MINOR PROJECT REPORT OF &

COST ACCOUNTING

SUBMITTED BY NITIN GARG PGDM IST YEAR STUDENT ROLL. NO 33

SUBMITTED TO MRS NEERU SINGH HOD FINANCE I-BUSINESS INSTITUTE KNOWLEDGE PARK-II GREATER NOIDA

PROJECT REPORT ON & COST ACCOUNTING INTRODUCTION
RILiance Infrastructure Ltd is not only India’s largest private sector enterprise in power utility but also the largest private sector player in many other infrastructure sectors of India. In the power sector we are involved in generation, transmission, distribution and trading of electricity and constructing power plants as EPC partners. In the infrastructure space the company is focused on roads, Urban infrastructure which includes MRTS, Sealink and Airports, Specialty Real Estate which includes business districts, trade towers, convention centre and SEZ which includes IT & ITES SEZ and non IT SEZ as well as free trade zones.

Vision
To be amongst the most admired and most trusted integrated utility companies in the world,delivering RILiable and quality products and services to all customers at competitive costs,with international standards of customer care -thereby creating superior value for all stakeholders. To set new benchmarks in standards of corporate performance and governance through the pursuit of operational and financial excellence,responsible citizenship and profitable growth.

Mission : Excellence in Infrastructure

To attain global best practices and become a world-class utility. To create world-class assets and infrastructure to provide the platform for faster, consistent growth for India to become a major world economic power.

To achieve excellence in service, quality, RILiability, safety and customer care.

To earn the trust and confidence of all customers and stakeholders and by exceeding their expectations, make the company a respected household name.

To work with vigour, dedication and innovation, with total customer satisfaction as the ultimate goal.

• • •

To consistently achieve high growth with the highest levels of productivity. To be a technology driven, efficient and financially sound organization. To be a responsible corporate citizen, nurturing human values and concern for society, the environment and above all, people.

• •

To contribute towards community development and nation building. To promote a work culture that fosters individual growth, team spirit and creativity to overcome challenges and attain goals.

• •

To encourage ideas, talent and value systems. To uphold the guiding principles of trust, integrity and transparency in all aspects of interactions and dealings

Subsidiary & Associate Companies

• • • • • • • •

BSES Kerala Power Ltd. BSES Rajdhani Power Ltd. BSES Yamuna Power Ltd. Reliance Energy Trading Ltd. Reliance Energy Transmission Ltd. Utility Powertech Ltd. North Eastern electricity Supply Company of Orissa Ltd.( NESCO) Western Electricity Supply Company of Orissa Ltd. ( WESCO) Southern Electricity Supply Company of Orissa Ltd. ( SOUTHCO)

BUSINESS INFRASTRUTURE
As the integrated power utility RIL has setup; a full fledged, Generation division having proven expertise in designing, engineering, erection, installation, commissioning, operations and maintenance of power projects. The division implements project plans for in house power projects and supports ventures undertaken by other affiliate companies. The division is fully integrated and has in house capabilities to address every aspect of power projects including:
• • • • •

Mechanical Civil Electrical Instrumentation Environmental

The division also provides engineering consultancy to external agencies and projects.

The 941 MW Generation capacity of theDivision comes from five projects:
• Dahanu TPS - the 2x250 MW multi fuel based thermal power station at Dahanu near Mumbai.

8 MW Wind Farm Project at Jogimatti in the district of Chitradurga in Karnataka.

BSES Kerala Limited: The 165 MW combined cycle power station at Kochi, Kerala.

BSES Andhra Power Limited: The 220 MW combined cycle power plant at Samalkot in Andhra Pradesh.

Goa Power Station : The 48 MW naptha based combined cycle power plant at Goa.

Careers in Reliance Infrastructure.:
Reliance Infrastructure Ltd. offer opportunities for growth that can fill a career. Careers at Reliance Infrastructure Ltd. are built in course of our concept of forming a team of people or individuals who are made responsible for specific functions; from concept to development to implementation, with concomitant empowerment. Reliance Infrastructure Ltd. provides employees seamless merging of functional roles, to provide a sharper business focuses & groom employees for larger responsibility across industry sector. We believe, working smarter would mean not just doing a given job well, but also stretching it into a mini profit-making project. As the transition from the old HRD to the New People Management has materialized, the HR function at Reliance Infrastructure Ltd. has begun to play a role much broader in scope, much stronger in impact & much more permanent in effect.

HR Philosophy
The liberalization of the power sector in India has paved way for new business opportunities and has redefined the nature of the power business. Envisioning future and to make the power sector credit worthy and capable of funding future investment needs, these reforms have opened arenas for new technologies. In this new environment of opportunities, RIL with its competitive edge of resources is playing a key role in the transformation process and aims to emerge as a world class power utility offering uninterrupted, affordable, quality, products and services to all customers at competitive costs, with international standards of customer care - thereby creating superior value for all stakeholders. To achieve this vision we at RIL believe that investment in people and their potential is one of the greatest investments we can make. For this, we are constantly in search of talent that can perform excellently with determination and win.

Our HR systems and policies are thereby designed to unleash the latent capability of our people by fostering a continuous learning and performance based culture where our people have the opportunity to grow and succeed and realize their true potential while delivering high quality services. To achieve these objectives our HR Policy is pivotal and aims to:

Achieve organizational and business goals with firm belief that "Our Employees are our Future".

Have empowered and accountable employees to take decisions in response to emerging challenges and opportunities in a competitive environment.

Endeavour to make our employees "The Best" with an urge for and commitment to excellence

Career Opportunities:

• • • • •

Exposure to Latest technological know-how World class management practices Multifunctional skills Customer Relationship Management Exposure to Regulatory, Legal and Contractual aspects of business Fast track growth

Recruitment:
Woven into strategic planning, recruitment in Reliance Infrastructure Ltd. no longer involves short-term vacancy or the annual ritual of Campus Recruitment. Translating corporate strategies into a manpower plan & developing a long term programme accordingly, Reliance Infrastructure Ltd. is tracking down people with the combination of knowledge, experience, skills & behaviour best suited to achieving the company’s objectives.

The focus of Recruitment:
• Attract people with multi dimensional experiences & skills

• • • • • • •

Induct talent with a new perspective to lead the company Develop a culture that attracts people to the company Locate people whose personalities fit the company’s values Devise methodologies for assessing psychological traits Seek out unconventional development ground for talent Design entry pay that competes on quality as well as quantum Anticipate & find people for positions proactively

Induction:

A formal induction programme is organized for all the new employees A structured Induction programme is carried out for:
o

Lateral Joiners

This provides a general overview of the organisation to the new recruits and familiarises employees with various business processes, culture, business practices of the company

It also covers soft skills modules like Team Building, Change Management, and Communication etc.

o

Graduate Engineer Trainees (Gets)
 

All the Gets undergo a one-year induction training programme. The induction programme contains the following:

Technical Training
 

On the Job training Class room training

 

Functional Training Managerial Skill Development

Performance Management: To ensure that the talent we have attracted can help us achieve our goals, we create appropriate working conditions, by adopting following steps:
• •

Evaluating all jobs so as to assign them to the individuals best suited for them Designing customized jobs, if necessary, using techniques drawn for behavioural sciences & industrial psychology

• •

Creating manpower configurations to boost the ability of the individuals Through it all, balancing corporate & employee interests by designing individual career paths.

Objective of our Performance Management System (PMS):
• • • • • • • •

Create a culture of excellence that inspires every employee Match organizational objectives to individual aspirations Equip people with the skills necessary to perform their duties Clear growth paths for specially talented individuals Provide new challenges to rejuvenate plateauing careers Forge a partnership with people for managing their career Empower employees to take decisions without fear of failing Imbibe teamwork in all operational process

Performance Appraisal System:
• • • • • •

Recognition of individual performance Continual learning and development Better skills and employability Monetary and other rewards The achievement of the organization's goals Increased productivity and profitability

A motivated workforce
:

Training & Development

With the changing business environment becoming more & more dynamic, a need on a continual basis for improved domain expertise is the need of the hour. The core function of our training department is to bridge the gap between the Changing requirements of the job & the abilities that individuals need to perform these tasks such as self-directed leadership, self-motivated teams & self generated creativity to excel in their respective areas of performance.

Objective of Training & Development (T&D) Department:

• • • • • • • • •

Make learning one of the fundamental values of the company Commit major resources & adequate time to training Use training to bridge the gap with the external work Integrate training into initiatives for change management Use training as a developmental tool for individuals Link organizational, operational & individual training needs Install training systems that substitute work experience Ensure that training allows the staff skills to bloom Use retraining to continuously upgrade employees skills Create a system to evaluate the effectiveness of training

COST ACCOUNTING

In management accounting, cost accounting establishes budget and actual cost of operations, processes, departments or product and the analysis of variances, profitability or social use of funds. Managers use cost accounting to support decision-

making to cut a company's costs and improve profitability. As a form of management accounting, cost accounting need not to follow standards such as GAAP, because its primary use is for internal managers, rather than outside users, and what to compute is instead decided pragmatically. Costs are measured in units of nominal currency by convention. Cost accounting can be viewed as translating the supply chain (the series of events in the production process that, in concert, result in a product) into financial values.

Elements of cost

1. Material(Material is a very important part of business)
o o

A. Direct material B. Indirect material A. Direct labor B. Indirect labor A. Indirect material B. Indirect labor

2. Labor
o o

3. Overhead
o o

They are grouped further based on their functions as,
• • • •

1. Production or works overheads 2. Administration overheads 3. Selling overheads 4. Distribution overheads

Classification of costs
Classification of cost means, the grouping of costs according to their common characteristics. The important ways of classification of costs are:

By nature or element: materials, labor, expenses

By functions: production, selling, distribution, administration, R&D, development, As direct and indirect By variability: fixed, variable, semi-variable By controllability: controllable, uncontrollable By normality: normal, abnormal

• • • •

Activity-based costing
Activity-based costing (ABC) is a system for assigning costs to products based on the activities they require. In this case, activities are those regular actions performed inside a company. "Talking with customer regarding invoice questions" is an example of an activity inside most companies. Accountants assign 100% of each employee's time to the different activities performed inside a company (many will use surveys to have the workers themselves assign their time to the different activities). The accountant then can determine the total cost spent on each activity by summing up the percentage of each worker's salary spent on that activity. A company can use the resulting activity cost data to determine where to focus their operational improvements. For example, a job-based manufacturer may find that a high percentage of its workers are spending their time trying to figure out a hastily written customer order. Via ABC, the accountants now have a currency amount pegged to the activity of "Researching Customer Work Order Specifications". Senior management can now decide how much focus or money to budget for resolving this process deficiency. Activity-based management includes (but is not restricted to) the use of activity-based costing to manage a business. While ABC may be able to pinpoint the cost of each activity and resources into the ultimate product, the process could be tedious, costly and subject to errors. As it is a tool for a more accurate way of allocating fixed costs into product, these fixed costs do not vary according to each month's production volume. For example, an elimination of one product would not eliminate the overhead or even direct labor cost

assigned to it. ABC better identifies product costing in the long run, but may not be too helpful in day-to-day decision-making.

Lean accounting
Lean accounting has developed in recent years to provide the accounting, control, and measurement methods supporting lean manufacturing and other applications of lean thinking such as healthcare, construction, insurance, banking, education, government, and other industries. There are two main thrusts for Lean Accounting. The first is the application of lean methods to the company's accounting, control, and measurement processes. This is no different than applying lean methods to any other processes. The objective is to eliminate waste, free up capacity, speed up the process, eliminate errors & defects, and make the process clear and understandable. The second (and more important) thrust of Lean Accounting is to fundamentally change the accounting, control, and measurement processes so they motivate lean change & improvement, provide information that is suitable for control and decisionmaking, provide an understanding of customer value, correctly assess the financial impact of lean improvement, and are themselves simple, visual, and low-waste. Lean Accounting does not require the traditional management accounting methods like standard costing, activity-based costing, variance reporting, cost-plus pricing, complex transactional control systems, and untimely & confusing financial reports. These are replaced by:
• • • •

lean-focused performance measurements simple summary direct costing of the value streams decision-making and reporting using a box score financial reports that are timely and presented in "plain English" that everyone can understand radical simplification and elimination of transactional control systems by eliminating the need for them driving lean changes from a deep understanding of the value created for the customers

eliminating traditional budgeting through monthly sales, operations, and financial planning processes (SOFP) value-based pricing correct understanding of the financial impact of lean change

• •

As an organization becomes more mature with lean thinking and methods, they recognize that the combined methods of lean accounting in fact creates a lean management system (LMS) designed to provide the planning, the operational and financial reporting, and the motivation for change required to prosper the company's on-going lean transformation.

Marginal costing
See also: Cost-Volume-Profit Analysis See also: Marginal cost This method is used particularly for short-term decision-making. Its principal tenets are:

Revenue (per product) - variable costs (per product) = contribution (per product) Total contribution - total fixed costs = total profit or total loss)

Thus, it does not attempt to allocate fixed costs in an arbitrary manner to different products. The short-term objective is to maximize contribution per unit. If constraints exist on resources, then Managerial Accounting dictates that marginal cost analysis be employed to maximize contribution per unit of the constrained resource (see Development of throughput accounting, above).

ACCOUNTING
Accountancy is the art of communicating financial information about a business entity to users such as shareholders and managers. The communication is generally in the form of financial statements that show in money terms the economic resources under the control of management. It is the branch of mathematical science that is useful in discovering the causes of success and failure in business. The principles of

accountancy are applied to business entities in three divisions of practical art, named accounting, bookkeeping, and auditing Accounting is defined by the AICPA as "The art of recording, classifying, and summarizing in a significant manner and in terms of money, transactions and events which are, in part at least, of financial character, and interpreting the results thereof." Accounting is thousands of years old; the earliest accounting records, which date back more than 7,000 years, were found in the Middle East. The people of that time relied on primitive accounting methods to record the growth of crops and herds. Accounting evolved, improving over the years and advancing as business advanced Early accounts served mainly to assist the memory of the businessperson and the audience for the account was the proprietor or record keeper alone. Cruder forms of accounting were inadequate for the problems created by a business entity involving multiple investors, so double-entry bookkeeping first emerged in northern Italy in the 14th century, where trading ventures began to require more capital than a single individual was able to invest. The development of joint stock companies created wider audiences for accounts, as investors without firsthand knowledge of their operations relied on accounts to provide the requisite information This development resulted in a split of accounting systems for internal (i.e. management accounting) and external (i.e. financial accounting) purposes, and subsequently also in accounting and disclosure regulations and a growing need for independent attestation of external accounts by auditors. Today, accounting is called "the language of business" because it is the vehicle for reporting financial information about a business entity to many different groups of people. Accounting that concentrates on reporting to people inside the business entity is called management accounting and is used to provide information to employees, managers, owner-managers and auditors. Management accounting is concerned primarily with providing a basis for making management or operating decisions. Accounting that provides information to people outside the business entity is called financial accounting and provides information to present and potential shareholders, creditors such as banks or vendors, financial analysts, economists, and government agencies. Because these users have different needs, the presentation of financial

accounts is very structured and subject to many more rules than management accounting. The body of rules that governs financial accounting is called Generally Accepted Accounting Principles, or GAAP.

BALANCE SHEET
In financial accounting, a balance sheet or statement of financial position is a summary of the financial balances of a sole proprietorship, a business partnership or a company. Assets, liabilities and ownership equity are listed as of a specific date, such as the end of its financial year. A balance sheet is often described as a "snapshot of a company's financial condition"Of the four basic financial statements, the balance sheet is the only statement which applies to a single point in time. A standard company balance sheet has three parts: assets, liabilities and ownership equity. The main categories of assets are usually listed first, and typically in order of liquidity. Assets are followed by the liabilities. The difference between the assets and the liabilities is known as equity or the net assets or the net worth or capital of the company and according to the accounting equation, net worth must equal assets minus liabilities. Another way to look at the same equation is that assets equals liabilities plus owner's equity. Looking at the equation in this way shows how assets were financed: either by borrowing money (liability) or by using the owner's money (owner's equity). Balance sheets are usually presented with assets in one section and liabilities and net worth in the other section with the two sections "balancing." Records of the values of each account or line in the balance sheet are usually maintained using a system of accounting known as the double-entry bookkeeping system. A business operating entirely in cash can measure its profits by withdrawing the entire bank balance at the end of the period, plus any cash in hand. However, many businesses are not paid immediately; they build up inventories of goods and they acquire buildings and equipment. In other words: businesses have assets and so they can not, even if they want to, immediately turn these into cash at the end of each

period. Often, these businesses owe money to suppliers and to tax authorities, and the proprietors do not withdraw all their original capital and profits at the end of each period. In other words businesses also have liabilities. In financial accounting, a balance sheet or statement of financial position is a summary of the financial balances of a sole proprietorship, a business partnership or a company. Assets, liabilities and ownership equity are listed as of a specific date, such as the end of its financial year. A balance sheet is often described as a "snapshot of a company's financial condition". Of the four basic financial statements, the balance sheet is the only statement which applies to a single point in time. A standard company balance sheet has three parts: assets, liabilities and ownership equity. The main categories of assets are usually listed first, and typically in order of liquidity. Assets are followed by the liabilities. The difference between the assets and the liabilities is known as equity or the net assets or the net worth or capital of the company and according to the accounting equation, net worth must equal assets minus liabilities. Another way to look at the same equation is that assets equals liabilities plus owner's equity. Looking at the equation in this way shows how assets were financed: either by borrowing money (liability) or by using the owner's money (owner's equity). Balance sheets are usually presented with assets in one section and liabilities and net worth in the other section with the two sections "balancing." Records of the values of each account or line in the balance sheet are usually maintained using a system of accounting known as the double-entry bookkeeping system. A business operating entirely in cash can measure its profits by withdrawing the entire bank balance at the end of the period, plus any cash in hand. However, many businesses are not paid immediately; they build up inventories of goods and they acquire buildings and equipment. In other words: businesses have assets and so they can not, even if they want to, immediately turn these into cash at the end of each period. Often, these businesses owe money to suppliers and to tax authorities, and the

proprietors do not withdraw all their original capital and profits at the end of each period. In other words businesses also have liabilities. In financial accounting, a balance sheet or statement of financial position is a summary of the financial balances of a sole proprietorship, a business partnership or a company. Assets, liabilities and ownership equity are listed as of a specific date, such as the end of its financial year. A balance sheet is often described as a "snapshot of a company's financial condition. Of the four basic financial statements, the balance sheet is the only statement which applies to a single point in time. A standard company balance sheet has three parts: assets, liabilities and ownership equity. The main categories of assets are usually listed first, and typically in order of liquidity. Assets are followed by the liabilities. The difference between the assets and the liabilities is known as equity or the net assets or the net worth or capital of the company and according to the accounting equation, net worth must equal assets minus liabilities. Another way to look at the same equation is that assets equals liabilities plus owner's equity. Looking at the equation in this way shows how assets were financed: either by borrowing money (liability) or by using the owner's money (owner's equity). Balance sheets are usually presented with assets in one section and liabilities and net worth in the other section with the two sections "balancing." Records of the values of each account or line in the balance sheet are usually maintained using a system of accounting known as the double-entry bookkeeping system. A business operating entirely in cash can measure its profits by withdrawing the entire bank balance at the end of the period, plus any cash in hand. However, many businesses are not paid immediately; they build up inventories of goods and they acquire buildings and equipment. In other words: businesses have assets and so they can not, even if they want to, immediately turn these into cash at the end of each period. Often, these businesses owe money to suppliers and to tax authorities, and the proprietors do not withdraw all their original capital and profits at the end of each period. In other words businesses also have liabilities.

Sample Small Business Balance Sheet

Liabilities and Owners' Equity Creditor Bills payable

Amount 15,000 20,000

Assets Cash Stock Debtor Short Term Investment

Amount 50000 10,000 10,000 10,000 35000

35000

Public Business Entities balance sheet structure
Guidelines for balance sheets of public business entities are given by the International Accounting Standards Committee and numerous country-specific organizations. Balance sheet account names and usage depend on the organization's country and the type of organization. Government organizations do not generally follow standards established for individuals or businesses. If applicable to the business, summary values for the following items should be included on the balance sheet:

Assets
Current assets 1. Cash and cash equivalents 2. Inventories

3. Accounts receivable 4. Prepaid expenses for future services that will be used within a year Fixed assets 1. Property, plant and equipment 2. Investment property, such as real estate held for investment purposes 3. Intangible assets 4. Financial assets (excluding investments accounted for using the equity method, accounts receivables, and cash and cash equivalents) 5. Investments accounted for using the equity method 6. Biological assets, which are living plants or animals. Bearer biological assets are plants or animals which bear agricultural produce for harvest, such as apple trees grown to produce apples and sheep raised to produce wool. Liabilities 1. Accounts payable 2. Provisions for warranties or court decisions 3. Financial liabilities (excluding provisions and accounts payable), such as promissory notes and corporate bonds 4. Liabilities and assets for current tax 5. Deferred tax liabilities and deferred tax assets 6. Minority interest in equity 7. Issued capital and reserves attributable to equity holders of the Parent company 8. Unearned revenue for services paid for by customers but not yet provided Equity The net assets shown by the balance sheet equals the third part of the balance sheet, which is known as the shareholders' equity. Formally, shareholders' equity is part of the company's liabilities: they are funds "owing" to shareholders (after payment of all other liabilities); usually, however, "liabilities" is used in the more restrictive sense of liabilities excluding shareholders' equity. The balance of assets and liabilities

(including shareholders' equity) is not a coincidence. Records of the values of each account in the balance sheet are maintained using a system of accounting known as double-entry bookkeeping. In this sense, shareholders' equity by construction must equal assets minus liabilities, and are a residual. 1. Numbers of shares authorized, issued and fully paid, and issued but not fully paid 2. Par value of shares 3. Reconciliation of shares outstanding at the beginning and the end of the period 4. Description of rights, preferences, and restrictions of shares 5. Treasury shares, including shares held by subsidiaries and associates 6. Shares reserved for issuance under options and contracts 7. A description of the nature and purpose of each reserve within owners' equity

Sample balance sheet structure
The following balance sheet structure is just an example. It does not show all possible kinds of assets, equity and liabilities, but it shows the most usual ones. Because it shows goodwill, it could be a consolidated balance sheet. Monetary values are not shown, summary (total) rows are missing as well.
Balance Sheet of XYZ, Ltd. as of 31 December 2006

ASSETS
Current Assets Cash and cash equivalents Accounts receivable (debtors) Inventories Prepaid Expenses Investments held for trading Other current assets Fixed Assets (Non-Current Assets) Property, plant and equipment Less : Accumulated Depreciation

Goodwill Other intangible fixed assets Investments in associates Deferred tax assets

LIABILITIES and EQUITY
Creditors: amounts falling due within one year (Current Liabilities) Accounts payable Current income tax liabilities Current portion of bank loans payable Short-term provisions Other current liabilities

Creditors: amounts falling due after more than one year (Long-Term Liabilities)
Bank loans Issued debt securities Deferred tax liability Provisions Minority interest

Equity
Share capital Capital reserves Revaluation reserve Translation reserve Retained earnings

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