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A

SUMMER PROJECT REPORT


ON
“FUNDS FLOW STATEMENT”
IN
HINDUSTAN AERONAUTICS LIMITED

Hindustan Aeronautics Limited


Engine Division - Koraput
Po - Sunabeda, 763002
Dist - Koraput (Odisha) India

SUBMITTED BY
Bhagyapriya Sethi
Batch: 2009-11

In partial fulfillment for the award of the


degree
Of
Master of Business Administration

Berhampur University
CERTIFICATE

This is to certify that Miss Bhagyapriya Sethi, a student of


Master of Business Administration (MBA) at Berhampur
University, has successfully completed her project on “Funds Flow
Statement” in HAL, Koraput Division during the period of 27th
May to 10th July 2010.

She has shown excellence in completion and presentation of


data in a brief and organized manner. She is very sincere and hard
working. I am sure that she would prove herself an asset to the
organization that employs her.

I wish her success in all her future endeavors.

PROJECT GUIDE

B. Senapati
Sr. Manager
(Accounts)
HAL, Engine
Division
Koraput
DECLARATION

I do hereby declare that the project is entitled “A Study on


Analysis of Funds Flow of HAL, Koraput Division”. This project
report submitted in the outcome of my own efforts in the training
which I have undergone as a part of curriculum leading to the award
of Master of Business Administration, Berhampur University,
under the guidance of Mr. A.K. Sahu, faculty member,
Berhampur University and Mr. B. Senapati, Sr. Manager
(Accounts) HAL, Koraput division. This report has not been
submitted for the award of any other degree of either this university
or any other university.

Thanking you.

Date:
Place: Signature
ACKNOWLEDGEMENT

After completion of this project, it gives me immense pleasure


to express my gratitude and heartfelt thanks to all those, whose help
went a long in completion of this project. There are several people
who deserve more than a written acknowledgement of exemplary
help.

It is with a sense of deep gratitude; I wish to thank my faculty


guide Mr. A.K. Sahu for giving me an opportunity to do my project
as a part of MBA.

I would like to express my sincere gratitude to Mr. B.


Senapati, Sr. Manager(Accounts), HAL, Koraput Division for
his valuable suggestion, advises and guidance in carrying out this
project.

Finally, I am gratefully thanking all the members of the Finance


Department for their generous help in various ways for completion of
this project.

MBA
BERHAMPUR
UNIVERSITY
PREFACE

Finance as a subject of study has received widespread support


from both the academic and business segment people.

The topic “Funds Flow Statement” in HAL was selected as to


understand the financial needs and important with special reference
to HAL, Engine Division, Koraput.

The funds flow statement is the method by which we study


changes in the financial position of a business enterprise between
and ending financial statements dates. It is a statement showing
sources and uses of funds for a period of time.

The study of funds flow statement with reference to HAL helped


me to analyze the changes in the financial condition of enterprise
between two periods. It helped me to know the various sources
through which organization gathers its funds and utilizes it in order
to achieve the organizational objective.

This training attends me an opportunity to make a study and


analysis the system adopted by the organization. It enables me to
build the practical knowledge acquired during the class study with
practical training received during my project study.
CONTENTS

CHAPTER – 1
Introduction
Objective of the study
Purpose of the study
Research methodology
Limitation

CHAPTER – 2
Company profile

CHAPTER – 3
Organizational structure

CHAPTER – 4
Theoretical perspective

CHAPTER – 5
Analysis and Interpretations

CHAPTER – 6
Summary
Conclusion
Suggestion
Annexure
Bibliography
CHAPTER – 1
“INTRODUCTION”
INTRODUCTION TO THE STUDY
Financial management is that managerial activity which is
concerned with the planning and controlling of the firm’s financial
resources. Financial management provides immense knowledge to
the various people like the practioners, the outsiders, the
academicians etc.

Finance is termed as the universal lubricant that keeps the


enterprise dynamic in nature and helps in the smooth running of the
business. Any concern whether it’s new or an existing requires
finance.

Financial management is helpful when it is used in a best


possible and profitable way in every type of organization irrespective
of its size, kind of nature. Finance is helpful in:

 Proper utilization and allocation of funds.


 Making sound financial decisions.
 Increasing the wealth of the investors.
 Minimizing the cost of acquisition when required.
 An enterprise to promote successfully.
 A better financial planning.

The basic financial statements of funds flow statement are the


balance sheet and profit & loss account of business reveal the net
effect of the transactions on the operational and financial position of
the company. The balance sheet gives a summary of the assets and
liabilities of an undertaking at a particular point of time revealing the
financial status of the company.

The profit & loss account reflects the results of the operational
for a period of time. It contains a summary of the expenses incurred
and the revenue realized in an accounting period.

NEED FOR THE STUDY


In any organization when any transaction happens then the
transaction makes some changes in the amount of funds available
before happening of the transaction. To know the net financial
position of the firm at the end of the year the two financial
statements provide very useful information regarding the business of
the firm. These statements are through light upon the changes in
assets, liabilities and the shareholders during the year.
The balance sheet which deals with the financial position gives
only the static view of the end financial position and fails to indicate
the movements and the cause of the changes in assets and liabilities
during the year.

Similarly the income statement shows the profit or loss


resulting out the operations of the firm during the years. This income
statement in fact reflects the changes in shareholder wealth.

OBJECTIVE OF THE STUDY


A few studies have already been conducted on various aspects
of HAL. At present duty an attempt is made to analyze the financial
statement. Hence the study sets the following objectives before it:

 Helps in the analysis of financial operations. 


 Helps in the formation of a realistic dividend policy. 
 Helps in the proper allocation of resources. 
 Acts as a future guide. 
 Helps knowing the overall creditworthiness of a firm.

METHODOLOGY
The data which is presented in this report has been taken from
secondary source. The data of HAL, engine division, Koraput for the
year 2006–07, 2007–08, 2008–09, 2009–10 used in this report have
been taken from the financial statements i.e., the Income Statement,
Balance Sheet for the relevant year for comparison of two balance
sheets. The procedural details have been collected from respective
manuals, booklets etc. Some principles, procedures including various
aspects of analysis have been presented in this report by information
discussion with the concerned authority of this division.

For analyzing the performance of the organization we had


studied two statements i.e.
 Statement of schedule of changes in working capital.
 Statement of Sources and Application of funds.

RESEARCH DESIGN
The research design that has been adopted for the study offers
a basis of drawing conclusion from the data collected from a firm
which is a descriptive research.
COLLECTION OF DATA
Primary Data – The primary data has been collected from
finance officers and finance managers of the company through
personal interview.

Secondary Data – The secondary sources are collected


through the official records, various publications of the organization,
annual report and audited financial statements.

Period of study – The research period was from 27th of May


to 10th of July 2010.

SCOPE OF THE STUDY


Keeping the magnitude of the work in mind, the scope of the
study has been determined. It covers at the outset, a description of
the role played by the corporation in improving financial strength of
the 10 organizational Odisha. The study has emphasized financial
statement analysis and its application in different enterprise.

LIMITATIONS
 The data collected was purely a secondary source of data.
 This study was restricted to the extent possible of data
received as HAL was a Defense Sector.
 Detailed information about certain parameters could not
be obtained due to confidentiality.
 Time factor was a limitation as only a stipulated period has
been ascertained to me while the personnel had little time
to my queries due to their daily busy schedule.
CHAPTER – 2
“COMPANY PROFILE”

INTRODUCTION TO THE COMPANY


Hindustan Aeronautics Limited (HAL) came into existence
st
on 1 October 1946. The company was formed by the merger of
Hindustan aircraft with aeronautics India limited and aircraft
manufacturing depot, Kanpur.

The company traces its roots to the pioneering efforts of an


industrialist with extraordinary vision, the Late Seth Walchand
Hirachand, who set up Hindustan Aircraft Limited at Bangalore in
association with the erstwhile princely state of Mysore in December
1940, the government of India became a shareholder in March 1941
and took over the management in 1942.

Today, HAL has 19 production units and 9 research and design


Centers in 7 locations in India. The company has impressive product
track record–12 types of aircraft manufactured with in house R & D
and 14 types produced under license. HAL has manufactured over
3550 aircraft, 3600 engines and overhauled over 8150 aircraft and
27300 engines.

In August 1962 an agreement was signed with the Soviet Union


for the manufacture of MIG–21, E7–FL aircraft under license. The
aero engine factory at Koraput, the airframe factory at Nasik, and
avionics factory at Hyderabad have been set up to meet this
requirement under the name of the aeronautics India limited which
was formed on 1st April 1964. This company was merged with
Hindustan Aircraft Limited on 1st October 1964 and a new company
under the name of HAL was formed. In July 1970 a helicopter
division was established as a part of Bangalore complex for the
manufacture of Chetak and Cheetah Helicopters under the license
from France.

Over the first five decades HAL has spread its wings to cover
the various activities in the area of design, development,
manufacture and maintenance of light aircraft, piston and jet engine
of imported category was delivered to HAL, Nasik division in the year
1978–79.

To become a globally competitive Aerospace Industry while


working as an instrument for achieving self reliance in design
manufacture and maintenance of Aerospace Defense equipment and
diversifying to related areas managing the business on commercial
lines in a climate of growing professional competence.
In August 1982, government approved the proposal for setting
up an advanced systems division at Korwa. A major milestone 1983
was the formulation of a design perspective plan, which envisages
design, and development of a portfolio of projects including the basic
turbo trainer, advanced jet trainer Hindustan pressurized light
transport (30–35 seats) light component aircraft etc. in the period
1984 to 1994.

DIVISIONS AND COMPLEXES


1. Bangalore division (Karnataka)
Barakpur division (West Bengal)
2. Nasik division (Maharashtra)
3. Koraput division (Odisha)
4. Hyderabad division (Andhra Pradesh)
5. Lucknow division (Uttar Pradesh)
6. Kanpur division (Uttar Pradesh)
7. Korwa division (Uttar Pradesh)

HAL has four main complexes in India


1. Bangalore complex
2. MIG complex
3. Accessories complex
4. Design complex

BANGALORE COMPLEX
 Aircraft division – Manufacturing Jaguar Aircrafts.
 Engine division – Manufacturing Jaguar Engines.
 Helicopter division – Manufacturing Helicopters.
 Forge and foundry division – Manufacturing high precision.
 Overhaul division – Overhaul of Jaguar and other engine.
 Space division – Manufacturing of launching of pads and
common satellites for common services to all divisions.

MIG COMPLEX
 Nasik division – Manufacturing and overhauling of
airframes
 Koraput division – Manufacturing and overhauling of MIG
engines

ACCESSORIES COMPLEX
 Hyderabad division – Manufacturing of electronics and
navigational equipment
 Kanpur division – Manufacturing of passenger aircraft and
gliders
 Lucknow division – Manufacturing of hydraulic pumps, fuel
pumps and stator Generator
 Korwa division – Manufacturing of advanced navigational
equipment

DESIGN COMPLEX
Bangalore division – Modification of any component or unit
of an engine

HEAD OFFICE
The head office of HAL is located at Bangalore and another at
New Delhi under the ministry of defense.

INDEGENIOUS NAMES OF HAL PRODUCTS


SL. NO AIRCRAFT ENGINE INDIGENOUS
1. MIG – 2FL R11–F2S BADAL
2. MIG – ZIM/MF R11–2S/F2SK TRISHUL
3. MIG – ZIBIS R–25 VIKRAM
4. MIG – 23MF R–29 RAKSHAK
5. MIG – 23BN R–29B VIJAY
6. MIG – 25 R–29B GARUD
7. MIG – 27M R–29B BAHADUR
8. MIG – 29 RD–33 VAJ
9. GNAT ORPHEUS–701 MARUT
10. HF – 24 ORPHEUS–703 KIRAN
11. HJT – 16 VIPER–2 SHAMSHER
12. JAGUAR ADOUR MK–80 VAJRA
13. MIRAGE – 2000 M–53 CHITRA
14. HS – 748 DART–531 CHEETAH
15. ALLOUTEE ARTOUSTE–3B SUTLUJ
16. AN – 32 SUTLUJ
17. MI – 8 PRATAP
18. MI AKBAR
19. HPT – 32 PISTON ENGINE
20. Su30 AN31F

ENGINE DIVISION
Hindustan Aeronautics Limited (HAL), Koraput division is
located a very advantageous position. This company is situated at
Sunabeda in Koraput district, Odisha. HAL, Koraput division,
Sunabeda, moreover the factory is adjacent to the national highway
no: 43 linking Vishakhapatnam – Raipur. The nearest railway link is
at Koraput (16km from Sunabeda). An airfield is located at Jeypore,
39km from Sunabeda. There is a helipad facility at HAL Township and
also a proposed form is being constructed of a permanent airfield.

Engine division – Koraput, a unit of HAL’s vast network, was set


up in April 1964 to manufacture R11 – F2S turbo jet engine of MIG –
21 FL aircraft under license from the erstwhile USSR, subsequently,
the division took up, under various license agreements, manufacture
of R – 11 series engines of MIG – 21 FL and MIG – 27M aircraft, R – 25
series engines of MIG – 21BIS aircraft and R – 29B engines for MIG –
27 aircraft. Simultaneously, facilities were set up for overhaul of R –
11 and R – 25 series engines, which started in 1971 and 1983
respectively. Starting from 1997 – 98 we have also undertaken
overhaul of RD – 33 engines of MIG – 29 aircrafts.

The division has stepped into diversification by signing an MOU


with GTRE for supply of components belonging to three modules
(gear box, fan and turbine modules) of Kaveri engine meant for LAC.

This division has also entered the export market by overhauling


R25 engines for Vietnam, supply of helicopters gears for MH1, Japan
and supply of spares for Egypt. The division has bagged an order
from m/s allied signals, USA for mechanizing of castings.

The division has a long term plan to undertake manufacture of


AL – 31FP engines for Su – 30MKI aircraft under license.

Today HAL has a rich and enviable experience of manufacturing


more than 1000 aero engines and overhaul of nearly 4500 power
plants.

The division has the unique distinction of manufacturing almost


all types of components required for manufacture and overhaul of
engines and spares for service exploitation. The division is equipped
with modern forge a d foundry shops which cater to the
requirements of prevision forgings and castings.

VISION
“To make HAL a dynamic, vibrant, value based learning
organization with human resources exceptionally skilled, highly
motivated and committed to meet the current and future challenges.
This will be driven by core values of the company fully embedded in
the culture of the organization”.

MISSION
Enable all those working for HAL to give out their best to ensure
there all round growth as well as that of the organization.

 Achieving excellence in the manufacture of aero engines and


spare parts. 
 Offering matchless overhaul and repair services.
 Providing total customer support through continuing pursuit
of technical excellence, understanding product quality,
reliability and service.
 Striving constantly self – reliance & self – sufficiency in all
operations.
 Becoming the Asian leader in Aero Engine production, ready
to share technical know how for setting up projects a board.
Maintaining & developing a team of highly motivated trained
professionals.
 Making forays into the expert market as on ISO – 9002
company.
CHAPTER – 3
“ORGANIZATIONAL
STRUCTURE”

FINANCE AND ACCOUNTING FUNCTIONS IN HAL


KORAPUT DIVISION
Finance and accounting both play an important role in any
business organizational setup. The main function of any finance and
accounting of an organization are funds management, cost
monitoring, cost reduction and financial appraisal. Money is a very
scarce resource and is the most sought after commodity because all
the transaction of human society is settled in terms of money.

Money and Finance are of not one and the same things. Money
stored in vaults or kept in the shape of gold bars or an ornament is
not finance. Money is a static value expressed in currency of the
country, where as, finance is an expression of dynamic function of
money.

Depending upon the requirements and close monitoring of


expenditure HAL, Koraput division has formed the following section
for the smooth running of the finance and accounts departments and
to maintain the liquidity position of the company.

1. Bills payable section


2. Payroll section
3. Provident fund section
4. Cash office section
5. Finance section
6. Material section
7. Costing section
8. Bills receivable section
9. Book – keeping section

BILLS PAYABLE SECTION


This section is mainly divided in three sub division. Such as:

 Bills payable (Inland) – This section deals with the


payment & accounting of supplies & services rendered to
the company.
 Bills payable (Civil work) – This section deals with the
service rendered by the contractor of the company. 
 Bills payable (Foreign) – This section deals with the
payment & accounting of supplies & services rendered by
foreign collaborators to the company.

PAYROLL SECTION
The main functions of the Payroll cover the following:
 Placement of time punching cards in the card rack for the
recording attendance.
 Receipt of approval leave application, over time
authorization, attendance sheets & employees gate pass
etc.
 Maintenance of leaves records & feeding of attendance
data to computer.
 Disbursement of salary & wages.
 Payment & recovery of advances.
 Recovery of dues from employees.
 Accounting of all Payroll transactions.
 Maintenance of employees punching cards etc.

PROVIDENT FUND SECTION


This section mainly deals with the transaction preparing to PF
such as:
 Account of Provident Fund Transaction.
 Remittance of amounts recovered from employee to a
fund called provident fund trust fund.
 Providing refundable & nonrefundable & adjustment
thereof.

CASH OFFICE
This section is responsible for all receipt & payment of
cash/cheque & accounting of the same in the book. The main
functions are as follows:

 Receipt of cash, cheque, bank draft & issue receipt for the
same.
 Banking of all receipt.
 Drawl of cash from bank to cater for daily needs.
 Payment of vouchers by cash/cheque.
 Writing cash/bank books.
 Preparing of Bank Reconciliation Statement.
 Safe Custody of cash, cheque books, bank guarantees,
fixed deposits receipts & other investments etc.

FINANCE SECTION
The main functions are: Security & Financial concurrent as per
the delegation of power of proposal for:

 Capital expenditure
 Revenue expenditure
 Purchase of material, stores tools & other services
 Manpower requirements
 Incentives
 Write off – of losses
 Cases involving relaxation of rules
 Sales of company assets
 Contracts enter into with
suppliers/collaboration/subcontractors.
 Estimates & errors of contracts in respect of Civil/
Electrical/ Plant order.

MATERIALS SECTION
This section covers the following:
 Maintenance of material ledger cards for all materials held
in stores.
 Accounting of receipts of all materials by various classes &
issue of all materials draws on work order & expenses
accounts.
 Reconciliation of balance with general ledger.
 Quality reconciliation of Bin Card balances with materials
ledge balances.
 Accountings of inter divisional transfer of Materials & its
reconciliation.
 Scrutiny of slow, non – moving inventories.

COSTING SECTION
The main functions of this section are:
 Fixation of fixed cost quotation.
 Fixation of standard man – hour rate.
 Preparation of operating statement.
 Accounting & adjustment of differed revenue expenditure.
 Accounting of non – production of overhead.
 Preparation of man – hour rate.
 Accounting of work in progress.
 Setting of sales.
 Submission of monthly reports to various agencies.

BILLS RECEIVABLE SECTION


This section is responsible for preparation & submission of
invoices to customer for the supplier made & services rendered &
follow up for recovery of the amount & accounting of the same.
BOOKKEEPING SECTION
This section is the section in which the financial position of the
organization can be reflected through the preparation of profit & loss
account and balance sheet. It is the apex section of the finance &
accounts department, which cover the following important function.
 Co – ordination of all section for relevant information.
 Maintenance of Journal & general ledger.
 Preparation of Trial balance, Profit & Loss account, Balance
sheet.
 Maintenance of Capital Asset Ledger.
 Preparation of Fixed Asset & Depreciation schedule.
 Furnishing of data for determining of Income tax liability.
 Preparation of performance budget.
 Dealing with sales tax matters.
 Disposal of surplus/ condemned plant & Machinery and
other assets.
 Reconciliation of control account of other
division/corporate office.
 Liaison with audit authority.
 Submission of various types of reports/Returns as & when
required by corporate office/MD (MIG) & other agencies.
 Updating the accounting policies/ Procedure upon the
guide lines issue by the corporate office.

ACCOUNTING POLICIES FOLLOWED BY HAL FIXED ASSETS


 Land received from the state government till 31st March
1969 has not been valued. Such land which has been
taken over by the company after 1st April 1969, have been
valued at estimated fair price ruling on the date of taking
possession. Land other than above has been capitalized at
cost to the company and no accounts has been taken of by
the cost borne by the state government expenditure on
the development is shown under land.
 Fixed assets acquired with financial assistance/ subsidy
from outside agencies either wholly or partly is capitalized
at net cost of the company.
 Minor civil work including addition, alterations etc. costing
individually Rs.50000/- and below not resulting in
additional floor space are charged to revenue.
 Where the actual costs of the fixed/current assets are not
readily ascertainable, they are accounted initially on
provisional basis but adjusted subsequently to cost when
ascertained.
 Assets declared surplus are discarded and are retained in
the books at cost and depreciation provided till the end of
the month, proceeds from sales of assets in excess of net
book value are credited to profit and loss account.
 Standards of performance based on the technical
assessment are not capitalized.
 Cost of the initial pack of spaces procures with plant,
machinery and equipment is capitalized and depreciated in
the same manner as plant, machinery and equipment.

TOOLS AND EQUIPMENTS


Expenditure on special purpose tools, jigs and fixture including
those specific to the project/product is initially capitalized for
amortized over production on technical assessment and to extent
not amortized is carried forward as on assets. Expenditures on
maintenance, rework, reconditioning, periodical inspection,
referencing of tooling, replenishing of cutting tools and work of
similar nature is charged to revenue act at the time of issue.

RESEARCH AND DEVELOPMENT


 Research and Development Reserve is built up by the
appropriation from profit. It is debited to the Profit and
Loss account.
 To the extent the expenditures are met out of the
Research and Development Reserve amounts to that
extent which are transferred from Research and
Development Reserve to the Profit and Loss account.
 Expenditures on training/foreign technical fees and
expenses, pre production expenses etc. specific to
projects/products is amortized over production on
technical estimates and to the extent not amortized is
carried forward.
DEFERRED DEBTS
Unpaid installment payments under deferred payment terms for
the cost of imported material and tooling content of the
equipments/products sold are accounted as deferred debt from the
customers and are recovered as and when the installment are paid.

SUNDRY DEBTORS
Disputed /time barred debts from the government departments
are generally not treated as doubtful debts.

INVENTORIES
 Raw materials, components, stores and spare parts are
valued at cost.
 Work in progress/stock in trade is valued at lower of cost
on realizable value.
 Adjustment is not made for under/over observation of cost
on jobs, if the extent of under/over observation in a year
does not exceed 0.5% of the net operating expenses.
 Customs duty where applicable is loaded to cost of goods
when cleared and passed through customs.
 Stationary, uniform, medical and canteen, stores and
charged to revenue at the time of receipt.
 Semi perishable, welfare and miscellaneous equipments
(other then fixed assets) costing individually Rs.20000/
and below are charged to revenue at the time of issue and
those costing above.
 Rs.20000/ is written off to revenue in two years including
the year of issue.
 Provision for redundancy is maintained at a suitable
percentage/ level of the value of closing inventory of Raw
Materials and components, stores and spares parts and
construction materials less the value of inventory to be
borne by the customer and the value of the inventory for
the initial phase of the new projects. Besides, where
necessary, adequate provision is made for redundancy of
such materials in respect of completed/ specific project
and other surplus/ redundant material pending transfer to
salvage stores.
 Stores declared surplus/unserviceable/redundant are
charged to revenue.
 Material issued from main stores and lying unused at the
end of the year is not reckoned as inventory.

INDIRECT EXPENSES ON EXPANSIONS


Expenses on administration and supervision in respect of
expansion facilities/new projects at the existing division are charged
to revenue.
SALES
Sales are set up on completion of contracted work on the basis
of signaling out/acceptance by the customer’s inspection of the
product. Where sale price are not established, sales are set up on
provisional basis at price likely to be realized. Research and
Development Expenditure financed by the customer is billed and
accounted as sales.

RETIREMENT BENEFITS
 Liabilities towards gratuity provided on yearly actuarial
valuation in respect of all employees is remitted to a trust
progressively.
 Provision for vocation leave is made on accrual basis and
unutilized leave at the year end is restated as if such
benefits is payable at the close of the year.
 Employer’s contribution of provident fund for the year is
provided for at the government stipulated rate and are
remitted to the trust.

INTEREST
Interest on loan/borrowing for different projects is charged to
Profit and Loss account as the revenue.

DEPRECIATION
Depreciation on fixed assets is charged on “Straight Line
Method”. The rate of depreciation on assets acquired on prior to
01.04.1989 is on the basis of estimated life. The rate of
depreciation is as prescribed in such XIV act to the company’s act
1956 for assets capitalized after 01.04.1989. However, pro rata
depreciation charges to the assets from the first day of the month of
addition. Fixed assets costing Rs.10000/– and below are
depreciated fully in the year of purchase. Where cost of internal
partitions exceeds Rs.50000/–, they are depreciated within period of
five years or the lease period of premises, whichever is less.

CLAIM ON SUPPLIERS/UNDERWRITERS/CARRIERS, ETC.


Claim on suppliers/underwriters/carriers towards loss or
damage and claims on customs department for refund are accounted
when claims are preferred.

DISPOSABLE SCRAP
Saleable/disposable scrap is valued at estimated realized value.

FOREIGN CURRENCY TRANSACTIONS


These transactions are recorded and reported as per the
requirement of the accounting standards II of ICAI, except in respect
of liability of Deferred Payments on supplies/services from the
Russian Federation arising in terms of inter Government agreement
entered into between Government of India and USSR Government of
Russian Federations.
CHAPTER – 4
“THEORETICAL
PERSPECTIVE”
INTRODUCTION
The basic financial statements that are the balance sheet and
the profit & loss account reveal the net effect of the various
transactions on the operational and the financial position of the
company. The balance sheet gives a summary of the assets and
liabilities of an undertaking at a particular point of time. It reveals
the financial position of the business. The assets side of the balance
sheets shows the uses of resources of an undertaking while the
liability side indicates the manner in which these resources were
obtained. The profit & loss account contains the summary of the
expenses incurred and the revenue realized in an accounting period
which reflects the results of the business operations.

The balance sheet does not disclose the causes for changes in
the assets and liabilities between two different points of time. The
profit & loss account also does not disclose some transaction that
operates through an undertaking. Therefore, another statement is to
be prepared to show the changes in the assets and liabilities
between two balance sheet dates. This statement is called as the
statement of changes in financial position or funds flow statement. It
indicates that where from these funds were obtained and the ways in
which these funds were employed. It can also be said as the
statement of sources and application of funds.

MEANING AND CONCEPT OF FUNDS


The terms ‘funds’ has been defined in number of ways:
 In a narrow sense, it refers to only cash and fund flow
statement prepared on this basis can be called as cash
flow statement. For this various transactions relating to
receipts and payments are shown.
 In a broader sense, it refers to money values in
whatever form it may be.
 In a popular sense, it means working capital that is the
excess of the current assets over the current liabilities.

But these concepts have failed to reveal the changes in the


overall financial resources of the firm. For e.g. Purchase of
building in exchange of shares, purchase of one asset in
exchange of another asset.

MEANING AND CONCEPT OF ‘FLOW OF FUNDS’


The term ‘Flow’ means movement and includes both ‘inflow’ &
‘outflow’. The term ‘Flow of Funds’ means transfer of economic
values from one asset of equity to another. Flow of funds is said to
happen when any transaction makes any changes in the amount of
funds before happening of the transaction. If the effect of the
transaction results in the increase of the funds, it is called as sources
of funds and if it results in decrease of funds, it is called as
application of funds. Some transactions do not affect in funds do not
result in the flow of funds.

A transaction results in flow of funds when on one hand it is a


non current account and on the other it is a current account or on
the other it is a current and on the other it is a non current. So, when
a change in a non current account like fixed assets, long term
liabilities, reserves and surpluses, fictitious assets are followed by a
change in another non current account, it does not amount to flow of
funds this is because of the fact that according to the working capital
concept there is no movement of funds in the working capital. As
similar to this when one current account results in a change to
another current account it does not result in flow of funds. In simple,
funds move when a transaction affects

 A current asset and a permanent asset


 A current liability and a permanent liability
 A current liability and a permanent asset
 A current asset and a permanent liability

CURRENT ACCOUNTS AND NON – CURRENT ACCOUNT


Current accounts include both current assets and current
liabilities and non–current accounts include both non–current assets
and non–current liabilities.

Current assets are those assets which in the ordinary course of


business can be converted into cash within a short period of time
that is one accounting period. Current liabilities are those liabilities
which in the ordinary course of business are to be paid in an
accounting period.

LIST OF CURRENT OR WORKING CAPITAL ACCOUNTS


Current Assets Current Liabilities
1. Bills Payable 1. Cash in Hand
2. Sundry Creditors 2. Cash at Bank
3. Outstanding Expenses 3. Bills Receivable
4. Bank Overdraft 4. Sundry Debtors
5. Short term Loans & Advances 5. Short term Loans & Advances
6. Provision against Current 6. Marketable Security (Short
Assets term)
7. Provision for Taxation 7. Inventory
8. Proposed Dividend 8. Prepaid Expenses

LIST OF NON–CURRENT OR PERMANENT CAPITAL ACCOUNTS


Non–Current Liabilities Non–Current Assets
1. Equity Share Capital 1. Goodwill
2. Preference Share Capital 2. Land & Buildings
3. Redeemable Preference Share 3. Plant & Machinery
Capital
4. Debentures 4. Furniture & Fittings
5. Long Term Loans 5. Trade Marks
6. Share Premium Accounts 6. Patent Rights
7. Capital Reserve 7. Long Term Investment
8. Capital Redemption Reserve 8. Discount on Issue of Shares
9. Provision for Depreciation 9. Discount on Issue of
Against Fixed Assets Debentures
10. Appropriation of Profits 10. Preliminary Expenses
General Reserve
Dividend Equalization Fund
Sinking Fund
Compensation Fund
11. Profit and Loss Account 11. Profit and Loss Account
(Credit Balance) (Debit Balance)
12. Share Forfeited Accounts

MEANING AND DEFINITION OF FUNDS FLOW STATEMENT


Funds flow statement is a method by which we study changes
in the financial position of a business between beginning and ending
financial statement dates. In short, funds flow statement can be said
as a statement of sources and application of funds in a technical
device designed to analyze the changes in the financial condition of
a business enterprise between two dates. Funds flow statement is
called as sources and application of funds; statement of changes in
financial position; summary of financial operation; where came in
and where gone out statement; movement of working capital
statement; funds received and disbursed statement; funds
generated and expanded statement; sources of increase and
application of decrease; funds statements etc.

Generally, there is a confusion that fund flow statement, income


statement and balance sheet all three are of some category. In the
original sense, fund flow statement highlights the changes in the
financial position of a business and also reveals the means by which
these funds were obtained and the ways they were utilized in a
particular period. But an income statement does not reveal the
inflows and outflows rather it shows the items of expenditure and
incomes for a particular period. Fund flow statement considers both
revenue and capital items but income statement takes only revenue
items.

Fund flow statement shows the sources and uses of funds in a


particular period of time, whereas balance sheet shows the assets
and liabilities of a concern at a particular point of time. The fund flow
statement helps the management in making decisions but balance
sheet does not give much help to management for making decision.
Before preparing the fund flow statement, usually a statement of
schedule of changes in working capital is prepared. But while
preparing the balance sheet schedule of changes in working capital
is not required rather profit & loss account is to be prepared.

USES AND IMPORTANCE OF FUNDS FLOW STATEMENT


The fund flow statement is an essential tool for the analysis of
financial data and is of primary importance to the financial
management. The basic purpose of funds flow statement is to reveal
the changes in two balance sheets. Therefore, it is being used by
various financial analysts, credit granting institutions and etc… This
statement results in the financial needs and in determining the best
way of financing these needs. By making use of funds flow
statements, the management can come to know the adequacy or
inadequacy of use of short term funds in advance. According to this
one can plan for the financing of short as well as long term funds.

The importance of funds flow statement is as follows:


 Helps in analysis of financial statements
 Helps in the information of dividend policy
 Helps in the proper allocation of resources
 Acts as a future guide
 Helps knowing the creditworthiness of the firm
 Helps in throwing light on perplexing questions

PROCEDURE FOR PREPARING A FUND FLOW STATEMENT


Fund flow statement is a method by which we study changes in
the financial position of a business between beginning and ending
financial statement dates. So, the fund flow statement is prepared by
comparing two balance sheets and with the help of such other
information derived from the accounts as may be needed. This
preparation of a fund flow statement consists of two parts:
 Statement or schedule of changes in working capital
 Statement of sources and application of funds

Statement or schedule of changes in working capital


Working capital means the excess of current assets over
current liabilities. This statement is prepared to show the changes in
the working capital between two balance sheet dates. For this two
balance sheets are required.
Working Capital= Current Assets – Current Liability
So,
 An increase in current assets increases working capital
 An increase in current liabilities decreases working capital
 A decrease in current assets decreases working capital
 A decrease in current liabilities increases working capital

It is very important that the schedule of changes in working


capital is prepared only from the information of current assets and
current liabilities from the balance sheet and no other information is
required for preparing this statement. So, the changes in the amount
of any current asset or any current liability in the current year
balance sheet as compared to the previous year balance sheet may
either result in increase or decrease in working capital. Each
difference is recorded in the individual current asset or current
liability.

When the current asset in the current year is more than in the
previous year, it is a case of increase in working capital and it is
recorded in the increase column. But if a current liability in the
current year is more than in the previous year, the effect is decrease
in working capital and it will be recorded in the decrease column or
vice versa.
After this the total increase and decrease columns are
compared and the difference shows the net increase and decrease in
the working capital. A form of statement of schedule of changes in
working capital is as follows:

Statements of Schedule of Changes in Working Capital


Effect on Working Capital
Particulars Previous Current Increase Decrease
Yr. Year
Current
Assets
Cash in hand
Cash at bank
Bills receivable
Sundry debtors
Investments
Inventories
Prepaid
expense
Accrued income

Total

Current
liabilities
Bills payable
Sundry
creditors
Outstanding
exp
Bank overdraft
Short term adv.
Dividend
payable
Proposed
dividend
Provision for
tax.

Total
Working capital
Net increase/
decrease in
W.C

Total

Statement of sources and application of funds


Funds flow statement is a statement which indicates various
sources from which funds have been obtained during a certain period
and the uses or applications to which these funds have been put
during that period. Generally, this statement is prepared in two
formats:
 Report form
 T form or Account form or Self balancing form

The specimen of both the statements is follows:

Specimen of report form of funds flow Amounts (Rs.)


statement
Sources of funds
Funds from operations
Issue of share capital
Raising of long term loans
Receipts from partly paid shares
Sale of Fixed Assets
Sale of long term investments
Non trading receipts
Decrease in working capital
Total
Application of funds
Funds lost in operations
Redemption of preference share capital
Redemption of debentures
Repayment of long term loans
Purchase of fixed assets
Purchase of long term investments
Non trading payments
Payments of dividends
Payments of tax
Increase in working capital
Total
The specimen for statement of sources and application in a T form is
as follows:
Sources Rs. Applications Rs.
Funds from Funds lost in
operations operations
Issue of debenture Redemption of
Issue of share capital debentures
Raising of long term Redemption of share
loans capital
Receipts from partly Payments of long
paid shares term
Sale of Fixed Assets Loans

Sale of long term


investments
Non trading receipts
Non decrease in
working capital

SOURCES OF FUNDS
Sources of funds means from where generally funds flow come
into the business. The following are the sources:

Funds from operations:


Funds from operations or the trading profits of the business are
the most important and major source of funds. Sales are the main
source of inflow of funds into the business as they increase current
assets but at the same time funds flow out of the business for
expenses and the cost of goods sold. Thus, the net effect of
operations will be a source of funds if inflow from sales exceeds the
outflow for the expenses and the cost of goods sold. The net effect of
operations will be an application of funds if inflow of sales is less
than the outflow of the expenses and the cost of goods sold.

But it is not only that funds from operations are not the real
profit as shown by the profit & loss account, because there many non
fund or non operating items which may have been either debited or
credited to profit & loss account. The items of such type at the debit
side are: amortization of fictitious and intangible assets such as
goodwill, preliminary expenses and discount on issue of shares and
debentures written off; appropriation of retained earnings, such as
transfers to reserves, depreciation and depletion; loss on sale of
fixed assets; payments of dividends, etc.
The non fund items are those which may be operational
expenses but they do not affect funds of the business, e.g. for
depreciation charged to profit & loss account, funds really don’t
move out of business. Non operating items are those which although
may result in the outflow of funds but are not related to the trading
operations of the business, such as loss on sale of machinery or
payment of dividends. The methods for calculating funds from
operations are as follows:

There are two methods for calculating funds operations, they


are:
 To prepare the profit & loss account again by taking
into account only fund and operational items which
involve funds and are related to the normal
operations of the business. Hence, while balancing
this we may either get funds generated from
operations or funds lost in operations which is again
depended on the income side or expenditure side
whichever is more.
 By proceeding with the net profit figure or the net
loss figure as arrived at the profit & loss account
already prepared.

Funds from operations can be calculated in the following:


Calculation of funds from operation Amount
(Rs.)
Closing balance of P&L a/c or retained earnings
Add: non fund and non operating items which have
been debited to P&L a/c:
1. Depreciation and depletion
2. Amortization of fictitious and intangible assets
such as:
a. Goodwill
b. Patents
c. Trademarks
d. Preliminary expenses
e. Discount on issue of shares
3. Appropriation of retained earnings, such as:
a. Transfer to general reserve
b. Dividend equalization fund
c. Transfer to sinking fund
d. Contingency reserve
4. Loss on sale of any non current assets such as:
a. Loss on sale of land and building
b. Loss on sale of machinery
c. Loss on sale of furniture
d. Loss on sale of long term investment
5. Dividends including:
a. Interim dividend
b. Proposed dividend
6. Provision for taxation
7. Any other non fund/non operating items which are
debited to P&L a/c
TOTAL (A)

Less: non fund or non operating items which have


been credited to P&L a/c:
1. Profit or gain from the sale of non current assets
such as:
2. Appropriation in the value of fixed assets, such as
increase in the value of land if it has been
credited to P&L a/c
3. Dividend received
4. Excessive provision retransferred to P&L a/c or
written off
5. Any other non operating item which has been
credited to P&L a/c
6. Opening balance of P&L a/c or retained earning
(as given in B/S)
TOTAL (B)

Total (A) – Total (B)=funds generated by


operations

Funds from operations calculated by preparing adjusted


Profit & Loss A/c.
Adjusted Profit & Loss Account
To depreciation & Rs. By Opening balance Rs.
depletion of By Transfer from excess
amortization of fictitious provision
and intangible assets By Appreciation in the
such as: goodwill, value of fixed assets
patents, trademark, By Dividend received
preliminary expenses By Interest on
To Appropriation of investments
retained earnings such By Profit on sale of fixed
as: or non current assets
Transfer to general By Funds from operations
reserve, dividend (b/f)
equalization fund,
sinking fund.

To Loss on sale of any


non current or fixed
asset
To Dividend
To Proposed dividend
To Provision for taxation
To Closing balance
To Funds lost in
operations (b/f)

CHAPTER 5
“ANALYSIS AND
INTERPRETATION”

FUNDS FLOW STATEMENT OF 2006 – 07

(A) Statement of Schedule of Changes in Working Capital


Particulars Previous Current Effect of change in
Year 2006 Year 2007 W.C
(Rs. In (Rs. In (Increase)
lakhs) lakhs) (Decrease)
Current Assets
Inventories 46492.56 94149.29 47656.73
Debtors 6569.35 5029.00 1540.35
Cash & bank
balances 34.12 14.36 19.76
Loans & advances 39221.07 33798.19 5422.88
Total 92317.1 132990.84
11411.40 23334.40

218352.00 257777.51

500.00 986.58
29632.00 30833.55

Current 2928.11 7906.59


Liabilities 11923.00
262823.51 320838.63
Sundry creditors
Non interest 39425.51
bearing (170506.41) (187847.7
Advances from 9) 486.58
other customers 1201.55
Other liabilities 17341.38
Total (170506.4 (170506.4 64998.1 64998.11
1) 1) 1

INTERPRETATION
From the above statement, we analyze that the net working
capital of HAL engine division for the year 2006 – 07 is negative.
Here, it suggests that HAL could not utilize its fixed assets efficiently
due to non availability of liquid funds which in other ways affects the
profitability or the rate of return of the concern.

(B) Statement of Sources and Application


Sources Amounts Application Amounts
(Rs.) (Rs.)
Issue of share capital Purchase of:
Head office control (38599.00) Fixed assets 35395.11
acc. 8180.42 Special tools 93136.28
Funds from 572.00 & Equipments
operations 0 Increase in
Secured loans intangible 29470.03
Deferred tax liability assets
Change in current (187848.0
(29846.5 assets 0)
8) Total (29846.5
Total 8)

Working Notes: calculation of funds from operations


Particulars Amounts Particulars Amounts
(Rs.) (Rs.)
To provision 0 By net profit 8180.42
To debenture
redemption reserve 0
To R &D reserve 0
To proposed 0
dividend
To funds from 8180.42
operations

Calculation of fixed assets during the year 2006 – 07


Particulars Amounts
(Rs.)
Closing balance of gross block 42940.07
Less : depreciation 17448.00
Net block 25492.07
Add : capital work in progress 9902.12
Fixed assets/ purchase of new block 35394.19

Calculation of depreciation during the year 2006 – 07


Particulars Amounts(Rs
.)
Closing balance of depreciation 17448.00
Less : opening balance of depreciation 15349.00
2099.00
Add : fixed assets 8.00
Total depreciation during the year 2107.00

ANALYSIS
A comparison of sources and applications reveals that the main
sources of funds HAL, Koraput is liable to pay to the head office
control account and the secured loan of amount of (Rs. 38599) &
(Rs. 572) lakhs are respectively payable to the outsiders for some
of the security.
The funds applied are mainly invested in fixed assets and
special tools and equipments of the amount of (Rs. 35394.19) & (Rs.
93136.28). The management can come to know the adequacy of
inadequacy of working capital in advance and can plan the
intermediate and long term financing of the firm, repayment of long
term debts etc.

FUNDS FLOW STATEMENT OF 2007 – 08

(A) Statement of Schedule of Changes in Working Capital


Particulars Previous Current Effect of change in
Year 2007 Year 2008 W.C
(Rs. In (Rs. In (Increase)
lakhs) lakhs) (Decrease)
Current Assets
Inventories 94149.29 94998.36 849.07
Debtors 5028.62 5883.47 854.85
Cash & bank
balances 14.36 19.98 5.62
Loans & advances 33798.20 51617.16 17818.96
Total 132990.47 152518.97

Current
Liabilities 23334.40 23474.48 140.08
Sundry creditors
Non interest 257777.52 327940.16 70162.64
bearing
Advances from 986.58 942.52 44.06
other customers 30833.55 35435.18 4601.63
Other liabilities 7906.59 17758.51 9851.92
Provisions
320838.64 405550.85
Total
(187848.17) (253031.88)
Net working
capital 65183.71 65183.71

Decrease in W.C
Total (187848.1 (187848.1 84756.2 84756.27
7) 7) 7

INTERPRETATION
From the above statement, we can say that the working capital
is again negative value which signs bad to the concern that the
funds are not available to pay its short term liabilities that are
creditors, other liabilities etc. So, the concern must have a full
sufficient balance for covering the short term obligations in time
without using any reserves or provisions. Here, the cash and bank
balance is very low as compared to the obligations. So, it says that
the financial position of the company is very low.

(B) Statement of Sources and Application


Sources Amounts Application Amounts
(Rs.) (Rs.)
Head office control (89880.1 Purchase of:
acc. 9) Fixed 35758.81
Funds from 12631.00 assets
operations 468.56 Special 110774.82
Secured loans 0 tools
Deferred tax liability & 29717.62
Equipments (253031.8
Increase in 8)
intangible
76780. assets
Total 63 Change in current
ass. 76780.63

Total

Working Notes: calculation of funds from operations


Particulars Amounts Particulars Amounts
(Rs.) (Rs.)
To provision 0 By net profit 12630
To debenture redemption
reserve 0
To R &D reserve 0
To proposed dividend 0
To share fund 0
To funds from operations 12630

Calculation of fixed assets during the year 2007 – 08


Particulars Amounts (Rs.)
Closing balance of fixed assets 46430.09
Less : depreciation 19817.23
Net block 26612.86
Add : capital work in progress 9145.97
Fixed assets/ purchase of new block 35758.83

Calculation of depreciation during the year 2007 – 08


Particulars Amounts
(Rs.)
Closing balance of depreciation 19817.23
Less : opening balance of depreciation 17447.67
Total depreciation during the year 2369.
56

FUNDS FLOW STATEMENT OF 2008 – 09

(A) Statement of Schedule of Changes in Working Capital


Particulars Previous Current Effect of change in
Year 2008 Year 2009 W.C
(Rs. In (Rs. In (Increase)
lakhs) lakhs) (Decrease)
Current Assets
Inventories 94998.36 154197.27 59198.91
Debtors 5883.47 14655.86 8772.39
Cash & bank
balances 19.98 11.95 8.03
Loans & advances 51617.16 89141.87 37524.71
Total 152518.97 258006.95
Current
Liabilities 23474.48 32264.15 8789.67
Sundry creditors
Non interest 327940.16 335557.38 7617.22
bearing
Advances from 942.52 2566.81 1624.29
other customers 35435.18 38157.80 2722.62
Other liabilities 17758.50 22538.14 4779.64
Provisions
405550.84 431084.28
Total (253031.87) (173077.33)
Net working 79954.54 79954.54
capital
Increase in W.C

. Total (173077.3 (173077.3 105496. 105496.0


3) 3) 01 1

INTERPRETATION
The above statement shows the net working capital of HAL for
the year 2008 – 09 has been showing negative. This means that the
company has not sufficient funds for covering its short term
obligations. It has no sufficient balance of cash for payment and has
utilized the advances from the outsiders and the non interest bearing
debts.
(B) Statement of Sources and Application
Sources Amounts Application Amounts
(Rs.) (Rs.)
Head office control Purchase of:
Account 4712.75 Fixed 44074.16
Funds from 11968.86 assets
operations 259.75 Special 113380.82
Secured loans 0.44 tools
Deferred tax liability & Equipments 32564.15
Increase in intangible
ass (173077.3
16941.8 ets 3)
Total 0 Change in current 16941.80
ass
ets
Total

Working Notes: calculation of funds from operations


Particulars Amounts Particulars Amounts
(Rs.) (Rs.)
To provision 0 By net profit 11968.86
To debenture redemption
reserve 0
To R &D reserve 0
To proposed dividend 0
To share fund 0
To funds from operations 11968.86

Calculation of fixed assets during the year 2008 – 09


Particulars Amounts (Rs.)
Closing balance of gross block 60432.55
Less : depreciation 23502.14
Net block 36930.41
Add : capital work in progress 7143.75
Fixed assets/ purchase of new block 44074.16

Calculation of depreciation during the year 2008 – 09


Particulars Amounts
(Rs.)
Closing balance of depreciation 23502.14
Less : opening balance of depreciation 19817.23
Total depreciation during the year 3684.91

FUNDS FLOW STATEMENT OF 2009 – 10

(A) Statement of Schedule of Changes in Working Capital


Particulars Previous Current Effect of change in
Year 2009 Year 2010 W.C
(Rs. In (Rs. In (Increase)
lakhs) lakhs) (Decrease)
Current Assets
Inventories 154197.27 256533.47 102336.2
Debtors 14655.86 23918.95 0
Cash & bank 9263.09
balances 11.95 16.88
Loans & advances 89141.87 95198.45 4.93
Total 258006.95 375667.75 6056.58

Current
Liabilities 32264.15 27001.20
Sundry creditors 5262.95
Non interest 335557.38 437453.56 101896.1
bearing 8
Advances from 2566.81 12.20
other customers 38157.80 44205.28 2554.61
Other liabilities 22538.14 26051.52 6047.48
Provisions 3513.38
431084.28 534723.76
Total
(173077.33) (159056.01)
Net working 14021.32
capital 14021.32
Decrease in W.C
Total (159056.0 (159056.0 125478. 125478.3
1) 1) 36 6

INTERPRETATION
From the above statement, we can say that the working capital
of HAL for the year 2009 –10 has been showing negative. Here the
cash and bank balance is very low as compared to the obligations.

(B) Statement of Sources and Application


Sources Amounts Application Amounts
(Rs.) (Rs.)
Head office control 16992.37 Purchase of:
acc. 12934.88 Fixed 42841.55
Funds from 364.54 assets
operations Special 115159.33
Secured loans tools
& 31356.78
Equipments (159065.8
30291.7 Increase in 7)
9 intangible 30291.79
Total assets
Change in current
ass.
Total

Working Notes: calculation of funds from operations


Particulars Amounts Particulars Amounts
(Rs.) (Rs.)
To provision 0 By net profit 12934.88
To debenture redemption
reserve 0
To R &D reserve 0
To proposed dividend 0
To share fund 0
To funds from operations 12934.88
Calculation of fixed assets during the year 2009 – 10
Particulars Amounts (Rs.)
Closing balance of fixed assets 67432.44
Less : depreciation 27738.48
Net block 39693.96
Add : capital work in progress 3147.59
Fixed assets/ purchase of new block 42841.55

Calculation of depreciation during the year 2009 – 10


Particulars Amounts
(Rs.)
Closing balance of depreciation 27738.48
Less : opening balance of depreciation 23502.14
Total depreciation during the year 4236.34

CHAPTER 6
 SUMMARY
 CONCLUSION
 SUGGESTIONS
 ANNEXURE
 BIBLIOGRAPHY

SUMMARY
With the doors of liberalization opened up in the Indian
economy, the country is witnessing rapid changes on all its spheres
of activity.
For this, HAL also took their step in the growth of the economy. They
had geared up in the mobilizing the steps in lending operation such
as hire purpose, leasing etc.

The report includes the significance, introduction part and


purpose of the study. The major objective of the study is about the
analysis of the investment and understands the different operations
of Hindustan Aeronautics Limited.

The report is also the company profile of Hindustan Aeronautics


Limited, Engine division, Koraput; in this the major financial
transaction of HAL was discussed in details. It is includes the
organizations hierarchy of HAL. This also includes the different
financial highlights of HAL from the year 2006 – 10.

Funds flow analysis is the process or statement report the flow


through firm during the year it shows the sources and uses of
working capital between two balance sheet dates. Primary objective
of the Funds flow statement attempts to explain the changes in
financial position from one balance sheet of the year to another year
balance sheet to know the changes in funds or the working capital
position of the firm and to insight of the financial strength and
weakness of the company.

The analysis and interpretation of profit & loss is essential to


bring out the mystery behind the figure in the profit & loss account.
This account is an account is an attempt to determine the
significance and meaning of the profit & loss data. So, that forecast
may be made of the future earning, ability to pay interest and debt
maturities, profitability and sound dividend policy.

SUGGESTION
The company has to improve its utilization of current assets and
be well acquainted with investment purpose to improve their
investment decision. The company has to improve the latest
technology to monitor the market. To use new investment purposes
it must use its long term funds and also maintain good relations with
their customers. The company has to maintain a proper cash balance
to maintain its day to day operation with out fail.

CONCLUSION
From this above analysis we may conclude that the reserves
and surplus of the division has grown up. So, the company has to
utilize its reserve and surplus in the payment of dividends and any
other long term obligations.

Working capital of the firm is in negative. It shows that the


organization has advances from customers which are kept at the
head office which is debited to share capital. This is a defense
related firm, so production is based on contract basis. The division
follows a good inventory management technique and the overall
liquidity position of the company is found good.

ANNEXURE

Balance Sheet for the year ended 2006-07 and 2007-08, HAL,
Koraput Division (Rs. In Lakhs)
Particulars 2006-07 2007-08
Sources of funds
Share holders fund: Head office (38598.67) (89880.19)
control a/c 8180.42 12630.29
Reserve & surplus (30418.25) (77249.90)
Loan funds: Secured loans 571.64 468.56
Unsecured loans 0 0
571.64 468.56
Deferred liabilities (Net) 1.51 0.74
Deferred tax liabilities 0 0
Total sources of funds (29845.09) (76780.61)
Application of funds
Fixed assets: Gross block 42940.07 46430.09
Less: Depreciation 17447.67 19817.23
Net block 25492.40 26612.86
Capital work in progress 9902.12 9145.97
35394.52 35758.83
Special tools & equipments 93138.28 110774.82
Investments 0 0
Deferred tax assets 0 0
Current assets, loan & advances:
Inventories 94149.29 94998.36
Sundry debtors 5028.61 5883.47
Cash & bank balance 14.36 19.98
Loans & advances 33798.19 51617.16
132990.47 152518.97
Less: Current liabilities & provisions
Liabilities 312932.05 387792.35
Provisions 7906.59 17758.50
320838.65 405550.85
Net current assets (187848.17) (253031.88)
Intangible assets: Gross carrying 35200.95 38257.78
amount
Less: Cumulative amortization & 5730.68 8540.16
impairment loss
Net carrying amount 29470.27 29717.62
Total application of funds (29845.09) (76780.61)
PROFIT & LOSS A/C for the year ended 2006-07 and 2007-08,
HAL,
Koraput Division (Rs. In Lakhs)

Particulars 2006-2007 2007-2008


Income
Sales 86716.06 140816.78
Transfer to the divisional units 192.03 312.82
Charges in WIP/SIT/Scrap 20020.95 (9121.13)
Other income 1090.53 2406.65
Charges received on inter divisional 19.20 31.28
transfer
Total 108038.77 134446.40
Expenditure
Consumption of raw material, 79574.47 64227.00
components 6132.12 11164.18
Amortization 9779.66 14095.42
Salaries and wages 10841.29 7697.32
Other expenses 13.17 2.04
Charges paid on inter divisional transfers 6.58 4.06
Interest 2107.08 2369.55
Depreciation 5122.60 11459.64
Provisions 945.75 1116.81
Inter services/ common services (10904.61) 16110.35
Transfer of IDT
Total 103618.11 128246.37
Less: expenditure relating to capital a/c
& 3759.78 6430.26
others 99858.37 121816.11
Net expenditure
Profit for the year 8180.42 12630.
Less: provision for current taxation 0 29
(MAT) 0 0
Provision for deferred taxation 0
Provision for taxation of earlier year 0
no longer required withdrawn 0
Profit after tax 8180.42 12630.29
Balance brought forward from last year 0 0
Profit available for appropriation 8180.42 12630.29
Appropriation
Debenture redemption reserve 8180.42 12630.29
Research & development reserve 0 0
Proposed dividend 0 0
Tax on distributed profits 0 0
Total of appropriation 8180.42 12630.29
Balance Sheet for the year ended 2008-09 and 2009-10, HAL,
Koraput Division (Rs. In Lakhs)

Particulars 2006-07 2007-08


Sources of funds
Share holders fund: Head office 4712.75 16992.37
control a/c 11968.86 12934.88
Reserve & surplus 16681.61 29927.25
Loan funds: Secured loans 259.75 364.54
Unsecured loans 0 0
259.75 364.54
Deferred liabilities (Net) 0.44 0.12
Deferred tax liabilities 0 0
Total sources of funds 16941.80 30291.91
Application of funds
Fixed assets: Gross block 60432.55 67432.44
Less: Depreciation 23502.14 27738.48
Net block 36930.41 39693.96
Capital work in progress 7143.75 3147.59
44074.16 42841.55
Special tools & equipments 113380.82 115159.33
Investments 0 0
Deferred tax assets 0 0
Current assets, loan & advances:
Inventories 154197.27 256533.47
Sundry debtors 14655.86 23918.95
Cash & bank balance 11.95 16.88
Loans & advances 89141.87 95198.45
258006.95 375667.75
Less: Current liabilities & provisions
Liabilities 408546.14 508682.10
Provisions 22538.14 26051.52
431084.28 534733.62
Net current assets (173077.33) (159065.87)
Intangible assets: Gross carrying 44467.53 46904.69
amount
Less: Cumulative amortization & 11903.38 15547.79
impairment loss
Net carrying amount 32564.15 31356.90
Total application of funds 16941.80 30291.91
PROFIT & LOSS A/C for the year ended 2008-09 and 2009-10,
HAL, Koraput division (Rs. In Lakhs)

Particulars 2008-2009 2009-2010


Income
Sales 140991.83 133541.46
Transfer to the divisional units 754.03 58.47
Charges in WIP/SIT/Scrap 36766.73 62722.61
Other income 4748.82 4337.46
Charges received on inter divisional 75.40 5.85
transfer
Total 183336.81 200665.85
Expenditure
Consumption of raw material, 123733.77 139591.47
components 15214.51 14942.84
Amortization 21104.93 18003.49
Salaries and wages 8461.99 9367.95
Other expenses 3.30 18.46
Charges paid on inter divisional transfers 1.41 0.12
Interest 3686.46 4242.48
Depreciation 9218.99 5914.89
Provisions 1585,90 940.12
Inter services/ common services 0 0
Transfer of IDT
Total 183011.26 193021.82
Less: expenditure relating to capital a/c
& 11643.31 5290.85
others 171367.95 187730.97
Net expenditure
Profit for the year 11968.86 12934.88
Less: provision for current taxation 0 0
(MAT) 0 0
Provision for deferred taxation
Provision for taxation of earlier year 0 0
no longer required withdrawn
Profit after tax 11968.86 12934.88
Balance brought forward from last year 0 0
Profit available for appropriation 11968.86 12934.88
Appropriation
Debenture redemption reserve 11968.86 12630.29
Research & development reserve 0 0
Proposed dividend 0 0
Tax on distributed profits 0 0
Total of appropriation 11968.86 12934.88

BIBLIOGRAPHY

FINANCIAL MANAGEMENT I.M PANDEY


FINANCIAL MANAGEMENT M.Y.KHAN &
P.K.JAIN

FINANCIAL MANAGEMENT R.K.SHARMA &


S.K.GUPTA

FINANCIAL MANAGEMENT PRASANNA


CHANDRA

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