SUBJECT PROCEDURE PAGE

NUMBER
FINANCE
MANUAL DEBTORS - POLICY 1
D-01-02 OF
3

EFFECTIVE FROM EDITION NO.2 REPLACES EDITION NO.1

PROCEDURES
01 OCT 2008

REFERENCE

1.0. POLICIES

 Adequate Provision for Bad and Doubtful Debts is created in the Company’s
books of accounts to reflect the intrinsic worth of its trade collectibles.

 Provision amount is adjusted quarterly to reflect the status of collectible debt.



2.0. PROVISION FOR TRADE DEBTORS

 When the certainty of realizing a trade debt is doubtful, suitable provision is

created in books to reflect the diminution in the intrinsic value of the asset.
Such diminution of the intrinsic worth of a debt could be caused by its
being overdue or some other factor (s). Normally, the longer a debt is
overdue, the greater is the uncertainty associated with its realization.

3.0. BAD AND DOUBTFUL DEBTS

 Bad Debt is one where the possibility of realisation is low. Doubtful debt is one
which has some uncertainty associated with its realization. Therefore, the
difference between bad debt and doubtful debts is the degree of uncertainty in
realization of the debt.

 In the conventional accounting parlance the amount of diminution recorded in

books relating to bad debts is referred to as Provision for Bad Debts. The
diminution amount relating to doubtful debts is referred to as Reserve for
Doubtful Debts. However, for the Company’s purposes, such distinction will
be ignored and all diminutions will be referred as ‘Provisions’.

SUBJECT PROCEDURE PAGE

NUMBER
FINANCE
MANUAL DEBTORS - PROVISION FOR 2
D-01-02 OF
BAD & DOUBTFUL DEBTS 3

EFFECTIVE FROM EDITION NO.2 REPLACES EDITION NO.1

PROCEDURES
01 APRIL 1998 01 JUNE 2000 20 MAY 1995
 REFERENCE

4.0. TYPES OF PROVISIONS

 There will be two types of provisions for trade debts :

1) Specific Provision

2) General Provision

 SPECIFIC PROVISION

 Specific Provision is created with reference to a particular outstanding debt.

 Specific Provision is created due to the extreme uncertainty associated with the
particular debt.

 Debts which are written off for statutory purposes, but retained in Management
Accounts will be treated as having Specific Provisions.

 GENERAL PROVISION

 General Provision is created with reference to the overdue nature of the debt.

 The quantum of provision is related to and increased with the period for which the
debt is overdue, i.e., remains unpaid after it contractually becomes due.

5.0. CREATION AND APPLICATION OF SPECIFIC PROVISION

 The Authority levels and procedure to be followed for the creation of specific Procedure
debt are same as in the case of Bad Debts Write-Off. No.D-01-03

 Specific Provision must not remain in statutory books or Management Accounts

beyond one financial year subsequent to the year in which it is created. The
Specific Provision must be either Applied or Released not later than March of the
subsequent year.

SUBJECT PROCEDURE PAGE

NUMBER
FINANCE
MANUAL DEBTORS - PROVISION FOR 3
D-01-02 OF
BAD & DOUBTFUL DEBTS 3

EFFECTIVE FROM EDITION NO.2 REPLACES EDITION NO.1

PROCEDURES
01 APRIL 1998 01 JUNE 2000 20 MAY 1995

REFERENCE
6.0. CREATION OF GENERAL PROVISION
 General Provision is created on the basis of Aging of overdue debts.

 Provision amounts must be as follows :

Debt Overdue (Months) Amount of Provision

> 6 - < 12 25% of Debt Amount
> 12 - < 24 75% of Debt Amount
> 24 100% of Debt Amount
ANNEXURE - I
 For calculation of General Provision, the enclosed format should be used which
will act as a check list also.

 The amount of provision, calculated as above, will then be compared with the
opening provision. If current calculated amount of provision is higher than the
opening provision, additional provision has to be set up by charging to Profit &
Loss Account and if otherwise, a release to Profit & Loss Account.

 For the purpose of Management Accounts, the release during the fiscal year will
be shown as a negative addition to the extent they are created during the year.
The balance will be shown as a release.

7.0. RESPONSIBILITY FOR CREATING / APPLYING / RELEASING

PROVISIONS FOR BAD AND DOUBTFUL DEBTS

 The primary responsibility for creation/application/release of Provision for Bad

and Doubtful Debts rests with the concerned Financial Controller.

 Creation of Specific Provisions/Application of Provisions will be subject to the

stipulated administrative control procedures.

 Financial Controller takes actions on the basis of recommendation of the

Commercial Head/Regional Sales Manager of the Product.

CHAIRMAN

SUBJECT PROCEDURE PAGE

NUMBER
FINANCE
MANUAL DEBTORS -- 1
D-01-03 OF
BAD DEBTS WRITE-OFF 3

EFFECTIVE FROM EDITION NO.2 REPLACES EDITION NO.1

PROCEDURES
01 JUNE 2000 01 JUNE 2000 20 JAN 1995

REFERENCE

1.0. POLICY

 Following a formal review, debts which are considered ‘bad’, i.e., having remote
chance of recovery, must be promptly written off from the books. Such action
must be taken to (a) ensure that the Company’s books reflect the real worth of
debtors, and (b) claim tax relief.
2.0. WRITE-OFF OF BAD DEBTS

 Since the act represents an extreme and ultimate step, writing off of a debt must
be subjected to rigorous prior administrative scrutiny and approvals.
Annexure I
 When it is proposed to write off a debt, a formal Debt Write-off Request (DWR)
must be submitted.

 Separate DWRs must be submitted for each product group.

 The DWR must follow the sequential steps enumerated below for
proposal, recommendation, approval, and accounting :

Step Description of Step Authority

I Propose Product/Sales Manager

II Recommend Group Commercial/Marketing
Head
III Vet Unit Financial Controller
IV Vet/Approval Unit Director
V Vet Executive Director-Finance
VI Approval Joint Managing Director/
Managing Director
VII Accounting Unit Finance Head of Location
Accounting for Debtors

SUBJECT PROCEDURE PAGE

NUMBER
FINANCE
MANUAL DEBTORS -- 2
D-01-03 OF
BAD DEBTS WRITE-OFF 3

EFFECTIVE FROM EDITION NO.2 REPLACES EDITION NO.1

PROCEDURES
01 JUNE 2000 01 JUNE 2000 20 JAN 1995

3.0. PREPARATION OF DWR AND POST-APPROVAL DISTRIBUTION

 DWR must be prepared in quadruplicate.

 Original and the first two copies must be forwarded for processing; the third
copy must be retained by the Proposer as office copy.

 After approval, DWR copies must be distributed by the Divisional Financial

Controller as follows :

 Original - Unit Finance Head of the location

where the debtors are accounted for.

 Duplicate - Product/Sales Manager

 Triplicate -. Commercial

 Quadruplicate - Retained by Divisional Financial Controller

as office copy

4.0. AUTHORITY LIMITS FOR DWR APPROVAL

Authority Single Invoice/Debit

Note Amount

Unit Director Upto Tsh./-

Joint Managing Director/ Above Tsh./-

Managing Director

SUBJECT PROCEDURE PAGE

NUMBER
FINANCE
MANUAL DEBTORS -- 3
D-01-03 OF
BAD DEBTS WRITE-OFF 3

EFFECTIVE FROM EDITION NO.2 REPLACES EDITION NO.1

PROCEDURES
01 JUNE 2000 01 JUNE 2000 20 JAN 1995

REFERENCE

5.0. ACCOUNTING

 Debt write-off must be through issuance of credit notes.

 All debts that are written off must be charged to Profit and Loss Account under
the account head ‘Bad Debts’. They must not be netted off against sales in
management and statutory accounts.

 The bad debt amount must not be directly set off against the provision amount.
This procedure is required to keep a financial record of bad debts written off.

 Under current sales tax rules, credit notes that are issued within six months from
 the date of the related invoices may be reduced from the taxable sales. This is
applicable only for filing sales tax returns.

CHAIRMAN

SUBJECT PROCEDURE PAGE

NUMBER
FINANCE
MANUAL DISHONOURED PAYMENTS -- 1
D-02-01 OF
BOUNCED CHEQUES ETC. 3

EFFECTIVE FROM EDITION NO.3 REPLACES EDITION NO.2

PROCEDURES
01 JUNE 2000 01 JUNE 2000 10 JAN 1995

REFERENCE

1.0. RE-PRESENTATION OF DISHONOURED INSTRUMENT

 When a cheque or any other instrument is returned unpaid for lack of funds, it
will not be re-presented for payment, either automatically or at the request of the
customer. The customer to be asked to make good through a Demand Draft.

2.0. BANK CHARGES

 Customer must make good of actual expenses incurred by the Company as a

consequence of the dishonoured payment.

3.0. STOPPAGE OF DELIVERIES

 The Company will notify the customer in writing and withhold all further
supplies to the customer until restitution is made for the dishonoured
payment and bank charges.

 The Company’s notice to the customer must specify that supplies are
withheld on account of dishonoured payment and no liability will devolve on the
Company for any consequential loss suffered by the customer.
4.0. CHANGE OF TERMS OF SALE

If the customer’s payments are dishonoured three times in a period of

twelve months, the terms of sale will be compulsorily changed, as follows :

A. Credit Period

The customer will not be allowed any credit period.

SUBJECT PROCEDURE PAGE

NUMBER
FINANCE
MANUAL DISHONOURED PAYMENTS -- 2
D-02-01 OF
BOUNCED CHEQUES ETC. 3

EFFECTIVE FROM EDITION NO.3 REPLACES EDITION NO.2

PROCEDURES
01 JUNE 2000 01 JUNE 2000 10 JAN 1995

REFERENCE

B. Payment Terms

Payment will be only through any of the following modes :

 Advance payment or payment against proforma invoice must be

against bank draft. If payment is by cheque, actions will be taken only
after realisation of the cheque.

 Payment against proforma invoice

 Irrevocable letter of credit

C. Further Modification of Terms of Sale

Any modification which restitutes the original terms of sale or confers

more advantageous terms on the customer than those stated above,
shall not be made within a period of 12 months from the month in
which the original terms of sale were revoked.

Any agreement, in favour of terms not in line with what has been stated
above, must have the prior written approval of the Joint Managing
Director/Managing Director, as applicable.

5.0. DEALER AGREEMENTS

 The above conditions should be incorporated in the agreements being
executed with the dealeTsh.

SUBJECT PROCEDURE PAGE

NUMBER
FINANCE
MANUAL DISHONOURED PAYMENTS -- 3
D-02-01 OF
BOUNCED CHEQUES ETC. 3

EFFECTIVE FROM EDITION NO.3 REPLACES EDITION NO.2

PROCEDURES
01 JUNE 2000 01 JUNE 2000 10 JAN 1995

REFERENCE

6.0 ACCOUNTING FOR BANK CHARGES

 On receipt of the dishonoured instrument, the concerned Unit must promptly

raise a debit note on the customer for the value of the dishonoured instrument plus
all bank charges.

Correspondingly, a provision must be created under Provision - Bank

Charges Recoverable for an amount equal to the bank charges.

As and when the bank charges are recovered from the customer, a similar
amount must be released from Provision - Bank Charges Recoverable
account.

 Whenever, it is assessed that the customer will not pay the bank charges, such
amount may be written off to the Profit and Loss Account. Correspondingly, a
similar amount must be applied from the Provision - Bank Charges Recoverable
account.

CHAIRMAN
 SUBJECT PROCEDURE PAGE
NUMBER
FINANCE
MANUAL DISCOUNT -- 1
D-03-01 OF
SALES DISCOUNTS 2

EFFECTIVE FROM EDITION NO.2 REPLACES EDITION NO.1

PROCEDURES
01 APRIL 1998 01 JUNE 2000 18 MAY 1995

REFERENCE

1.0. SALES DISCOUNTS

There are different forms of sales discounts. These discounts can be

categorized into :

Sales Related Discounts (SRDs)

Performance Related Discounts (PRDs).

2.0. SALES RELATED DISCOUNTS

 SRDs are discounts which are given to the buyer at the time of sale. Examples of
such discounts are :

Normal Discount

Additional Discount

Quantity Discount

Cash Discount

SRDs are related to the particular sale transaction in question and allowed
immediately.

Normal, Additional and Quantity Discounts are to be calculated on the list

prices whereas Cash Discount will be calculated on selling price net of
above discounts.

SUBJECT PROCEDURE PAGE

NUMBER
FINANCE
MANUAL DISCOUNT -- 2
D-03-01 OF
SALES DISCOUNTS 2
 EFFECTIVE FROM EDITION NO.2 REPLACES EDITION NO.1
PROCEDURES
01 APRIL 1998 01 JUNE 2000 18 MAY 1995

REFERENCE

3.0. PERFORMANCE RELATED DISCOUNTS

PRDs are contingent upon customer performance. These discounts are

allowed only after the conclusion of agreed performance(s) by the
customer. Following are examples of PRD :

Early Payment Discount

Prompt Payment Discount

Quarterly / Annual Off-take Discount

PRDs shall be calculated on selling price after adjustment of all SRDs.

4.0. ACCOUNTING TREATMENT

SRDs - SRDs are sales affecting discounts. Therefore, these are to be

reduced from the sales value.

PRDs - These are treated as items of selling expenditure and hence not
to be reduced from the sale value.

CHAIRMAN