in Public
Sector Management, instituted by the Standing Conference of Public Enterprises
(SCOPE).
Evolution and Expansion:
OBJECTIVES

 To ensure availability of Total Quality People to meet the Organizational Goals

and Objectives

 To have a continuous improvement in Knowledge, Skill and Competence

(Managerial, Behavioral and Technical)

 To promote a Culture of Achievement and Excellence with emphasis on

Integrity, Credibility and Quality

 To maintain a motivated workforce through empowerment of

 Individual and Team- building

 To enhance Organizational Learning

 To play a pivotal role directly and significantly to enhance Productivity,

Profitability and improve the Quality of Work Life

HAL Mission & Values

HAL MISSION: “To become a globally competitive aerospace industry while


working as an instrument for achieving self-reliance in design, manufacture and
maintenance of aerospace Defence equipment and diversifying to related areas, managing
the business on commercial lines in a climate of growing professional competence ".
HAL VALUES:

• CUSTOMER SATISFACTION

• COMMITMENT TO TOTAL QUALITY

• COST AND TIME CONSCIOUSNESS


• INNOVATION AND CREATIVITY

• TRUST AND TEAM SPIRIT

• RESPECT FOR THE INDIVIDUAL

• INTEGRITY

New MD at HAL Lucknow .

Mr Salil Kumar Jha has taken over Bangalore, Jan

as Managing Director of HAL’s Accessories Complex, Lucknow, from January 1, a

company release has said. Mr Jha succeeds Mr K. Umamaheswar, who retired on

December 31, 2008. Mr Jha joined HAL in 1984 at Transport Aircraft Division, Kanpur.

As General Manager (Projects) at Accessories Complex, he played a key role in the

production run of initial batches of Su-30 MKI fighter aircraft. He has experience in project

management, materials management, planning and production of aircraft and accessories.


HAL DIVISIONS
HAL SERVICES
RESEARCH & DEVELOPMENT
CENTERS
In the year 1951, when HT-2 the first indigenously designed primary trainer made
its first flight, it heralded the era of Research & Design at HAL This aircraft served as the
back bone of IAF's training fleet for more than three decades.
Subsequently, HAL's R&D capabilities have grown from strength to strength and have
been harnessed to achieve greater heights of self reliance. The Advanced Light
Helicopter - ALH (DHRUV) is the latest new generation helicopter designed and
developed by HAL. It is under production since 2002. The test flights on Technology
Demonstrators (TD-I and II) and Prototype Vehicles (PV-1 and 2) of Light Combat
Aircraft - LCA (Tejas) are progressing satisfactorily. The Intermediate Jet Trainer (IJT) is
undergoing test flights.
In addition, HAL has successfully completed many systems updates and integration
tasks. HAL has 9 Research & Design Centres engaged in the design and development of
combat aircraft, helicopters, aeroengines, gas turbines, engine test beds, aircraft
communication and navigation systems and mechanical system accessories.

The indigenously upgraded MiG-27M aircraft has received Initial Operation


Clearance (IOC) and the first batch of aircraft has been delivered. First flight test on
Jaguar Nav WASS upgraded aircraft with indigenously developed mission computer with
weapon delivery capabilities has been carried out and retromod of fleet has been taken
up.
Equipped with the latest facilities, the company is backed by high profile, highly skilled
manpower with an impressive track record of more than five decades of rich experience
in all disciplines of aeronautics.
DESIGN AND DEVELOPMENT COMPLEX

HAL is Designing and developing a variety of aircraft at its Hyderabad,


Lucknow and Bangalore division.
Aircraft Produced/ Overhauled under Licence
Hindustan Aeronautics Limited. All rights reserved.
HAL AT A GLANCE

1940 Hindustan Aircraft Ltd. Was set up by Late Sir Walchad


Hirachand in association with then Govt, of Mysore, as a private Ltd.
Company
19-11-12 First product Harlow Trainer and Curliest Hawk Aircraft handed
over to Govt. of India Company was handed over to United
States Air force.
1942-45 HAL repaired over 1000 different varieties of aircraft and 3800
piston engines.
1945 Govt. of I latest India took over the management of HAL again,
after
The World War.
1948-49 First Percival Prentice Aircraft assembled.
1951 The control of HAL was shifted from Ministry of Industries to
Ministry of Defense.
1953-54 The first Hindustan Trainer-if(HT-11) had its maiden flight
1956 HAL came under the public sector
1960 Aircraft manufacturing depot was established at Kanpur
1962 Aeronautics India Ltd. was formed to manufacture MIG-21
Aircraft.
Three Factories at Nasik, Koraput & Hyderabad established.
1964 HAL was dissolved and its assets were merged with Aeronautics

India Ltd. And the company by the name of Hindustan

Aeronautics Limited was formed.

1969 An agreement with USSR was reached for the license production

of MIG-21M aircraft.
1970 Helicopter Div. was established to manufacture helicopters.

1973 Lucknow Div. established to manufacture instruments and

accessories.

1976 An agreement with USSR for license of MIG-21 and BIS aircraft

1979 Agreement with British Aerospace for manufacturing Jaguar

aircraft

1982 Agreement with USSR for license production of MIG-27M

Aircraft

1983 Korwa Division of HAL formed.

1990 Design and development of Light Combat Aircraft (LCA)

1991 Development of advance Light Helicopter (ALH)

1998 IMGT, a new division establish at Bangalore.

HAL Customers:
International Customers:
• Airbus Industry, France
• APPH Bolton, UK
• BAE Systems, UK
• Chelton, UK
• Coast Guard, Mauritius
• Corporate Air, Philippines
• Cosmic Air, Nepal
• Dassault Aviation, France
• Dowty Aerospace Hydraulics, UK
• EADS, France
• ELTA, Israel
• Gorkha Airlines, Nepal
• Hampson, UK
• Honeywell International, USA
• Island Aviation Services, Maldives
• Israel Aircraft Industries, Israel
• Messier Dowty Ltd., UK
• Mistubishi Heavy Industries, Japan
• MOOG, USA
• Namibian Air Force, Namibia
• Peruvian Air Force , Peru
• Rolls Royce Plc, UK
• Royal Air Force, Oman
• Royal Malaysian Air Force, Malaysia
• Royal Nepal Army, Nepal
• Royal Thai Air Force, Thailand
• Smiths Industries, UK
• Snecma, France
• Strongfield Technologies, UK
• The Boeing Aircraft Company, USA
• Tran world Aviation, UAE
• Vietnam Air Force, Vietnam

Domestic Customers:

• Air India
• Air Sahara
• Airports Authority of India
• Bharat Electronics
• Border Security Force
• Coal India
• Defence Research & Development Organization
• Govt. of Andhra Pradesh
• Govt. of Jammu & Kashmir
• Govt. of Karnataka
• Govt. of Maharashtra
• Govt. of Rajasthan
• Govt. of Uttar Pradesh
• Govt. of West Bengal
• Indian Air force
• Indian Airlines
• Indian Army
• Indian Coast Guard
• Indian Navy
• Indian Space Research Organization
• Jet Airways
• Kudremukh Iron ore Company ltd.
PRESENT SET UP OF THE ORGANISATION

Hindustan Aeronautics Limited has three production complexes – Bangalore,


MIG and Accessories and one Design Complex each headed by a Managing Director,
reporting to Chairman, HAL. HAL has spread its wings to cover various activities in the
area of Design, Development, Manufacturing and Maintenance. Today HAL has 16
production divisions / units, 7 at Bangalore and 1 each at Nasik, Koraput, Lucknow,
Kanpur, Korwa, Hyderabad and Barrackpore. These divisions / units are fully backed by
nine Design Centers, these Centers are engaged in the design and development of the
Combat aircraft, Helicopters, Aero engines, Engine test beds, Aircraft communication
and Navigation Systems Accessories of Mechanical and Fuel system and instruments.

Major products of Accessories Complex:

Lucknow Division Landing Gear, Wheels, Brakes, Hydraulic & Fuel


accessories & aircraft instruments GSE & GHE, ECS.

Korwa Division INS, HUDWAC, NAV attack LRMTS, FDR, Auto Stab
System

Hyderabad Division Surveillance Radar, Precision Approach Radar, INCOM,


RAM, IFF, VHF / UHF (5).

Kanpur Division DO-228, HPT-32 and Civil aircraft


HAL LUCKNOW DIVISION

Accessories Division of HAL was established in 1970 with the primary objective of
manufacturing systems and accessories for various aircraft and engines and attains self
sufficiency in this area. Its facilities are spread over 94,000 sqm of built area set in sylvan
surroundings. At present it is turning out over 1100 different types of accessories. The
Division started with manufacturing various Systems and Accessories viz, Hydraulics,
Engine Fuel System, Air-conditioning and Pressurization, Gyro & Barometric
Instruments, Electrical System items, Undercarriages, Electronic items all under one roof
to meet the requirements of the aircraft, helicopters and engines being produced by HAL.
This was followed up with manufacturing the same range of accessories for MiG series of
aircraft, International Jaguar and repair / overhaul of Mirage-2000 & Sea-Harrier
accessories. In addition the Division manufactures systems for Civil Aircraft i.e. Avro,
Dornier and AN-32 & cheetah, chetak & Advanced Light Helicopters.

The Division, right from the beginning, laid a lot of emphasis on developing
indigenous capability for Design and Development of various System and Accessories.
This capability has culminated in indigenous design and development of a variety of
systems and accessories for the Light Combat Aircraft (LCA) and Advanced Light
Helicopter (all versions i.e. Army, Airforce, Navy & Civil) - two prestigious aircraft
programs in the country and IJT (Intermediate Jet Trainer). The Division has also
developed and has made successful strides into the area of Microprocessor based control
systems for the LCA Engine as well as other systems.
LUCKNOW DIVISION

REPAIRS, MAJOR SERVICING AND SUPPLY OF SPARES

The Division carries out Repair and Overhaul of Accessories, with minimum turn-
around-time. Site Repair facilities are offered by the Division by deputing team of expert
Engineers / Technicians.

Services provided for:

Military Aircraft, MiG Series, Jaguar, Mirage-2000, Sea – Harrier, AN-32,


Kiran MK- I / MK- II
HPT - 32
SU-30 MKI
Civil Aircraft
Dornier-228
AVRO HS-748
Helicopters
Chetak (Alouette)
Cheetah (Lama)
ALH (IAF / NAVY / COAST GUARD / CIVIL)

The Division has comprehensive manufacturing capabilities for various Hi-tech


components, Equipment and Systems to customer's specifications and ensures high
quality, reliability and cost effectiveness.

FACILITES:

Process
Heat Treatment facilities for all types of steels, Aluminum alloys, Copper, Nickel &
Titanium alloys.
Protective Treatment
Treatment facilities of all types like Plating, Publishing etc, SPECIAL types of Surface
protection & Painting facility, i.e. RILSAN Coating PTFE Coating, MOLY DAG
Coating.
Welding
Division has Electro Beam, Argon arc, Spot & Seam welding equipment to facilitate
intricate welding on thin metal bellows, capsules, stator Packs, Brushes etc. Our welders
are fully approved & certified by Civil Aviation Authority.

Rubber, Plastic, Foundry


These facilities are in - house to cater for the needs of various production /
servicing requirements.

Assembly and Test

• 8000 sq.mtrs of Clean/Air-conditioned room (class 10,000 with laminar flow


cabinets) where assembly & test activities for instruments, Hydraulics and Fuel
factories take place.
. Attached facilities to Assembly Shops are:
Dedicated Test Equipment, Environmental Testing facilities to meet the
aeronautical acceptance standards.

Environmental Laboratory
Facilities for all types of Environmental testing as per requirements of BS, MIL &
JSS, available to meet regular requirements of type testing of all types of units’
designed/developed in the in-house R &D centre.

In addition the Lab also caters for the need of special type of testing for Wheels,
Hydraulic item etc. in dedicated test rigs/beds. Design Computer Centre with Unigraphic,
CAD & Analytical Software Packages.

AWARDS:
The Accessories Division Certification is:
• The ISO 9001 Certification for entire range of products and services.
• ISO 14001 Certification for Environmental Management System

The Accessories Division Approvals are:


• Approval from DGCA, Govt. of India for design and development,
manufacturing and repair.
• Approval for Research & Design Centre by Department of Science and
Technology, Govt. of India.
• Approval of Director General Aeronautical Quality Assurance for Military
Aviation products and services

Products in Current Manufacturing Range:

• INSTRUMENTS, SENSORS, GYROS


• ELECTRICAL POWER GENERATION AND CONTROL
• LAND NAVIGATION SYSTEM
• MICROPROCESSOR CONTROLLER
• UNDERCARRIAGE, WHEELS AND BRAKES
• HYDRAULIC SYSTEM AND POWER CONTROL
• ENVIRONMENTAL CONTROL SYSTEM
• EJECTION SYSTEM
• ENGINE FUEL CONTROL SYSTEM
• GROUND SUPPORT EQUIPMENT AND TEST RIGS

Export Products

• Supply of Retable and Spares of Jaguar International and Cheetah (Lama) /


Chetak (Alouette) Helicopters
• Repair / Overhaul of aircraft accessories of MiG series Aircraft, Jaguar
International Aircraft, Cheetah (Lama) / Chetak (Alouette) Helicopters and
Dornier Multi-role Aircraft
• Supply of Ground Support Equipment for Aircraft such as MiG-23 / 27 / 29,
Mirage-2000, Jaguar, Light Combat Aircraft (LCA) Su-30 MKI, Sea Harrier,
Dornier DO-228, Avro HS-748 (Specific Version), Cheetah (Lama) / Chetak
(Alouette lll), Ml - 17, Advanced Light Helicopter (ALH).

Outsourcing:

Division has embarked upon selecting and creating a strong base of suppliers for
outsourcing precision components, tooling and test equipment..
Vendors are selected as per the corporate guidelines, pursuing a vendor approval process.
Applicant Organization with established facilities & capabilities, willingness to learn and
excel in producing aeronautical level of quality product and with financial strength and
preferably with DGAQA approval stand a good chance in becoming part of the
aeronautical industrial expanse.
HAL A FINANCIAL PERSPECTIVE

Hindustan Aeronautics Limited is a large manufacturing organization and its main


customers is Indian Air Force which gives HAL various orders for manufacturing, repairs
and overhaul, design and development etc. and provides 90 % amount of ordering in
advance and rest 10 % after receiving the complete order, so in this way HAL realizes
90% ordering amount before the supply of the items and only 10% of the amount blocks.
Therefore, the need of working capital in case of HAL is not much high with respect to
other manufacturing organizations. HAL has civil customers and it also takes contracts
from Navy and Coast Guard, Aeronautical Development Agency (ADA) etc. The
projects undertaken by HAL are either company financed or customer financed. It takes
money from customers in advance for the functioning of the projects. Company also
finances some of the projects and in these cases funds are provided by the government.
Company does not suffers from losses because there is no risk in the investment of
projects because investment is made on the basis of orders and some percentage of total
amount of the project is provided to the company in advance to start the project.

Capital structure theories are not applied by this organization because being
a Public Sector Unit, its main power is in the hands of government. Decisions taken
by government of India in relation to companies are followed by it. The Head Office
controls all the financial policies of different Divisions.
ORGANISATION STRUCTURE OF ACCOUNTS DEPARTMENT OF HAL LUCKNOW DIVISION

CHIEF MANAGER (FINANCE)

SR. MGR. (FIN) SR.MGR. (FIN) SR.MGR.


(FIN)

MGR(B/R) MGR(F-D) MGR (BP-I) MGR (FIN)

DM(B/R) DM(Cost/MA) DM (BK) DM (BUD) DM (F/B) DM (PF) DM (CASH) DM(F) DM(F)


DY.MGR.(SEV)
AO (P/R) A.A.O.
(TO) AO (P/R)
FUNCTIONS AND RESPONSIBILITIES

The Accounts and Finance Department of HAL performs these functions and
responsibilities:

1. To ensure financial discipline as per guidelines of the company.


2. To advice management for all matters having financial implications including
financial co-ordination before commitments are made.
3. Regulation of payments for supply and services including salaries, wages and
other payments required for furthering legitimate objectives of the company.
4. Compilation of accounts and getting the same audited by Statutory and
Government Auditors.
5. Compilation and co-ordination of fixed price quotations (FPQ) for sale of
company’s product and services as per the norms of the company.
6. Collecting dues on behalf of the company from the customers as well as other
agencies.
7. Financial appraisal of the projects.
8. To prepare budget and to exercise budgetary control for the utilization of
available resources in the best possible manner.
9. Interaction with various operating levels in the division.
10. To have an effective MIS for prompt reporting to the higher management for
decision making.

In order to fulfill these responsibilities, the Finance and Accounts Department has
been divided into different sections as per convenience and for smooth flow of activities
in discharging the above responsibilities.
DIFFERENT SECTIONS IN THE DEPARTMENT

The Accounts Department of HAL has been divided into eleven different sections
for the smooth functioning. These sections are as under :
1. Bills Payable
(Payable to Suppliers)
2. Finance
(Clearing Purchase Order files)
3. Payroll
(Payment of salaries)
4. Bills Receivable
(Collection of amount from customers)
5. Cash Office
(Cash disbursement to employees)
6. Cost Accounts
(Costing and pricing of products)
7. Material Accounts
(Details of materials)
8. Book Keeping
(Annual Profit & Loss Account and Balance Sheet)
9. Budget and MIS
(Annual Budget)
10. Time Office
(Attendance records)
11. Provident Fund
(Record of PF savings of employees)
12. Bills Services
13. Foreign Bills
(Letter of Credit, Sight Draft, Advance Payment, Direct Payment)
14. Civil Works
FINANCE SECTION

The Finance Section has the responsibility of carrying out the scrutinizing
function which has a major role to play in capital and revenue expenditure decisions in
regard to purchase of materials/ stores / tools and other services. It also ensures that all
expenditure is made in accordance to the principle of financial propriety. Finance
Department ensures that the funds are in proportion to meet out the approved budgeted
amount. It also ensures that the financial proposals are routed to competent authority as
per delegation of power (DOP) so as to ensure the compliance of the provisions of
company’s act, the Memorandum and Articles of association of the company and the
relevant rules and regulations of the company and the guidelines issued by the company.

Functions:

• To scrutinize and give financial concurrence as per delegation of power for each
proposal involving –
1. Capital expenditure
2. Revenue expenditure
3. Purchase of material store/ Tools and other services
4. Manpower requirement
5. Waiver of dues / write off of losses
6. Cases involving relaxation of rules etc. as per the delegation of
powers
7. Sale, lease, alienation or disposal of company’s assets
8. Contracts entered into with suppliers / collaborations / sub-contractors
9. Award of Contract in respect of civil works/ electrical works/ other
works.
10. Project Reports etc.

• Certification for availability of funds with reference to capital and performance


budget and appropriation of funds.
Procedure (Financial Vetting):

Finance section plays a major role in Accounts Department. It can be termed as


center point of activities, because this section clears all the files for proceedings by the
concerned authorities as per delegation of power.

First of all material purchase requisition is sent by the Purchase Department, it is


request for procurement of material which is sent to Store and then store sends this file to
Finance Section for further proceedings. These requisitions are broadly classified as
under :

1. Non-Recurring items
2. Recurring items

Concerned authorities in the Section approve the file. Committee members as per the
amount mentioned in the files, do approval of the files. Different Committees have been
formed for different approvals like different Committee approves the proposals which
amounts upto Rs.5 lakh, different committee is authorized for the amount above Rs.5
lakh and so on. Approval is done by CM (IMM), Manager (Maintenance), Senior
Manager (Maintenance) as the case may be. After the CM’s approval, it is sent back to
Commercial Department and the Commercial Department sends it back to Finance
Section, including specifications which shows that it is suitable or not. Finance
Department approves Purchase Order files.
MPRR Comprises of:
Full
descrip. Recurring Job Source Reasons Rem-
Code Qty. Approx. Date
of /Non- Order of for arks
No. reqd Cost reqd
material recurring No. supply requirement
required

Material purchase request consists of description and specification of item, Part


no., Code No. Quantity required, Carton specification, estimated cost, MPR, Purchase
Order, quantity of order, Min., Max, re-order, monthly consumption, reference of old
supply, delivery date, department requisitioning etc.

In the same manner for foreign purchase request PRS (Procurement Review
Sheet) is prepared. Procedure for clearance of foreign material request is same as
followed in indigenous case.
PAY ROLL SECTION

As the name suggests, this section is concerned with Salary, Wages, incentives
and correspondence with Time Office. It takes into consideration subsidies granted and
providing motivational benefits.

Functions:
• On the basis of appointment / transfer notification from Personnel Department,
individual files are opened in the Pay roll section to record the particular of the
employees. Such as grade, date of appointment / transfer / department code,
permanent batch number, scale of pay, quarter details etc.
• The Pay roll record is updated from time to time entering therein increment
drawn, promotion, transfer etc.
• The deductions to be made are forwarded by EDP section by means of deduction
statement in the form of checklist by 25th of every month. Pay roll section
corrects the same with reference to the various documents and recovery registers
and sent it back to the EDP Section for final adoption by 26th /27th of the month.
• The EDP Section prints the Pay roll in duplicate in which one copy is maintained
in the Pay roll section for record purpose and the original copy is distributed to
the employee concerned.

• Disbursement of Salaries & Wages: Payment of salary to the officers &


employees is made through the bank based on the payroll received from the EDP
Section.

• Remittance of Recoveries: Various recoveries made from the employees in


respect of LIC premium. HDFC loan, income tax etc. are remitted to various
agencies within the stipulated date by means of cheque.
• Payment of Advances: Various types of advances such as Car/Scooter
advance, Contingency advance, TA/DA etc. are paid / adjusted as per the rules of
the company. Also reimbursement of expenses like medical, school fees,
conveyance etc. is made as per the rules followed by the company.

• Accounting Procedure: Monthly Pay roll journal entries are made both for
Supervisory and Non-Supervisory personnel and sent to Book Keeping Section
for adoption. For payments made to person from other divisions, proper
accounting is done to ensure that necessary advice is raised to the concerned
division.
• To make payments to ex-employees towards the final settlement of their dues.
• To monitor the controllable expenditures like Medical expenditure, Conveyance
expenditure etc. on monthly basis and to ensure it does not exceed the budget
provided for it.

Advances: Advances are refundable in nature. Their recovery is made from the salary
of the employee. These advances are paid according to the rules of the company like
Scooter Advance of Rs 27000/- is paid only to the employees and suitable amount per
month is being deducted. Contingency Advance is paid as per the rules of the company.
Amount for this advance is Rs.4000/- for employees and Rs.5000/- for executives and its
recovery should be made within 10 months. Salary advance is also paid to the
employees subject to maximum twice in a year. Employees can also draw advance from
prescribed Banks. In that case, HAL will pay monthly subsidy upto a certain limit.

Salary Payment: On the basis of attendance report received by the Pay roll section,
salaries are made. Salary includes – Basic pay + DA + HRA +CCA + Conveyance
Allowance + Canteen Subsidy + Incentives + Washing Allowance + Magazine
Allowance etc.
Medical Reimbursement: HAL provides for the benefit of medical reimbursement
for its employees subject to government rules

TA/DA: Those employees who are sent outside the company for any official job are
paid TA/DA by the company. There are found elements under it –

Fare: Amount of ticket of Air / Bus / Train are paid to the employees

Dearness Allowance: It is paid as per the company’s rules


Hotel charges: Guest house charges are paid, In case of non-availability of Guest House,
hotel charges are paid depending on limit prescribed by Company.
Amount of Local Conveyance to attend his duty at his temporary duty place is also paid.

Conveyance Reimbursement: It is paid to those employees who are sent outside


the office for official duty within the city.

Leave Travel Concession: This concession is available once in a block of four


years. The employee and the dependent members of his family are entitled to visit home
town twice (once in each block of two years) or visit his hometown once in one block of
two years and visit any place in India in the other block of two years or visit his
hometown once in one block of two years and encash the visit to any place in India. Now
Company has started Leave Travel Assistance scheme. In this system, company pays a
certain amount yearly basis in lieu of LTC. Employees can opt either LTC or LTA
scheme.

Retirement Element: On the retirement of the employee gratuity (15 days salary of
each completed year of employment is paid to him. Encashment of other due balances of
the employee is made. Amount of gratuity is maximum Rs.3.5 lakh (as per rules of the
company). In case of voluntary retirement employees gets the amount subject to Rs.3
lakh.
BILLS RECEIVABLE

This Section is responsible mainly for the preparation and submission of invoices
etc. HAL’s regular customer is IAF, which accounts for around 85% share in total sales
of the organization and rest are mainly Navy, Army, ADA and others.

OBJECTIVES :

 To ensure that the dues from the customers in respect of the goods supplied and
services rendered are recovered timely as per the Fixed Price Quotation / Price
Catalogue approved by the Ministry in acceptance with the Government letter
issued by Ministry of Defence dated 24th August 1995.
 To ensure that the invoices relating to the advances, stage payment, final delivery
are raised timely in order to have smooth cash flow position.
 To ensure that proper accounting is done as per the statutes and accounting
instructions laid down by the Corporate Office.
 To ensure that all statutory payments e.g. Sales tax, Excise duty, Customs duty is
recovered from the customers and is deposited timely with appropriate authority.

FUNCTIONS:

The following are the functions of the Bills Receivable Section:


 Preparation and rendering of invoices to Indian Air Force (IAF) in respect of the
following activities with the guidelines laid down in the government letter dated
30th Sept, 1997.
a) Manufacturing activity
b) Repairs and Overhaul
c) Supply of spares against RMSO
d) Deferred Revenue Expenditure
The following documents shall be produced in support of the invoices rendered.

a) Initial advances are recovered on the basis of customers’ order.


i) Firm / Forecast task given by the Air Force
ii) Chief Resident Inspector (CRI) coordinated Inter Divisional Task
Orders (IDTO) for divisional tasks.
iii) Repairs Maintenance Supply Order

b) Subsequent stages / Final payments are claimed on the basis of dispatch


Advices, Acknowledgement received Air Force in Form Q423, Inspection
Note certified by the Chief Resident Inspector (CRI) about the progress of
the work done.

In respect of the repairs and overhaul work the payment is strictly regulated based
upon the nature of the work carried out e.g. Functional test, Defect Investigation and Zero
Hours Servicing, Repair and Overhaul.

 To prepare and render invoices to Non-Indian Air Force customers in respect of


the following activities:

i) Development Sales for customer financed projects.


ii) Supplies and services rendered to Civil customers
iii) Supplies against Repair Maintenance Supply Orders (RMSO)

 To raise debit on other Divisions on Stock in Trade (SIT) in respect of parts /


accessories supplied for fitments in Engines/ Aircraft / Helicopters manufactured
by them for supply to customers.
 To claim payment from Account Officer Defence Accounts Department (AO
(DAD) on the basis of fitment details received from those divisions.
 To provide details to Budget Section for compilation of Sales Budget on the basis
of Sales order, Firm / Forecast Task, IDTO for Budget estimates, Revised
estimates, Forecast.
 To collect Sales Tax from the customers and deposit the same.
 To compile Sales Tax returns and submit the same to Integrated Material
Management (IMM) Department for onwards submission to Sales Tax authorities
for assessment.

Production Control Memo:

The production department issues a memo called Production Control memo, which is
issued to intimate the dispatch section of the readiness of the items to be dispatched to the
party (customer) concerned.

Dispatch Advice:

When the item is received in physical form from the workshop, a dispatch advice is
prepared which contains the details as to the date when the order was placed, details of
the items to be dispatched, mode of transportation etc.

Procedure for Billing:


For the purpose of billing, the cost of work is arrived at for different kinds of Sales in
different manners, which are as follows :
o Fixed Price Quotation (FPQ): In case of ‘repairs’, the cost of sales is
arrived at with the help of a fixed price quotation memo, which is prepared in the
Bills Receivable Section.
o Price Catalogue: For the issue of fresh items, the cost of sales is arrived with
the help of a price catalogue.

Revenue is said to be recognized only on the receipt of certification from the CRI.
BILLS PAYABLE SECTION

Bills Payable Section has two segregations, which perform their functions
independently, these sub-sections are as under :
1) Bills Payable (Indigenous)
2) Bills Payable (Services and Civil works)

BILLS PAYABLE (INDIGENOUS)

Here in this section, bills related to the Indian suppliers are paid off. It is not
concerned with any kind of foreign remittance. The job of this section starts after receipt
of information of any type from commercial or Purchase Department. It maintains the
proper accounts in relation to the work performed by this section. It also deals with the
payment of miscellaneous advances.

PROCEDURE:

Purchase Order is sent by the Purchase Department after the approval. “Material
Procurement Committee” (MPC) approves it. Then Purchase order is sent to Bills
Section, which shows the details of the material required. Vendors are consulted for the
purchase of the material. The vendors send their quotation for supply the material. Then
the concerned authorities select the best quotation. Thereafter order is placed. Invoices
are sent in case of payment through bank and these invoices are matched with the
purchase order and then payment is made to the concerned party.

Invoices consist of the name of consignee, manufacturing code no., Challan No.
Customer No., date and time of invoice and date and time of removal of goods, product
code, description and specification of goods, type, total quantity of goods, rate, unit,
assessable value, packing and forwarding charges (P&F) rate of duty, duty paid, mode of
transport, freight, insurance, tax rate, sales rate etc.
Inland vendors for supplies / services are paid by one of the following procedure:-
 Document through bank
 Cheque against delivery
 Advance payment
 Open account

Document thorough bank


In respect of purchase order where payments are stipulated as ‘through bank’, the
bank intimation is sent to Bills Payable Section alongwith the copies of invoices.
These are entered in the documents received from one bank. Bills payment
section after checking the documents with the purchase order passes the invoices
and sends the remittance voucher to the cash section for arranging the payments
and collection of the documents from the bank by the Purchase Department.

Cheque against delivery :


In respect of local purchases made on cheque against delivery basis, the Purchase
Department furnishes to the Bills Payable Section details of the material ordered
and to be collected and amount of payment due. The Performa invoice received
from the supplier is enclosed with the intimation sent to the Bills Payable Section.

Advance Payment:
The Purchase Department forwards the Performa invoice received from the
suppliers to the Bills Payable Section. The Bills Payable Section after checking
them with the remittance vouchers to the cash section for arranging payment. In
case where bank guarantees are provided against advances, such bank guarantees
received are entered in the bank register and the guarantees are sent to the cash
office for safe custody.
Open Account:
The supplier’s invoices are received from the Purchase Department duly linked
with the relevant purchase vouchers and intimations regarding recovery of
liquidated damage (LD) for delayed deliveries along with competent authority’s
approval and the same are entered in the bills register. The relevant details are
checked with purchase order e.g. unit price, extension total etc. and passes the
invoices for payment already made, deduction of dues etc. Cash / remittance
vouchers are prepared based on the passed invoices and forwarded to the Cash
Section for arranging payment through cash / cheque. Copies of remittance
vouchers are endorsed to the Purchase Department and the supplier. The details
of deduction, if any made from the invoices are furnished in the remittance
voucher itself separately and also forwarded to the supplier.

REGISTERS AND DOCUMENTS:


(i) Advance journal
(ii) Cheque against delivery register
(iii) Indigenous purchase journal
(iv) Agency commission register
(v) Insurance claim register
BILLS PAYABLE (FOREIGN)

Bills payable foreign deals with the payment to foreign suppliers as stipulated in
the Purchase order. This sub-section performs its function separately from the other sub-
sections of this department.

FUNCTIONS:

• Payment and accounting of :


i) Advance to the suppliers as per the terms and conditions of Purchase
Order
ii) License fees, royalty etc. as per the licence agreement with the foreign
collaborator.
iii) Custom duty, freight bills
iv) Final bills
• Opening of Letter of Credit on advice of IMM Department and liaison with bank
for foreign exchange release and payment on maturity date.
• Maintenance of commitment registers for budgetary purpose.
• Pricing of RDR (Receiving cum Discrepancy Report) with Purchase Order rates
and loading of customs duty, freight and insurance charges.
• Priced RDR are sent to material accounts section / EDP for punching in batch
mode for the processing of materials ledger.

PROCEDURE:

All Purchase Orders / Contracts received are entered into the registers before
opening the separate file for each Purchase order. All the LC opened in favour of foreign
suppliers as per the terms of purchase orders and entered in registers to record the
particulars about their extension, revalidation and utilization on maturity of the LC the
bank adjustment voucher is prepared on the basis of bank advice and sent to Cash Section
for adjustment. Particulars of payment are also noted in the relevant Purchase Order.

All the Contractual payments in respect of royalty, license fee and technical
assistance fees are made as per the license / collaboration agreement. Bills of entry
received from the IMM department are entered in register to record the value of the
goods accessed, amount of duty paid to ensure that the duty levied is correct and the
amount of duty paid is loaded to the inventory accounts correctly. After receipt of goods
the stores department sends the RDR to the foreign bills section for making necessary
accounting. Pending the pricing of the RDR, the payments made to foreign vendors
through LC / Sight drafts are put temporarily in goods in transit account. In respect of the
material dispatched by the vendors against P.O. raised by HAL, the liability is provided
in the company’s books of account, if payments have not been made against such
suppliers. Follow up with IMM Department is done for the timely release of RDR so as
to clear the GIT.

Foreign Bills

Foreign suppliers are paid by any one of the following methods as stipulatedin the
purchase Order / License agreements / contracts :

1. Letter of Credit
2. Sight Draft
3. Advance Payment
4. Direct Payment

1. LETTER OF CREDIT: Letter of credit is the fastest mode of payment.


Documents negotiated by the suppliers against the LC opened by the company are
paid directly by the bank by debit in the company’s account maintained with the
bank and send the debit advice, invoices, bills of lading etc. The bank advices for
payment against letter of credit are noted in the LC register and relevant Purchase
Order files. A bank adjustment voucher / remittance voucher is then prepared in
respect of each such bank advise and sent to Cash Section for accounting in the
Cash / Bank book.

2. SIGHT DRAFT

This mode of payment takes more time as compared to LC where Purchase Order
stipulates payment terms as ‘document through banks’, the seller draws a sight
draft on the company and send it through bank accompanied by documents like
invoices, airways bills etc. The bank advice for the payments of the documents
are collected by the Purchase Department from the bank and sends the same to the
Bills Payable Section alongwith copies of invoices etc. These are entered into
‘sight draft register’ in the order of receipt. In this procedure bank intimation is
sent by PNB to this section for the authorization of the payment. In bank
intimation airway bill no., date etc. are mentioned as document proof, after the
authorization of the documents payment is made to the supplier.

3. DIRECT PAYMENT:

Where the terms of the payment in the Purchase Order stipulates payment after
delivery or in the similar circumstances and the foreign supplier sends the
shipping documents etc. directly payments are arranged by the Bill Payable
section on receipt of relevant invoices and receiving reports etc. with due
recommendations from the Purchase Department by means of letter of authority
cheque. Based on debit advices received from bank payment particulars are noted
in the sundry creditors register and a remittance voucher is prepared and sent to
the Cash Section for entering into the cash book / bank book.
4. ADVANCE PAYMENT:

The Bills Payable Section on receipt of the Performa invoice checks the same
with the relevant purchase order and authorizes the bank by means of letter of
authority / cheque to arrange payment to the foreign supplier after obtaining the
relevant approval of the RBI which is required for the payment of advances.
Normally such advance payments are made after obtaining the bank guarantee.
The bank after arranging the payment sends a debit advice to the Bills Payable
Section giving details of the amount debited to HAL’s account. On the basis of
bank debit advice, payment particulars are noted in the advance of suppliers
register and a remittance voucher is prepared and sent to Cash Section for
entering into the Cash book / Bank book.

BILLS PAYABLE (SERVICES & CIVIL WORKS)

Bills Payable Section deals with the preparation of bills of services and civil
works in the company. This sub-section is mainly responsible for service contracts, job
contracts, medical payments, advance payments, payments regarding construction of
buildings etc. Accounting related to all these are done by this section.

FUNCTIONS:

• Payment and accounting of advances, running bills to contractors and final bills.
• Adjustments and recovery of advances
• Accounting and adjustment of earnest money and security deposits.
• Capitalisation of buildings.
• Payment of all services like telephone, electricity, water, canteen, transportation,
sanitation etc.
• Payments to all consultants like architects, advocate, part time doctors etc.
PROCEDURE:

In case of the running bills the works Account section links the bills submitted by
contractor duty certified by engineers in charge with the contract, acceptance letter, work
order etc. arranges payment after deducting income tax, balance security deposits and
other advances if any and training the prescribed percentage of the bill towards retention
money no deduction is made on this account.

Similarly the final bills are submitted by the contractor are checked and gross
amount payable is determined. The amount settled in the running bills, advances if any
and penalty in delay in completion of work, recovery toward consumption of material,
TDS etc. are deducted from the gross amount payable.

Material advances to the extent of 75% of the value of the materials brought by
the contractor and lying at the site are given on certification from the engineer in charge
and are recovered from the running / final bills.
Payment of bills for services like electricity, water, telephone etc. received from
plant maintenance department / concerned user duly verified by them and approved by
the competent authority are made. Payments in respect of other services received by the
company are made after the competent authority duly approves it.
In case of job contracts payments is made to casual employees other than the
regular employees of the company. Three categories are made and rate of these categories
differ from each other.
Category Rate (Rs.)/ day

Skilled 156.56
Semi skilled 143.93
Unskilled 130.90
In case of service contracts like transport, AMC (Annual Maintenance Contract)
of Computer, photocopier etc. are not received in time LD charges are deducted from the
amount which lies between 1/2-5% per month as per rules of the company.
CASH SECTION

Cash is life blood for an organization. It is the thing around which, by which,
through which, and for which all tasks are done and efforts are employed. So in this
respect Cash Section’s responsibility also increases. Cash section deals with the receipts
and payment of cash and cheques. Accounting of all cash or bank transactions is done as
per the guidelines provided by the corporate office
FUNCTIONS:

 All amounts collected by different sections either from employees or from


external agencies are sent to the Cash Office through cash credit vouchers.

 Cash received in excess of requirement, cheque, bank drafts, postal orders are
deposited into the company’s bank account the same day for realization.

 Payment to employees such as medical reimbursement, TA/DA advances etc. are


made through payment vouchers, which are punched into the computer through
online system. The cash office in turn, after proper identification, makes the
payment through cash teller.

 For payments to outside parties cheques are made on the basis of remittance
vouchers sent by different sections. These cheques are being sent to the Purchase
Department for taking necessary action.

 Entries are made everyday on the basis of cash credit vouchers and remittance
vouchers and cash balance are arrived at, which is certified by the incharge of
cash office.
WORKING:
All amounts received are recorded in a receipt register by respective Sections and
sent to the Cash office accompanied by the Cash credit vouchers. Likewise cash credit
vouchers for cash remittance made by the employees towards repayment of advances,
bus/train passes, canteen receipts etc. are sent by the respective sections of the Accounts
Department. After receipt of cash / cheque etc. cashier initials in the receipts register in
acknowledgement and issue officials receipts for cash / cheque received.
Remittance vouchers are made by the various accounting sections for payment to
suppliers, contractors and others and sent to cash office for writing cheques. The cheques
are written / typed by the cash office and the officer authorized to sign the cheques sign
the same.

TIME OFFICE SECTION

The Time Office department is primarily concerned with recording of each


worker’s time ‘IN’ and ‘OUT’ of the factory, maintaining leave record and feeding of
attendance record to Computer Department. It maintains the receipts of approved leave
applications and also provides data for the vacation leave provision to be made in the
books of accounts.

FUNCTIONS

 To issue leave cards for the calendar year to all the employees / officers of the
division.
 To maintain leave ledge P.B.No. (Permanent Batch Number) wise for all the
personnel. Credit is given to each account according to his entitlement as per laid
down by the Corporate Office and the posting is done simultaneously from the
attendance reports received from the concerned department.
 To verify the application for Vacation Leave (V/L) encashment and advice
according to Pay Roll section.
 To make calculations for payment of attendance bonus to Group-A to Group-F
employees.
 To make calculations for provision for Vacation Leave to be accounted for Final
Accounts.
EMPLOYEE ATTENDANCE RECORD

DEPARTMENT NAME AND COSE NO


S. P.B.No. Name Punch S Time Time Late Earl Rmk Sport Ro Bus Late Att. Dept.
N Date F IN OUT comin y s Cat. ute Sft. Days Rmks
T g goin
g

1 1003 P.K. Dey 20.5.06 G 8.30 4.30 - - - - - - - - -


am pm

2 1458 DK Singh 20.5.06 A 6.30 2.30 - - - - - - - - -


am pm

3 2234 A. Khare 20.5.06 B 2.30 10.30 - - - - - - - - -


pm pm

4.

5.
TYPES OF LEAVES

VACATION LEAVE

Employees who are borne on regular rolls of the company are eligible for
vacation leave at the rate of 2.5 days for every 30 days of service. Vacation Leave can be
accumulated upto 300 days. There is a provision of encashment of earned leave. The
minimum encashable vacation leave is 10 days. The maximum no. of days for
encashable leave will be one half of the V/L at credit of the employees on date of
encashment. Leave encashment will be allowed only once during a calendar year. The
encashment will be at the rate of Basic Pay (including Service weightage pay in respect
of workmen and special pay and personally pay. If any, which are counted as pay for all
purposes) + Dearness Allowance drawn at the time of encashment.

Rate of Encashment = Basic Pay (monthly) + DA


(per day) 26 days

CASUAL LEAVE

Employees who are borne on regular rolls of the company are eligible for 12 days
of Casual Leave in a calendar year. Casual leave can be availed upto a maximum of 8
working days at a stretch, subject to the same being sanctioned. Casual Leave can be
availed for half a day also.

MATERNITY LEAVE

It would be available to regular married female employees for 12 weeks inclusive


Sundays and holidays.
SICK LEAVE

Entitlement of sick leave is 15 days in a calendar year.

PROLONGED LEAVE
It is an ex-gratia payment. It is being provided to employees for long illness e.g.
T.B., Cancer like diseases. During first six months of leave employee is paid 50% of his
monthly basic salary. For next six months employee is not paid any amount. Total
duration of the prolonged leave is one year.

Other provisions also exist like –

 Vacation leave in advance


 Leave salary / salary advance
 Extension of leave
 Encashment of Vacation leave on termination of service
 Leave without payment
 Increment postponement
 Special leave / compensation for employment injury
 Carry forward of leave by management trainees / executive trainees / technician
trainees
 Carry forward / encashment of vacation leave / half pay / sick leave in respect of
absorbed deputation / employees joining the company on fresh appointment from
central / state government and other public sector undertakings.

SPECIAL CASUAL LEAVE

It is being paid to sportsman, ex-serviceman for replacement / treatment of


artificial limbs, to office bearers of recognized Unions for attending conciliation
proceedings etc.
BOOK KEEPING SECTION

After the completion of a task or in its due course there is a need to maintain an
accounting record, which is duly fulfilled by passing on a journal entry in almost every
finance and accounting section with some exception. After its proper journalisation, a
bunch of journal vouchers are forwarded to Book Keeping Section for consolidation.
Therefore, this section is responsible for proper maintenance of accounts of the company
as per the requirements of the status.

FUNCTIONS

• Journal entries originated by the various sections of finance and accounts


department are sent to Book-Keeping section. These entries are serially
numbered and punched into the computer and thereby posted to the general
ledger.
• Preparation of Trial Balance, Profit and Loss Account and Balance sheet. Since
the maintenance of accounts is computerized, the accounts can be prepared at any
time, though they are prepared for every quarter as on 30th June, 30th September,
31st December and final Accounts as on 31st March.
• Maintenance of fixed assets register and depreciation schedule :

i) For capital items purchases, RDR are furnished by the Bills Payable
section, likewise details of assets like works section to the Book Keeping
section. The maintenance of asset ledger is computerized in which the
details like date of purchase, nature of item, purchase order no., location of
assets is fed.
ii) Depreciation on capital asset is calculated as per the policy of the
company and is accounted by the means of the journal entries both in
respect of opening balance as well as addition.
• Physical verification of fixed assets is done as per the guidelines of the
Corporate Office in co-ordination with the book keeping section.

PROCEDURE
Maintenance of journal and general ledger:
Journal entries originated by the various accounting sections and their approval by the
Competent authority are sent to Book Keeping section. This journal voucher after
scrutiny is serially numbered month wise and entered in the main journal. From the
journal, posting are made to the general ledger.

After ensuring that all the entries for the month have been received and posted in the
general ledger, the accounts in the general ledger are totaled.

Performa of journal voucher

Section Serial No.: Book Keeping Serial No:


Nomenclature Account No. Debit Credit

These entries are passed in ledger including account no., nomenclature, section
no. and book keeping no., debit and credit amount.

Preparation of Trial Balance, P&L A/c & Balance Sheet


The net debit or credit balance against each account in the general ledger
are listed in the Trial Balance and totaled. The computerized journal ledger and
Trail balances can be obtained within the book keeping section.
The Profit or loss incurred by the division is transferred to Head Office
Control account. From the Trial balance grouping schedules are prepared account
wise. The Balance sheet and schedule forming part of the Accounts and as
prescribed by the Corporate Office, are prepared from these grouping schedules.
BALANCE SHEET
DATE:

JV NO.

Particulars Schedule Projected Actual projected


this year last year
(31st Mar’04) (31st Mar’03)

Sources of Fund :

Shareholders Fund
Capital 1 ………………. ………………..
Res. & surplus 2 ………………. ……………….
Loan Funds 3 ………………. ……………….
Secured loans ………………. ……………….
Unsecured loans ………………. ……………….
Deferred liabilities 4 ………………. ……………….
____________ ____________
……………… ………………
________________ _______________

Application of Funds :

Gross block 5 ……………… ………………


Less: Depreciation 6 ……………… ………………
Capital WIP 7 ……………… ………………
Tools & equipment 8 ……………… ………………
Investment 9 ……………… ………………
Inventories 10 ……………… ………………
Sundry debtors 11 ……………… ………………
Cash & Bank debtors 12 ……………… ………………
Loans & advances 13 ……………… ………………
Liabilities & provisions 14 ……………… ………………
Misc. Expenditure 15 ……………… ………………
_____________ _____________
……………… ………………
PROFIT & LOSS A/C

For the financial year ended …………..

Particulars Schedule 31st Mar’06 31st Mar’05

Income :
Sales 16 ………………. ……………….
Transfer to inter-divisional 16A ………………. ………………..
Unit
Change in WIP/SIT /Scrap 26 a/b ………………. ……………….
Other income 17 ………………. ……………….
Charge received on inter- 17A ………………. ……………….
-divisional transfer
Transfer from R&D reserve 2 ………………. ……………….
____________ ____________
……………… ………………
________________ _______________
Expenditure :

Consumption on raw matl. 18 ……………… ………………


Direct expenses 19 ……………… ………………
Salary & wages 20 ……………… ………………
Other expenses 21 ……………… ………………
Charges received on inter- 21A ……………… ………………
-divisional transfer
Interest 22 ……………… ………………
Depreciation 6 ……………… ………………
Provisions 22A ……………… ………………
Deduct: Expenditure ……………… ………………
relating to capital A/c &
Other Net expenditure
_____________ _____________
……………… ………………
_ ______________
Profit for the year
Provision for tax
_____________ _____________
……………… ………………
_________________ _________________

Profit after tax :

Balance b/f from last year ……………… ………………

Profit available for appropriation ____________ _____________


……………… ………………

Appropriations

Debenture redemption reserve ……………… ………………


R&D reserve ……………… ………………
Proposed dividend ……………… ………………
Tax on distributed profit ……………… ………………
General reserve ……………… ………………
Balance carried to balance sheet ……………… ………………
_____________ _____________
Total of appropriations ……………… ………………
_________________ _________________
BUDGET AND MIS SECTION

For its effective operation, management must know what are its resources, what is
are to be achieved, whether operations are going in accordance to the plans set and such
other things, which are to be considered. So for this purpose it also required that the
plans must be laid down into verifiable terms i.e. quantitative terms and for that necessary
guidelines with target period for achievement are to be set. This format structure is called
Budget. In his manner a Budget can be defined as :

“It is a financial statement of facts laid down prior to the period of its
implementation during which it has to be followed based on management’s
policy and prepared for specified objectives achievement.”

In this way, a budget serves as a guiding path for the prosperity of an


organisation. The movement must be accordingly done so that the optimum result can be
obtained with less effort.

The following are the guidelines for the Budget Section :

 The period of the Budget is April to March. The Budget is prepared in three
parts:
1. Current Year - Revised Estimates
2. Budget Year - Budgeted Estimates
3. Forecast Year - Forecasted Estimates
 To ensure that the capital facility must be made available in time to suit the
production requirement. The proposal under each sub-head is classified under
three categories – Plant & Machinery, Civil works and others.
 Sales budget and cash flow after approval of the board are broken into monthly
budgets.
There are many types of Budget prepared but it has been bifurcated under two major
heads as under :

♦ CAPITAL BUDGET
♦ PERFORMANCE BUDGET

A Capital expenditure is that which helps to increase the production whereas


revenue expenditure is that which helps as consumption in production
process.

CAPITAL BUDGET

It is the most important budget that involves huge funds and is prepared for long-
term investment. This budget is related to the capital items, which are to be used for long
period for the betterment of the organization for many task accomplishments such as
plants and machinery, building, roads, vehicles etc.

In this way it is a long-term budget. It is a base for all activities. It involves huge
capital outlays projects and long-term commitments. It affects decisions over a period of
a year. It involves large risks and uncertainties. Thus, its preparation is handed over to
senior and experienced executives. It serves following purposes :

• Helps to evaluate capital expenditure proposals.


• Helps to formulate other organisational budget
• Helps to consider best proposals according to which priority can be fixed
• Helps to control capital expenditure i.e. Utilisation in effective manner
• Helps in systematic procedure for appraising profitability performance of the
company.
Generally top executives of the Corporate and operational level take initiation of
proposals of capital expenditure as per requirements. It is generally concerned
department and project in charge that feel its need. Here in capital budget is laid down
under following heads :

• New projects

• Existing Projects

• Improvement and Rationalisation

• Replacement

• Welfare

• Design & Development

• Information & Technology

The requirement and allocation of capital expenditure is raised for above stated
purposes. It has been further explained in “Capital Budgeting” head.

PERFORMANCE BUDGET

This budget is also termed as Revenue Budget but due to misconceptions, which
might be taken by other it, is named as Performance Budget. This budget can be
recognized as the type of budget related to different fields, which directly or indirectly
affect profitability. Its benefits are realized in short period of time but some exceptional
cases are there e.g. Sales budget, DRE, Manpower budget etc. This type of budget
contains different types of budgets, which are explained below :

 Order status :
This budget is related to the sales orders pending for execution. It shows how
many orders are pending for supply as well as orders likely to be received during
Budget period.

 Purchase Budget
This budget is prepared to calculate expected purchases to be made and also
payments due. These types of budgets are prepared after the information / data
submitted by Bills Payable, Purchase Department and Finance Department.

 Sales Budget
This budget is prepared after the information supplied by the Customer Service
Department and Bills Receivable Section, which are ultimately responsible for
receipt of sales order and raising work order and communicating Bills receivable
for raising invoices respectively. So in this way expected sales is prepared.
Actually these both budgets i.e. Purchase and sales are interrelated as one affects
automatically other’s need. Generally it is calculated on the basis of sales order.

 Production Budget

As we can understand what this budget stands for. It takes into


consideration the production to be done in budget period. For its preparation
mainly production department on the basis of work order received and furnish the
data to the Budget Section. It is also concerned with keeping sufficient inventory
requirement. Production Budget is generally calculated as :

Budgeted sales + likely closing inventory of finished goods –


Opening inventory of finished goods.

So in this way, it is totally based on sales budget and desired inventory levels. It
also shows unit wise cost. By keeping balance between sales budget and
production budget, idle capacity can be avoided. It is a basis for preparation of
material, Labour and factory overhead budget. It also takes into consideration the
cost of carrying out production plans and programmes. Herein, scientific
management has to play a significant role.

Manpower Budget
This budget is prepared out of the requirement for direct and indirect workforce,
to carry out budget plans. Human Resource Department with the help of other
departments judges its position. It takes into consideration new appointments,
their forecasted grade/ scale retirement. As contingency exists too much under
this budget due to deaths, accidents and sudden resignation so every time there is
excess in expenditure from the budgeted figure, so in these cases adjustments are
made from time to time. It also calculates recruitment and selection expenditure.

Foreign Exchange Budget

Basically it is a part of Purchase Budget but it specifically takes into consideration


the foreign purchases i.e. imports. In this way, it has to calculate according to the
foreign currency payment. As its rate is not fixed so in this way, every time there
is plus minus. Mainly two types of imports are mentioned i.e. Russian and
Western (UK, France, etc.)

Training Budget

As we all can understand that such an organization needs to be aware of new


technological improvements, its implementation and operation so that it can
maintain its position. Thus, different kinds of seminars, group discussions, tests
are held. For this, personnel’s are also sent abroad for better learning. This
information according to need is collected from different departments and
consolidation in well framed manner and submitted to Budget Section.
Welfare Budget

There are various facilities which are provided to employees of HAL as well as to
their families such as medical, canteen, transport, education, maintenance of clubs
and grounds, etc. So in this way, there are two items under it :
a) Capital item, which is dealt in Capital budget
b) Revenue item, which is dealt in this budget

There are some facilities that are availed by only employees so accordingly
classification is done.

Ways and Means budget

This budget defines the way to spend funds and means to procure funds. It means
where from the finance can be generated and where there is a need to spend that
collected fund. It is generally defined in broad heads as public debts, loans,
government grants, payments from customer (mainly IAF) and others. It is also
to be taken into consideration that wherein we need to spend. It is mainly in
capital items, revenue expenditure, communication facility etc. In this way, it
studies deeply into the matter.

DRE budget
Deferred Revenue Expenditure are those which are not fully realized as per their
expenditure in the same year itself but a certain proposition is written off every
year and as per charged to the respective head. Under its head there are various
types of expenditures such as royalties technical fees, foreign tours regarding
seminars, licensing, documentation charges etc. different department’s
requirements and corporate office’s judgement plays an important role in it.
 Projected Balance Sheet:
On the basis of all these budgets about income and expenditure, when they are
consolidated it takes the form of balance sheet, which shows the whole thing at a
glance and its results as per profit and loss. In this way, we can conclude and
reach to a decision easily. However, as per this basis there are chances of much
more contingencies that can totally distract organisation from its path and this
type of Balance sheet’s effectiveness becomes negligible.

SIGNIFICANCE FOR ORGANISATION

It is tool in the hands of management to establish goals, objectives and targets of


the organization and to measure performance against the stated targets. It sets out a path
to walk over to achieve goals accordingly by taking care against the probable hurdles. As
this section is related almost to whole organisation so its responsibilities increases as for
performing policies.

MATERIAL ACCOUNTS SECTION

OBJECTIVES:
 To ensure that all receipts and issues of materials from Stores are recorded and
accounted properly.
 To ensure that all non-moving / slow moving materials are identified as “Surplus”
by IMM and a suitable redundancy provision is made against them and are
disposed off.
 To ensure that the Bin Card balances are reconciled with the Material Ledger
balances in co-ordination with Integrated Materials Management (IMM) and the
balances of Material ledgers tallies with the General Ledger.
FUNCTIONS:

 To send the priced RDR received from Bills Payable department to EDP for
punching in the Batch mode and thus all the Receipts are recorded and control is
exercised over all the Purchases Value-wise.
 To generate exception list for missing RDR and getting it resolved with Bills
Payable sections.
 All the materials drawn excess when returned is credited to stores through Stores
Return voucher.
 EDP after processing of all MR/issue vouchers prints the Material issue Analysis
Statements monthly indicating :
 The cost of materials drawn against various Job Orders, Expense accounts.
 The cost of material issued to Contractors and others
 The cost of tools issued to various tool cribs from main Tool Stores ;

Based on the above statements accounting for issue of materials is done. by debit
to Work-in progress / Expense / Contractors account and credit to relevant inventory
accounts.

 On the basis of the list of Materials / transfers reclassifications indicating the


material Code No. / Quantity and value, necessary Journal entries are passed by
debit / credit to relevant inventory account.
 On the basis of Stock Verification Sheets indicating Stock Verification Note No.,
Material Code No., Shortages / Overages, necessary Journal entries are passed
after obtaining clarifications from the Stores Department by debit/ credit to Stock
adjustment accounts and credit / debit to relevant inventory accounts after taking
approval of CFA wherever required for adjustments / write-off of stores.
 A list of materials not moved for over 5 years is given by EDP which is reviewed
by the Stores / concerned Programming Department. Materials not required for
production or for other purposes are identified and suitable action is taken by the
IMM for finding their usage in other divisions or is auctioned.

WORKING:

INTRODUCTION:

Material management deals with all aspects of material supply and utilization as
well as costs. It is concerned with the functions, which affect the flow
conservation, utilization, quality and costs.

MATERIAL MANAGEMENT AND DEPARTMENT VESTED


INTERESTS

Material management covers a wide range of departments such as manufacturing,


sales, purchase, transport etc. Each of these has their own interests.

Manufacturing: Wants long-term runs to minimize change covers.


Sales : Wants high stocks to minimize customers’ delay so that
orders could be shipped the day they are received.
Customers : Want their inventories to be carried by the company
Management : Wants low inventory investment
Purchase : Wants more lead time to shop for the best buys.
Transport : Looks for the cheapest mode of delivery
INVENTORY CONTROL:

Inventory Control is the process of deciding what and how much of various items
to be procured. The basic idea of inventory control is to reduce investment in
inventory and insuring that the production process does not suffers at the same
time.

Inventories are the stocks, which can be classified as :-


1) Raw Material and purchased parts
2) Stores and spares for maintenance
3) Work in progress
4) Finished goods.

Inventory costs money for:-


1) Acquiring
2) Carrying

Inventories are kept to :


1) Gain economic purchasing power
2) Maintain service stocks
3) Level out production cycles and irregularities
4) To carry reserve stocks to prevent stock costs.
Opportunity Cost:
It costs money to have inventories.
1) Return on investment interest
2) Storage and handling labour and administration
3) Insurance
4) Detoriation and shelf life
5) Obsolescence

INVENTORY CONTROL – QUANTITATIVE TECHNIQUE

There are a number of inventory control techniques, one of the most important is
ABC analysis, which is known as selective inventory control.
In this system all the terms are considered under three categories A, B and C.

ITEM % OF THE TOTAL % OF THE TOTAL


CATEGORY VALUE COST
A 10% 70%
B 20% 20%
C 70% 10%

In practice a graph cannot be drawn but a segregation system is used.

A-Value items: The quantities are comparatively less but the costs are high.
For these kinds of items a frequent ordering and follow up system is maintained.
Also plans and schedules are to be kept up.

B-Value items: These items fall in the middle category. Ordering quantities
and re-ordering levels can be worked out on a half yearly basis as an average.
C-Value items: These items are of low cost and high quantity. Liberal
quantities can be purchased, two-bin system can be adopted and no records are
needed.
COST ACCOUNT SECTION

The cost accounts section is responsible to establish a Costing system in line with
the activities and the product range of the division. It is responsible for maintaining
records associated with the accounting for material, labour and overhead. It analyses all
cost of manufacturing, selling and distribution for use of management in planning and
control. Accounts related to costing and pricing of items are prepared in this section.
This section acts as a central hub of accounts department.

FUNCTIONS:

 To determine the rate of absorption / recovery of labour and other overheads for
recovering the labour cost on the different jobs undertaken that is Man-hour rate
computation.
 To accumulating the labour and overhead content of each activity project wise
based on evaluated Labour Time booking (LTB) generated by EDP section from
work order / time dockets.
 To keep track of different jobs computed and jobs lying incomplete in different
stages over a reasonable period of time and to co-ordinate with concerned
production controllers for justification for jobs lying unfinished beyond a
reasonable period of time and to ensure their early disposition.
 To review work order on which no material / labour cost has been recorded and
finding out the reasons for the same.
 To get the WIP statement as on 31st March from the EDP from all manufacturing
components, sub-assemblies, WIP assembly, WIP for the physical components
verification by the concerned production shops.
 To ensure that the valuation of WIP has been done correctly keeping in view the
percentage of completion of the job.
 To keep track of SIT Transactions with different divisions.
 To keep record of all IDTO received from different divisions.
 To accept the debit raised by the different divisions for items received by the
division in respect of requirements raised by the division through IDTO.
 To evaluate PC memo for SIT issues, Russian consumption for overhaul and
amortisation of DRE.
 To work out the cost of sales and to reconcile the same with the design
department for various customers financed projects.
 To work out the royalty payable to different licensors as per the license
agreement.
 To liaise with AO (DAD) for verification of claims in respect of labour booking
on production and DRE items and other issues like wage, arrears, idle hours etc.
 To prepare fixed price quotation (FPQ), price catalogue for the different items
manufactured / repaired / overhauled / serviced/ supplied by the division and to
get the same approved by the AHQ.
 To submit quotations in respect of enquiries received from Non-IAF and civil
customers.

INTRODUCTION OF COST:

In general “cost” means “the benefits given up to acquire goods or services”.


Accordingly the benefits given in terms of money may be called “cost”.

Shilling law defines the term cost – “Cost represents the resources that have been or
must be sacrificed to attain a particular objective.” Thus the resources sacrificed
whether tangible or intangible, measured in terms of money, go by the name “cost”.

The official terminology of management accounting published by the chartered institute


of management accountant, London 1991, defines the term ‘cost’ as “the amount of
expenditure (actual or notional) incurred on, or attributable to a specified thing or
activity, “Interpretation of cost depends upon –
A) The nature of the business, or industry &
B) The context in which it is used
COSTING SYSTEM:

Costing is the technique consisting of principles and rules that govern the procedure of
ascertaining cost of products and services. Costing and Cost accounting are two different
terms. The latter shows the way of charging, incurred cost to units produced which the
former shows principles and rules governing method of calculating that costs of products
and services. Costing can be carried out by means of memorandum record or by methods
of integrated accounts because it is emphasized under principles and rules.

Generally costing has following main elements when subsequently arranged, generate
different types of costs at different stage. These cost ultimately lead to actual cost of
producing / repairing of the component. On the basis of which corrective measures can
be taken for reducing cost and getting good percentage of profit.

ELEMENTS OF COST:

There are three broad elements of cost –


1) Material
2) Labour
3) Expenses

MATERIAL

The substance from which the product is made is known as material. It may be in
a raw or manufactured state. It can be direct as well as indirect.
Direct Material:

All material, which becomes an integral part of the finished product and which
can be conveniently assigned to specific physical units is termed as “Direct material”.
Following are some of the examples of direct material –

i) All materials or components specifically purchased, produced or


requisitioned from Stores.
ii) Primary packing material (e.g. carton, wrapping, cardboard boxes etc.)
iii) Purchased or partly produced components.

Direct material is also described as process material; prime cost material, production
material, stores material, constructional material etc.

Indirect Material :

All material, which cannot be conveniently assigned to specific physical units is


termed as “Indirect material”. Consumable stores, oil and waste, printing and stationary
material etc. are a few examples of indirect material. Indirect material may be used in the
factory, office or the selling and distribution divisions.

LABOUR:

For conversion of materials into finished goods, human effort is needed; such
human effort is known as labour. Labour can be direct as well as indirect.

Direct Labour :

Labour who takes an active and direct part in the production of a particular
commodity is called direct labour. Direct labour costs are, therefore, specifically and
conveniently traceable to specific products. Direct labour is also described as process
labour, operating labour etc.

Indirect Labour :

Labour employed for the purpose of carrying out tasks incidental to the goods and
services provided, is indirect labour. Such labour doesn’t alter the construction,
composition or condition of the product. It cannot be specifically be traced to specific
units of output. Wages of storekeepers, foreman, timekeepers, director’s fees, salaries of
salesman etc. are all examples of indirect labour costs. Indirect labour may relate to
factory, the office or the selling and distribution divisions.

EXPENSES:

Expenses may be direct or indirect.

Direct Expenses:

These are expenses, which can be directly, conveniently and wholly allocated to
specific cost centers or cost units. Examples of such expenses are : hire of some special
machinery required for a particular contract, cost of defective work incurred in
connection with a particular job or contract etc. direct expenses are sometimes also
described as “chargeable expenses”
Indirect Expenses:

These are the expenses which cannot be directly, conveniently and wholly
allocated to cost centers or cost units. It is to be noted that the term overheads has a
wider meaning then the term indirect expenses. Overheads include the cost of indirect
material, indirect labour besides indirect expenses.
Indirect expenses may be classified as the following three
categories:

a) Manufacturing (works, factory or production) expenses :

Such indirect expenses, which are incurred in the factory and are concerned with
the running of the factory or plant, are known as manufacturing expenses.
Expenses relating to production management and administration are included
therein. Following are few points of such expenses – rent, rates and insurance of
factory premises, power used in factory, depreciation of factory building, plant
and machinery etc.

b) Office and administrative expenses :

These expenses are not related to factory but they pertain to the management and
administration of the business. Such expenses are incurred on the direction and
control of an undertaking. Examples are – Office rent, light and heat, postages
and telegram, telephone and other charges, depreciation of the office building,
furniture and equipment, bank charges, audit fee etc.

c) Selling and distribution expenses :

Expenses incurred for the marketing of a commodity, for securing orders for the
article, despatching goods sold and to make efforts to find and retain customers
are called selling and distribution expenses. Examples are advertising expenses,
cost of preparing tenders, traveling expenses, bad debts, collection charges etc.
warehouse charges, packaging and loading charges, carriage outwards etc.
In financial books :

Apart from ensuring accounting of income and expenditure in line with the
provision of companies act 1956, the recording of income and expenses in financial
books and its classification is as under :

Schedule No. Nature of items Cost classification

17 Other income Labour cost


18 Raw material, stores & Material cost
spare parts consumed
19 Amortisation of direct Exp. Sundry direct cost
20 Salaries, wages & Allowance Labour cost
21 Other Expenses Labour cost
22 Interest Expenses Labour cost
23 Provisions Labour cost
26 Depreciation Labour cost
28 Inter services / common Service Labour cost

It may be noted that schedule no.23, relating to expenses relating to capital works
and schedule no.25, relating to Work in Progress (WIP)/ Stock in Trade (SIT) are only
enabling sections and do not form part of cost.

In cost books:

The various items of income and expenditure recorded in the financial books are
collected in the costing books under the following broad heads :

a) Labour cost
b) Material cost
c) Deferred Revenue Expenditure
Labour Cost :

The Labour cost comprises of direct labour cost and overheads and takes into account the
financial items of income and expenditure accounted in the schedules – 17, 20, 21, 22,
23, 26 & 28

Material cost :

This represents the value of material drawn from the holding stores on material
requisition / issue vouchers indicating the work order number. This represents the net
total value of the materials reflected in schedule 18 of the financial accounts.

Sundry direct charges :

This expenditure refers to the amortisation of special tools and miscellaneous expenditure
and comprises of all expenditure indicated in schedule 19 of the financial books.

Non-Production Overheads (NPOH) :

Non-production overhead items are essentially those items of expenses which are treated
as period cost in the year of incurrence and those which are not reckoned for the purpose
of valuation of work in progress (WIP), interest expenditure, common service received
from Corporate Office are treated as NPOH expenses.

Inter service rendered / received on works orders :

The transaction accounted under this head of account relate mainly to Bangalore
Complex. Divisions, do not have facilities for executing a particular job often, get it done
at other divisions on their won orders. In these cases cost incurred (direct labour
overhead multiplied with man-hour rate of division executing the job) is recorded in WIP
of the division, which has sent the item for doing the job. The cost so recorded is treated
as inter service rendered on work orders in the books of the divisions, which is executing
the work and as inter service received on work orders in the division in which this
expenditure is recorded.

Material Cost :

This represents the value of material drawn on work orders for carrying out production
including those relating to sales and tooling. The material are drawn from the holding
stores against a material requisition voucher indicating the work order number against
which the materials are drawn, whereas common materials are drawn against the single
work order on a rational basis.

Deferred Revenue Expenditure :

Deferred revenue expenditure is treated as one of the elements of cost in HAL. DRE
expenditure will included the expenses related to following items :

• Specialists salaries and expenses


• Foreign technician fees
• License fees
• Foreign training charges
• Documentation
• Blue printing
• Collaboration charges
• Pre-production expenses
• Royalty
• Static / long term expenses
Expenditure not forming part of cash Books;

There are certain items of income and expenditure, which are partly financial in
nature and are accounted for in cost book of accounts. Being purely financial expenses
these do not form part of the costing expenses, incomes are to be reckoned only for
purpose of reconciling the costing and financial profits. Illustrative lists of such income/
expenses, which are purely of financial nature, are listed below :
• Profit on sales of fixed assets - (Schedule 17)
• Provision no longer required - (Schedule 17)
• Expenses on VRS - (Schedule 20)
• All write offs including write off of tooling, - (Schedule 21)
Fixed assets, stores, bad and doubtful debts,
Surplus stores, shortage and rejections and
Other write offs.
• Liquidated damages, penalties - (Schedule 21)
• Charges paid on IFD jobs - (Schedule 21A)
• Provision for replacement and future charges - (Schedule 22)
• Provision for bad debts - (Schedule 22)
• Provision for claims - (Schedule 22)
• Provision for WIP & SIT - (Schedule 22)

Computation of Cost
Direct Material + Direct Labour + Direct Expenses = Prime Cost
Indirect Material + Indirect Labour + Other Indirect Cost= Works overheads
Prime Cost + Works Overheads = Factory Cost
Factory Cost + Office & Administrative Overheads = Office cost
Office Cost + Selling & Distribution Overheads = Total Cost or Cost of Sales
COSTING AND ITS METHODS

Costing is the technique and process of ascertaining the cost of activities,


processes, products or services. The technique consists of a body of principles and rules,
which govern the procedures of ascertaining costs.

Method of Costing :

The principle in every type of costing is same but the methods of analyzing and
presenting the cost differ with the nature of business. There are two basic methods of
costing. They are :

A) Specific Order costing


B) Operation costing

A) Specific Order Costing :

Under this method each contract, job or batch is identified as a cost unit and the
formal mechanism to ascertain the cost of unit is suitably designed.

1. Job Costing :

In this method each job being quite different from the other is treated as an
independent cost unit. A specific number is given to each job to
distinguish it from the other and the cost are ascertained in respect of each
job represented as a job order, production order or work order.

2. Batch Costing :
Where orders or jobs are arranged in different batches after taking into
account the convenience of producing articles, batch costing is employed.
Thus in this methods, the cost of a group of product is ascertained. The
unit of cost is a batch or a group of identical product instead of a single job
order or contract.

3. Contract Costing :

Contract Costing does not in principle differs from job costing. A contract
is a big job while a job is a small contract. The term is usually applied
where at different sites large-scale contracts are carried out.

B) Operation Costing :
Operation costing includes costing method of varying complexities such as output
costing, process costing by-product costing, joint product costing etc.

1. Process Costing :

If a product passes through different stages, each distinct and well defined,
it is desired to know the cost of production at each stage. In order to
ascertain the same, process costing is employed under which separate
account is opened for each process.

2. Output Costing:

This method of costing is used by the concerns producing a single article


or a few articles, which are identical and capable of being expressed in
simple quantitative units. The cost unit depends upon the unit of
measurement. The cost per unit is arrived at by dividing the total cost
during a given period by the total number of units produced.

3. Service Costing :

Service costing is that form of operation costing which is applied where


standardized services are provided either by an undertaking of a service
cost center within an undertaking. The method is applicable to
undertakings, which provide service rather than manufacture goods.

4. Composite Costing :

The cost of the different sections of production is combined after finding


out the cost of each and every part manufactured. The system of
ascertaining cost this way is applicable where a product comprises of
many assembled parts.

There are other methods of costing which are :


 Absorption Costing
 Uniform Costing
 Marginal Costing
 Output Costing
 Direct Costing
 Departmental Costing
 Component Costing etc.
METHOD OF COSTING IN HAL :

The method of costing followed in HAL is Batch Costing, Job Costing and
Process Costing. Batch costing, which is a variation of job costing, is mainly designed to
suit the work, which is being carried out in HAL.

In batch costing method all the components, minor assemblies required for the
aircraft equipment are manufactured on batch order. Jobs are carried out in batches. The
cost of labour and material are booked on batch work only. In batch costing method, cost
of aircraft engine and its equipments, sub-assemblies related to an aircraft engine, its
equipment in a completed batch is determined by dividing the total cost recorded on the
batch work order by the number of units produced in the batch.

In case of job costing the cost of each job, which has been carried out, is
determined. Different job orders are assigned for different jobs. Job order is an integral
part of accounting in HAL. It also plays an important role in production shop. Job order
can be for manufacturing a product, its repair or overhaul, for the testing of component in
assembly or sub-assembly or any other service, which has been rendered. A
comprehensive job order scheme is followed in HAL. Here a job order number consists
of 11 digits and for each digit different codification is given.

Digit-1 shows that any new item is manufactured.


Digit-2 represents manufacturing of tools. .
Digit-2& 3 is for specified projects.
Digit-4, 5 & 6 are assembly codes.
Digit-7 is the specification of components as assembly or sub-assembly or
manufactured.
Digit-8 codifies the batch number for a component.
Digit-9, 10 & 11 shows the specification of programming department, registration
number.

A job order is issued for each development activity. In case of batch job order
number as well as individual job order the actual work in the shop is carried out on the
shop orders, which are issued for various operations to be carried on against each job.
Each job order is closed on computation of all the components taken up against various
job orders and created thereof to stores, assembly and overhaul. Job orders are closed as
on completion report of the task.

Time dockets are prepared separately for each worker. For group of workers
group dockets are prepared. These time dockets are daily filled for each direct worker.
Inputs are recorded from time docket and job tickets are used to record output, which
helps in calculating efficiency of worker.
A Job order is assigned to each job, which come for processing on the machine.
A job code can be comprising of a number of job orders. For each job order hours are
specified. This specification is based on the standards set by HAL. The value can be
determined by multiplying specified hours with man-hour rate for labour time booking
(LTB) which is Rs.518 for year 2005-06.

Performa of Labour Time Booking

Code Job Order Hours Value (Rs.)*

010100 10095631045 765.00 396270.00


010100 10095487521 400.00 207200.00
010100 10045873165 22.00 11396.00
010100 10048754841 45.50 23569.00
010100 10054692581 15.00 7770.00
010100 10047695825 7.50 3885.00
010100 10069747122 20.00 10360.00
010100 10024514273 10.00 5180.00
Total: 1285.00 665630.00
_______________________________________________________________
• Value is calculated by multiplying hours with Man Hour Rate (518.00) for LTB.

COST SYSTEMS

Determination of cost is a basic objective of cost accounting. After the cost unit has
been selected the question arises as to how to accumulate these costs. “A system of cost
accounting implies that there is a planned and coordinated arrangement of all maters
relating to costing”. The two systems of cost accounting which are referred to very
frequently in the cost accounting literature are :

1. Historical Cost system


2. Standard Cost system

A decision must be made as to whether to compile and allocate cost to actual cost of
production or to assign cost on a standard cost basis. If the latter method is chosen
variance account will set off the difference between the actual cost and the standard cost.

“Historical cost the actual cost of acquiring assets, goods and services. “An actual or
historical cost system collects the cost as they occur but it must delay the presentation of
results until manufacturing operations have been performed or service rendered. While
the department or job is charged the actual quantities and costs of material used and
expanded, the factory overhead or the burden is often allocated based on certain pre-
determined rate. Thus actual cost system often does not rely entirely on actual costs.

Standard cost on the other hand is the technique of setting up of definite standards
or targets of performance in advance of costing period, even before the production
begins and the expression of these standards in monetary terms. In a standard cost
system all costs are predetermined in advance of production. Production operations and
processes are costed using standard for quantities and amount. Accounts are designed to
collect actual cost. Difference between actual and standard cost is determined as
variance.
COSTING SYSTEM IN HAL

Costing system that prevails in HAL is standard costing. The system of actual
costing is also followed here, which helps in determining the variance between actual and
standards set.

The standards followed in HAL are labour standard and material standard, which
are used for various purposes. Management service department (MSD) maintains these
standards.

Material Standards-

The direct material cost is found out by multiplying the quantity of material to be
purchased with the rate of price at which they are available and hence the standards are to
be set. Generally the material requirements are drawn from the Bills of Material and
variance in the material could be determined comparing standards required and actually
drawn. Bills of Material (BOM) are the basis for determination of standard for material
cost. In HAL material element is classified as :

M - Component
B - Component

M components are those components, which are manufactured by the Company or


the division indigenously whereas B components are bought out components. The
company does not manufacture these components.
Labor standards :

In HAL standards for labour are determined by calculating :

• Standard Minimum Hours (SMH)


• Man Hour Rate (MHR)
• Efficiency
• Net Available hours

In HAL Management Service Department (MSD) determines these standards. For the
calculation of standard time, time to be consumed by labours for a particular
operation is measured. Standard time for each component / sub-assembly / assembly
is set by the division for different purposes i.e. determination of standard rates of the
products, calculation of efficiency of direct workers, to find out the variance, for
incentive payments, for proper utilization of resources etc.

Calculation of MHR:

The MHR is computed by taking into account the total budgeted expenditure and
estimated production hours. It is computed by dividing the total expenditure of the
division by the total direct labour hors of all direct departments. It is also calculated by
adding non-production overheads in gross divisional expenses. The MHR at this division
is calculated by dividing the gross divisional expenditure by total labour hours. Annual
divisional MHR is worked out in advance applicable for the year based on the
expenditure approved in the performance budget.

M.H.R. = Gross Divisional Expenditure


Total Hours for MHR
For the estimation escalation formula is used to derive at budgeted figure, which
is calculated on the basis of actual figure. Escalation is based on the indices of the
government. It takes into account the Consumer Price Index (CPI), Power Index.
Wholesale Price Index (WPI).

Escalation formulae for calculating DA =

Amount for x Indices Current year - Amount for +Actual Amount


this year previous year this year

Efficiency:

Percentage of the efficiency of the direct workers is calculated by dividing S.M.H. by


actual hours consumed by the worker. In HAL efficiency of direct labour is 76%
presently. Earlier, it used to be 66%. Then also efficiency of HAL workers as compared
to other public sector units is better.

Efficiency = S.M.H. x 100%


Actual Hrs. taken

Standard labour cost is determined by calculating :

Standard Labour cost = S.M.H. x M.H.R.


% Efficiency
Standard Minimum Hours:

Standard Minimum Hours are calculated to determine the minimum hours required to
complete a particular job. This is calculated by time, motion and fatigue studies. Works
and methods analysis can be adopted and operation time every activity noted down. The
total time required is further adjusted for wastage and contingencies, so as to determine
the standard time. The standard of work, standardization of products, efficient plant and
equipment, efficient tools to handle, efficiency and skill of the worker, quantity to be
manufactured etc. are certain factors which influence time to be taken for performing
certain task.

SMH includes manufacturing hours and assembly and testing hours for setting standard
time. Man-hour should be consumed in standard conditions.

S.M.H. = S.M.H. for Manufacturing + S.M.H. for assembly & testing

Man Hour Rate :

Man-hour rate acts as a means of recovering expenditure. It helps in determining the cost
of a product, thereby helps in determining the price of a product. In HAL MHR plays a
very important role in allocating expenditure on various job orders. Exchange rate is
calculated by conversion of foreign currency into rupees. Escalation clause, which is
applied in HAL, follows the ratio of [35:65], in which value at the rate of 35% on the last
year and 65% on the same year is escalated.

Escalation Rate :
3.5% increase in western items
4% increase in Russian items.
HINDUSTAN AERONAUTICS LIMITED- ACCESSORIES
DIVISION, LUCKNOW

CALCULATION OF MAN HOUR RATE (MHR) FOR THE YEAR 04-05

Particulars Actual Formula for Amount for


03-04 Escalation 04-05

Basic Pay ………. ……………. …………….


D.A. ………. ……………. …………….
Other Sal. & Wages ………. ……………. …………….

Sub total: ---------- ---------------


(Salaries & Wages) ---------- ---------------

Power & Fuel ………. ……………. ……………


Other Experience ………. ……………. ……………

Sub total: ---------- ---------------


(Others) ---------- ---------------

Depreciation ………. ……………


Provision for Redundancy ………. ……………
Less : Miscellaneous income ………. ……………

Sub total: ---------- ---------------


---------- ---------------

Gross divisional expenditure ---------- ---------------


---------- ---------------

Total hrs of MHR ………. ……………


MHR ……… …………….. ……………
MD(A)’s Office expenditure ……… ……………. ……………
Corporate Office expenditure ……… …………… ……………

Total hrs for MHR ---------- --------------- ---------------


MHR ---------- --------------- ---------------
CALCULATION OF MHR FOR IAF :

Particulars Amount (in lakhs)

Salaries & Wages 3500.00


Other expenses 3312.50
Total expenses (a) 6812.50
Less : D.R.E
Training 21.10
Foreign technician fee 12.09
Others 7.00
(b) 40.19
Balance (a-b) (c) 6772.31
Less : Exchange rate variance 34.00
Grand risk insurance 11.00
Others 7.54
Net Divisional expenses (d) 6719.77
Add : Depreciation 304.16
Provision for contingencies 315.00
Inter divisional expenses 523.64
(Debit-Credit for transfer other than production jobs)
Gross divisional expenses 8275.33
Less : Miscellaneous income 17.35
Other income 6.39
Net divisional expense 8251.59
Add: MD(A)’s Office expenses 39.72
Corporate Office expenses 225.87
Net Conversion Cost (e) 8517.18
Net available hours (f)
20.72
Man Hour Rate for IAF (e/f =g) 411.06

Interest on W.C. 3.01


Interest on fixed capital 1.19
Net conversion cost 4.20+(e)=h
Man Hour Rate (h/f =i) 411.26
COMPUTATION OF NET AVAILABLE HOURS

S.N. Particulars Unit Submitted Submitted


For 04-05 for 05-06

1. Direct labour strength


1.1 Strength as on 1st April No. …………. …………….
1.2 Strength as on 1st Mar. No. …………. …………….

1.3 Average strength No. ………… …………….


1.4 Less : direct labour sent to No. ………… …………….
Other division
1.5 Add: direct labour sent No. ………… …………….
From other division
Net average strength No.

2. Total average available hrs Hrs. ………… ………………

3. Hrs. spent on indirect works/


Lost time hours
3.1 Indirect department Hrs. …………. ………………
3.2 Short shift Hrs. …………. ………………
3.3 Absenteeism Hrs. …………. ………………
3.4 Standing orders
a) Avoidable Hrs. ………… ………………
b) Unavoidable Hrs. ………… ………………
c) Working standing orders Hrs ………… ………………
D&D and others
Total:

3.5 Training & Welfare Hrs. ………… ………………

4. Net available hours Hrs. ………… ………………

5 Add Extra hrs.from Hrs. ………… ……………...


other divisions ________ ____________
Total available hours Hrs. ________ ____________
6. Break up of total available hrs.
6.1 Manufacture Hrs. …………. ………………
6.2 R&D Hrs. …………. ………………
6.3 Out station Job Hrs. …………. ………………
6.4 Idle hours Hrs. …………. ………………
_________ ____________
Total: Hrs _________ ____________
CALCULATION OF INCREMENT %

Grade No. of officers Increment rate Product


As on 1-4-05

1 …………….. ……………… ……………


2 …………….. ……………… ……………
3 ……………. ……………… ……………
4 …………….. ……………… ……………
5 …………….. ……………… ……………
6 ……………. ……………… ……………
7 …………….. ……………… ……………
8 …………….. ……………… ……………
9 ……………. ……………… ……………
10 …………….. ……………… ……………

Grade No. of employee Increment Rate Product


As on 1-4-05

1-scale 1 …………….. ……………… ……………


2-Group A …………….. ……………… ……………
3-Scale-3 ……………. ……………… ……………
4-Group B …………….. ……………… ……………
5-Scale 5 …………….. ……………… ……………
6-Group C ……………. ……………… ……………
7-Group D …………….. ……………… ……………
8-Group E …………….. ……………… ……………
9-Group F ……………. ……………… ……………
10-Scale 10 …………….. ……………… ……………

___________ ____________ __________


Total ___________ ____________ __________

___________ __________
Grand total: ___________ __________
PRICING

Price is the amount of money charged for the product or service. Various
methods of pricing are used in different industries as follows :

1. Cost Based Pricing


a) Mark up pricing
b) Absorption cost pricing
c) Marginal cost pricing

2. Demand based pricing


a) Skimming pricing
b) Penetration pricing
c) What the traffic can bear pricing

3. Competition oriented pricing


a) Premium pricing
b) Discount pricing
c) Parity pricing

4. Product line oriented pricing

5. Tender pricing

6. Affordability based pricing


PRICE CATALOGUE FOR AIRCRAFT SPARES
S.N. Part Descrp. Material Material Total Hrs LOH Break up cost Total Break up of Profit Total Unit
No. Cost Cost Mat. Cost NPOH Other Cost 5.5% on 10% on Profit Price
Import Indign Cost 395.05 5.05 MC + POH NPOH MC + POH

…… …… ……… …….. ………. ……. …… ……. …… …………. ……. ………. …………… … …. …….

…… …… ……… …….. ………. ……. …… ……. …… …………. ……. ………. …………… … …. …….

…… …… ……… …….. ………. ……. …… ……. …… …………. ……. ………. …………… … …. …….

…… …… ……… …….. ………. ……. …… ……. …… …………. ……. ………. …………… … …. …….

…… …… ……… …….. ………. ……. …… ……. …… …………. ……. ………. …………… … …. …….

Total Material Cost = Material Cost Import + Material Cost Indigenous

Hours are determined on the basis of percentage efficiency of the direct labours.

LOH Cost = S.M.H. x. M.H.R. / Efficiency %

Total Cost = Total Material Cost + L.O.H. Cost


COST CONTROL TECHNIQUES

Data relating to cost are vital for management to implement cost control
measures. Control can be conceptualized as the process of ensuring that action conforms
to plans. In other words, control as a function of management means that once a course
of action has been decided, operational decision and activities of the management should
coincide the plans. The cost control techniques are used to maintain cost efficiency. The
cost control techniques, which are widely used, are as follows :

1. Standard costing
2. Variance analysis
a) Cost variance
b) Revenue variance
3. Budgetary control
4. Cost audit
5. Responsibility accounting
6. Marginal costing and break-even analysis

In HAL all above mentioned cost control techniques are not adopted. The
techniques, which are adopted by HAL are standard costing, variance analysis and
budgetary control.

In standard costing the cost standards are predetermined like Man-hour rate
(M.H.R.), Standard Minimum Hours (S.M.H.), Efficiency of direct worker. Price
standards are also maintained in Fixed Price Quotations (FPQ), Price Catalogue. The
profit so charged on standard cost is predetermined. It is fixed percentage of total cost of
sales.

Variance analysis is done on the basis of totality. Variance as a control device are
calculated to assign / fix responsibility for deviation from the standard cost and thus to
control the cost. It is the difference between standard cost and actual cost or historical
cost. It is calculated annually on the basis of sales.

Budgetary control involves preparation of budgets and their application for


control purposes. Accordingly, there cannot be budgetary control without budgets and
mere budgets do not achieve the objectives of control unless the actual results are
compared with the targets laid down.

BUDGETARY CONTROL

As per the definition, budgetary control is said to be “the establishment of budgets


relating to the responsibilities of the executives to the requirement of a policy an
continuous comparison of actual budgeted results, either to secure by individual action
the objectives of the policy or to provide the basis for revision”.

Preparation of budgets or budgeting is a planning function and their application or


implementation is a control function. The activity involved in both the functions
accomplishes budgetary control.

In HAL capital and performance budgets are prepared. Capital budgets are
prepared for those items, which given profit in long run like budget related to new
projects, running projects, replacement and welfare. Control measures are adopted while
preparing these budgets. Revised estimates (R.E.), Budget estimates (B.E.), Forecast
(F.C.) is prepared. It is then compared with actual budget and the deviation between it is
noticed and if adverse results are found it is tried to check the deviations and take
corrective measures. In the same manner control measures are adopted for preparation of
performance budget which includes – Production budget, sales budget, purchase budget,
manpower budget, training budget, salary and wage budget, welfare budget, design and
development budget etc. Estimates regarding all these are prepared in advance and after
their occurrence the real amount or actual amount is compared with the estimations. If
the variation between actual and estimation is negative then corrective measures are
taken. In the case of HAL it is been observed that in most of the cases actual amount is
more than estimations made.

VARIANCE ANALYSIS :

Variance represents the difference between the actual and standards. If actual
cost is less than standard cost, this is a sign of efficiency and the difference is termed as
favorable variance. If the actual cost is more than standard cost this is a sign of
inefficiency and the difference is designated as unfavorable variance.

When actual performance are recorded and compared with standards set, some
deviations are observed. These deviations are popularly termed as variances. It is the
difference between the standard amount and the actual amount during a given period.

In HAL variance analysis is done in totality for a financial year. The following
represents the difference variances _

1. Cost variance
2. Price variance
a) Direct material price variance
b) Direct wage rate variance
c) Variable overhead price variance
3. Usage variance
a) Direct material usage variance
b) Direct labour efficiency variance

The above-mentioned variances are only relevant in HAL. Comparison and


analysis of cost is prepared in relation to:

1. Standard Minimum Hours vs. Actual Hours


2. Material quantity and material cost as per the standard and as per the
actual.
3. Labour cost as per the standard and as per the actual.

Price variance is not generally further analyzed but the usage variance is further
analyzed according to the causes of charge of consumption of hours of; material.

Variation of Price :

The price of each spare part shall be adjusted in accordance with the following
escalation formulae :

P1 = P0 * (A1 / A0 )

Where –

P0 = Price for the deliveries in the given year


P1 = Adjusted price for the year of delivery
A0 = Actual amount
A1 = Average of indices for the year prior to delivery

Price variance = Actual Quantity x {Standard Price – Actual


Price}
Usage variance = Standard Price x {Standard Qty. – Actual Qty.}

Material variance = Standard price x {Standard Qty.- Actual Qty.}

Material Cost variance = {Standard cost – Actual cost} x Actual Qty. sold
(Favourable)

Material Cost variance = { Actual cost – Std. Cost} x Actual Qty. sold
(Unfavourable)

In HAL the variances, which are calculated and analysis done regarding it is
computed on total sales. It is calculated once in a financial year. Separate variances are
not calculated as such. Large variances are analysed and reported for investigation.
Variance is effective tool for cost control, cost reduction. In the budget Man Hour rate
and actual Man Hour Rate, which is calculated at the end of the year and adjusted as
under, absorbed cost.
INVENTORY AND MATERIAL MANAGEMENT

Inventory is “items of store or material kept in stock to meet future demands for
production, repair, maintenance, overhaul etc.” Department of Inventory and Material
Management (IMM) of HAL plays an important role in the overall functioning of the
company as well as finance and accounts department. It maintains the stocks of
accessories and releases it as and when required. ABC analysis is used as sensitivity
analysis of inventory. Lead-time for material is very high. HAL stores the material one-
year in advance.

Fundamental of working capital :

HAL follows that the fundamental of working capital is based on five R’s, these
five R’s represent –

 Right Material
 Right Place
 Right Price
 Right Quantity
 Right Time
Right quantity of the right priced material should be reached at the right place at the right
time.

Three main components of the inventory :

1. Stock in Trade (S.I.T.)


2. Goods in Transit (G.I.T.)
3 Work in Progress (W.I.P)

Stock in trade includes those items, which are ready for sale. Goods in transit
may be in the form of raw material, finished goods and semi-finished goods.

Raw material is the major input, which gets converted to output. The items are
critical in nature, as any breakdown in supply will results in production stoppage.
Usage value is also quite high. Tightest inventory control is called for so as to
ensure uninterrupted supply with lowest possible inventory.
Work in progress is materials in intermediate stage of production and remains in
inventory. WIP inventory is inventory of material, which may be processed,
semi-processed, or fully processed form. They usually lie in the work places.
They remain in this classification till they become finished goods.

If finished goods could be sold as fast as they are produced or if they could be
produced as and when customers needs them, there need be no finished goods
inventory.
Material Procurement Procedure in HAL

Material procurement procedure follows these steps :

Issue of Material Requisition Note

Inquiry floatation

Receiving of Quotations

Opening of Tenders / Quotations

Preparing Comparative Analysis Sheet

Selection of Best Quotation

Placing of Purchase Order

Receiving the Material from Transit

Preparation of R.D.R.

Payment through Finance Department

First of all it is decided that the product to be produced and quantity of orders in
hand is analysed. These requirements are notices on the basis of Bills of Materials. Net
storage is calculated by deducting the SIT and orders in hand from total material
requirement. Procurement review sheet is prepared. Thereafter concerned authorities
review these requirements of materials. Then quotations/ tenders are called and
comparative price sheet (CPS) is prepared in order to compare the prices of tenders. L1
tender is selected amongst all which shows less price than others. Proposal of order is
given to vendor, when he approves the order; thereafter order is placed to him. This
order is accepted according to terms and conditions implied by HAL insurance, port of
destination etc. After the follow up of order material is dispatched and intimation is
given by suppliers regarding it. Receipt of material is provided which when passed for
acceptance then only RDR is prepared by the department. Thereafter payment is made.

Purchase order is written authorized to a vendor to supply specific quantity of


described goods at agreed terms and at a designated time and place. It is prepared by
Purchase Department. As a matter of record and for accounting control purchase order
should issue for every purchase of material, supplies. The P.O. given the vendor a
complete description of the goods desired, the terms, price and shipping instructions.

Receiving report will show P.O. No., account no., name of vendor, details
regarding transportation, quantity and type of goods received, receiving department keeps
record of this report.
Material requisition journal are prepared by the material accounts department.
Bills of material are a kind of material requisition in form that lists all the material parts.
PROVIDENT FUND SECTION

This section ensures the timely collection of provident fund money from members
every month. The money so collected from employees is invested in approved securities.
Employee provident fund came into existence in year 1952. Provident Fund trust deals
all the functioning of this department. Trust holds its rules and regulations for the proper
functioning.

FUNCTIONS :
 The P.F. subscription of members is deducted monthly from their salary. The
amount so deducted, which is 12% of the pay along with the company’s
contribution, is collected from the pay roll section and credited to the funds
account.
 Payment of loans (refundable and non-refundable) to members as per the rules of
the company subject to the availability of the funds.
 The investment of provident fund money is made in the approved securities and
the board of trustees approves a detail of investment.
 To watch timely recovery of interest and keep watch on securities.
 Interest is credited in the account of each member at such rate as may be
determined by the board of trustees, taking into account the income of trust during
each financial year.
 To maintain family pension account of each member and remittance to RPFC at
the stipulated dates and file monthly and yearly returns.
 To remit the amount of PF deduction for contractual/ casual workers by cheque to
R [FC and file the return in respect of the same.
 To distribute annual statement of PF to all the members in the format prescribed
by RPFC
 To make final payment of PF due to a member on his retirement/ resignation or
due to a nominee in the case of the death of a member as per the rules.
 To maintain accounts of provident fund transactions and get it audited by the
statutory auditor of the company and approved by the board of trustees.
 To file the monthly returns in the prescribed format and submit to RPFC by 25th
of each month in respect of provident fund and family pension fund.
 To forward insurance claim to LIC Bangalore in respect of deceased members.

Board of Trustees :

Subject to provision hereafter contained the fund shall vest in and be administered
by a “Board of Trustees” consisting of ten members. These members are called “Board
Members”. Five representatives of the member of fund are elected by a recognized union
and rest five are elected by the management by itself, in these five members one shall be
chairman, one shall be secretary, acting jointly on behalf of the board of trustees operate
on account of the fund with the banks and discharge, received or otherwise dispose or, as
may be necessary, government promissory notes, interests, warrants etc. relating to board
and shall on behalf of the board reassign to members in accordance to rules. Timely
meetings are held in which the members of the fund deal. This trust deals with all the
functioning of this department.

Contributions :

Employer’s share :

12% of the pay (Basic pay + DA + family planning increment + non practicing
allowances + service weightage pay as the case may be). 8.33% out of the
employer’s share of contribution to the PF account (the pay for this purpose being
limited to Rs. 6,500/-pm) is paid into the employees pension fund for the purpose
of employees pension scheme.

Employee’s share :

Employee’s share of contribution is equal to the contribution payable by the


employer (12%). An employee however can contribute at any rate higher than the
statutory rate, at his option.

Interest :

Interest shall be credited to the account of each member at the rate decided by the
concerned PF Trust.
Loans and Advances :

Loans and advances (refundable as well as non-refundable) can be taken from the
provident fund account for specified purposes. Recovery period for refundable
loans is maximum 48 months, along with interest, which includes 1.5% service
charges.

The employee’s pension scheme introduced by the government of India for


provident fund subscribers is in operation in the company. 8.33% of the employer’s
share of contribution to the PF account (pay for this purpose limited to Rs, 6,000/- pm) is
diverted to the pension scheme. There is no separate contribution from the employees.

Legal reports are passed to the regional provident fund commission because of
certain legal bindings. Trust record audit is been done by RPFC & CA’s time to time.
Timely reports are sent to the office of RPFC and the timely visit of inspectors is been
done by RPFC for checking the proper functioning of the department. Under pension
scheme 1995 approximate Rs.542/month is sent to RPFC In cases like retirement cases
are referred to RPFC and RPFC evaluate the cases and decides the amount to be paid to
the employees as the pension.

These funds that are collected by the department are invested in the government
securities. (RBI and state government securities) and government bonds (IDBI, ICICI
etc.). Interest that is gained by this process is equally distributed amongst the employees
of HAL.
ABBREVIATIONS

R.D.R. Receiving cum Discrepancy Report


G.I.T. Goods in Transit
S.I.T. Stock in Trade
L/C Letter of Credit
F.P.Q. Fixed Price Quotation
P.C. Price Catalogue
I.D.T.O. Inter Division Transfer Order
I.F.D. Inter Factory Demand
D.R.E Deferred Revenue Expenditure

E.D.P. Electronic Data Processing


M.S.D. Management Services Department
L.T.B. Labour Time Booking
A.H.Q. Air Head Quarter
M.R. Material Requisition
B.O.M. Bills of Material
I.M.M. Integrated Material Management
A.O. (DAD) Accounts Officer (Defence A/c Department)

S.M.H. Standard Minimum Hours


L.O.H. Labour Overhead
P.O.H. Production Overhead
N.P.O.H. Non-Production Overhead
I.A.F. Indian Air Force
A.D.A. Aeronautical Development Agency