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SUMMER TRAINING REPORT
ON
FINANCIAL ANALYSIS AND COST
ACCOUNT OF
PREPARED AND PRESENTED TO
HAL
UNDER THE GUIDANCE OF-
Submitted To:
Ms. K.K. Mishra
(H.O.D.) MBA Departe!t
Submitted For the Partial Fulfillment for the Degree of Master ofBusiness Administration
S"#itte$ B%&
'ite!$ra K"ar Si!h
MBA III &Seester
(2007-2009)
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CERTIFICATE
This is to certify that Mr./Ms. Jitendra K!ar sin"h # a stdent of M$A
first year ha%in" has co!&'eted his/her &ro(ect Re&ort on the s)(ect
*INAN+IA, ANA,-SIS AN +OST A++OUNT O* A, drin" 023
04 nder !y s&er%ision and "idance.
The Pro(ect Re&ort of the stdent is his/her o5n 5or6 and reference ha%e
)een d'y ac6no5'ed"ed.
I 5ish hi!/her a'' the )est for his/her ftre.
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ACNO!"EDGE#ENT
Accomplishment of tasks and objective is achieved by guidance
and blessings of God$ #% &'et*$ e+de*$ te',e*and of course
by the grace of Almighty. t is a great opportunity for me to register my
ackno!ledgements to all of them.
t has been a profound privilege for me to have an opportunity to
!ork under #. .. #i*' "ead# Department of Business
Administration.
!ish to ackno!ledge my deep sense of gratitude to #*. .. #i*'
project $uide and all faculty of MBA Department for accomplishment of
this project report as !ell as for every sphere pertaining to successful
occupation of this course.
Finally# pay my regards to all# !ho directly or indirectly helped in
collection# compilation# editing and other related !orks for
accomplishment of this project study.
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TABLE OF CONTENT
E/e,utie Summ'%
%. &opic
'. Brief introduction
(. )esearch methodology
*. Findings and suggestions
#'i 1od%
'. Idu*t% 'd Com&'% o3i+e
%. +ompetitive situation
'. +ompany background
(. ,rgani-ation chart
*. Product range
. Balance sheet/ financial position
b. te &o4e,t &o3i+e
%. !hy this project !as undertaken 0relevance of topic1
'. problem environment1
,. Te &o4e,t - Re*e', #etodo+o5%
%. research problem
'. research objective and related sub objective
(. information re2uirement 3 in detail 4 source of information
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*. choice of research design 3 alternatives 4 choice
. research instrument used
5. sampling techni2ue used and sample si-e 3 !hy6
7. field !ork 3 method used for data collection
8. analytical tools used
9. scope and limitation
d. A'+%*i*
%. sample profile
'. primary data tabulation 4 interpretation
(. cross/ bivariate 4 other method
*. interpretation 4 findings
. suggestion
5. conclusion
1ib+io5'&%
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PREFACE
t is a matter of great satisfaction and privilege for us to place before the esteemed
readers a project report on financial management in "A: dealing !ith budgeting
costing and bills mainly.
&he system of accounting !hich prevails in "A: is ;integrated accounting system
and is uni2ue to the organi-ation. "al
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E6ECUTIE SU##AR8
Topic :FINANCIAL ANALYSIS AND COST ACCOUNT OF HAL
n this report !e have tried to cover all the sections related to finance# their
functions# objectives and !orking mainly.
=ith respect to the allotted time !e had the chance of kno!ing the finance
department of such a big organi-ation. &he duration of our summer training !as
short in comparison to the monolithic level of functioning in the organi-ation# so it
became difficult to cover each and every aspect in detail but !e have tried our best
to jolt all the important points related to our study
&his !as a golden opportunity for us as !e had a practical e>posure of the
functioning of accounts and finance department
&his project report is a mere constitution of varied functions !hich are handled by
the accounts department. n the due course of our study !e became a!are of the
concepts !hich are used in "A: !ith respect to the pricing and costing functions.
)?S?A)+" M?&",D,:,$@
REASEARCH #ETHODO"OG8is a !ay to systematically solve the
research problem. t may be understood as a science of studying ho!
research is done. n it !e study the various steps that are generally
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adopted by a researcher in studying his research problem. t is
necessary for a researcher to design the methodology for the problem
as the method may differ from problem 3 problem.
Sou,e o3 d't' ,o++e,tio ,n the basis of secondary data.
findings
%. "A: is listed among ;avC)atnas< of ndian $overnment.
'. &hough# "A: has monopoly in market and is able to earn heavy
profits but it lacks at some places.
(. "A: has no big competitor in the !hole market.
SUGGESTION
%. "A: has huge and talented !ork force for !hich level of operations is
too less. "A: should look for more customers and orders.
'. Many employees are very 2ualified 4!ell endorsed !ith valuable
ideas their ideas should be taken into consideration.
(. Full computeri-ation of unit !ill lead to high profits.
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INTRODUCTION
1RIEF HISTOR8 OF HINDUSTAN AERONAUTICS "I#ITED
"UCNO! DIISION
:uckno! Division of "A: !as established in %97 !ith the primary
objective of manufacturing systems and accessories for various aircraft
and engines and accessories for various aircraft and engines and attains
selfCsufficiency in this area. ts facilities are spread over 5## s2uare
feet of built area set in sylvan surroundings. At present it is turning out
over 8 different types of accessories. &he division started !ith
manufacturing various systems and accessories
"ydraulics
?ngine fuel system
AirCconditioning and Pressuri-ation
$yro 4 Barometric nstruments
?lectrical system item
Endercarriage
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?lectronics items
All under one roof to meet the re2uirements of the aircraft# helicopters
and engines being produced by "A: at that time. &his !as follo!ed !ith
manufacturing the same range of accessories for M$ series of aircraft#
nternational aguar and repair/overhaul of MirageC' 4 SeaC"arrier
accessories. n addition the Division manufactured systems for +ivil
Aircraft i.e.# Avro# Dornier and AC(' 4 +hetah# +hetak "elicopters.
&he Division# right from the beginning# laid a lot of emphasis on
developing indigenous capability for design and development of various
systems and accessories. &his capability and culminated in indigenous
design and development of a variety of systems and accessories for the
:ight +ombat Aircraft 0:+A1 and Advanced :ight "elicopter 0all version
i.e. Army# Air force# avy 4 +ivil1 t!o prestige aircraft programmes in the
country. &he division has also developed and has made successful
strides into the area if Microprocessor based control systems for the
:+A system as !ell as other system.
&he division diversified not only in other defence application like
tanks and armored vehicles for Army# it took commercial applications of
hydraulics items# gyroscopic e2uipment# Purpose &est ?2uipment 4
$round Support ?2uipment and successfully supplied in the market. &he
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division has been in the forefront of accessories development and
supply not only to ndian Air force but to Army# avy and various
Defence :aboratories as !ell as space applications. &he division today
has a prime name in the Aviation market and various international
companies are interested to join hands !ith it for future products.
HAL PRODUCTS AND CUSTOMERS PROFILE
RODUCTS OF HA"Mig seriesnternational aguarMirageSukhoi 0proposed1SeaC"arrier
AC('Giran MGC/MGC
CII" AIRCRAFT
DornierAH),"S 7*8
HE"ICOTERS
+hetak 0Alouette1+heetah 0:ama1
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Flying Academies 4 ?ducational nstitutions.
Airlines / Air &a>ies / Air +argo.
Defence Forces of +ountries from South ?ast Asia# Middle ?ast#
Africa# ndia subCcontinent.
+ollaborators / :icensors.
E6ORT RODUCTS
Supply of )otables and spares of aguar nternationally and
+heetah 0:ama1 / +hetak 0Alouette1 "elicopter.
)epair / ,verhaul of M$ series# aguar nternationally +heetah
0:ama1 / +hetak 0Alouette1 and Dornier Accessories.
$round Support ?2uipment.
+omplete range of ?lectrical Po!er control system and other
accessories.
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Accessories Division of "A: !as established in %97 !ith the
primary objective of manufacturing systems and accessories for various
aircraft and engines and attain self sufficiency in this area. ts facilities
are spread over 9*# s2m of built area set in sylvan surroundings. At
present it is turning out over %% different types of accessories. &he
Division started !ith manufacturing various Systems and Accessories
vi-# "ydraulics# ?ngine Fuel System# AirCconditioning and
Pressuri-ation# $yro 4 Barometric nstruments# ?lectrical System items#
Endercarriages# ?lectronic items all under one roof to meet the
re2uirements of the aircraft# helicopters and engines being produced by
"A:. &his !as follo!ed up !ith manufacturing the same range of
accessories for Mi$ series of aircraft# nternational aguar and repair /
overhaul of MirageC' 4 SeaC"arrier accessories. n addition the
Division manufactures systems for +ivil Aircraft i.e. Avro# Dornier and
AC(' 4 cheetah# chetak 4 Advanced :ight "elicopters.
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&he Division# right from the beginning# laid a lot of emphasis on
developing indigenous capability for Design and Development of various
System and Accessories. &his capability has culminated in indigenous
design and development of a variety of systems and accessories for the
:ight +ombat Aircraft 0:+A1 and Advanced :ight "elicopter 0all versions
i.e. Army#Air force# avy 4 +ivil1 C t!o prestigious aircraft programs in
the country and & 0ntermediate et &rainer1. &he Division has also
developed and has made successful strides into the area of
Microprocessor based control systems for the :+A ?ngine as !ell as
other systems.
&he Division diversified not only in other defence applications like tanks
and armoured vehicles for Army# it look commercial applications of
hydraulic items. $yroscopic ?2uipment# Special Purpose &est
?2uipment 4 $roup Support ?2uipment and successfully supplied in the
market. &he Division has been in the forefront of accessories
development and supply not only to ndian Force but to Army# avy and
various Defence :aboratories as !ell as for Space applications.
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&he Division today has a prime name in the Aviation market and various
international companies are interested to join hands !ith it for future
projects.
&he Division has also made steady progress in the area of ?>port.
o,e**
"eat &reatment facilities for all types of steels#
Aluminum alloys# +opper# ickel 4 &itanium alloys.
ote,tie Te'tmet
&reatment facilities of all types like Plating# Publishing etc#
SP?+A: types of Surface protection 4 Painting facility# i.e.
):SA +oating P&F? +oating# M,:@ DA$ +oating.
!e+di5
Division has ?lectro Beam# Argon arc# Spot 4 Seam
!elding e2uipment to facilitate intricate !elding on thin
metal bello!s# capsules# stator Packs# Brushes etc.
,ur !elders are fully approved 4 certified by +ivil
Aviation Authority.
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Rubbe$ +'*ti,$ Foud%
&hese facilities are in C house to cater for the needs of
various production / servicing re2uirements.
A**emb+% Ad Te*t
8 s2.mtrs of +lean/AirCconditioned room 0class
%# !ith laminar flo! cabinets1 !here assembly 4
test activities for instruments# "ydraulics and Fuel
factories take place.
Attached facilities to Assembly Shops are
Dedicated &est ?2uipment# ?nvironmental &esting
facilities to meet the aeronautical acceptance
standards.
Eiomet'+ "'bo'to%
Facilities for all types of ?nvironmental testing as per
re2uirements of BS# M: 4 SS# available to meet
regular re2uirements of type testing of all types of units
designed/developed in the inChouse ) 4D centre.
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n addition the :ab also caters for the need of special
type of testing for =heels# "ydraulic item etc. in
dedicated test rigs/beds.
Design +omputer +entre !ith Enigraphic# +AD 4 Analytical Soft!are
Packages
FinanceDepartment
According to literature of Finance# as !ritten by many e>pert
!riters# IFinance is the life blood of any organi-ation !ithout !hich an
organi-ation cannot even survive.J "ence the importance of Finance
Department can be understood as ;"eart< in human body. As a human
body !ithout a heart cannot be dreamt of# similarly an organi-ation
!ithout a finance department is meaning less. Accessories division of
"A: has a big finance department !hich contains ten big and small
sections !hich are center of activity for !hole unit. &hese sections are
as follo!s 3
1. Bills Payable Section
0. Bills )eceivable Section
7. Book Geeping Section
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8. Budget and )eporting Section
9. +ash ,ffice
:. +osting# Pricing and Material Accounting Section
;. Finance Section
2. Payroll Section
4. Pension +ell
1. Provident Fund Section
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Budget And Reporting Section
A budget is an overall blueprint of a comprehensive plan of
action expressed in physical and financial term; it includes plan for each
of the activity/responsibility centre of the business and provides a link
between the physical& financial plans of various departments of the
company.t is also a document to control for monitoring and revie!. A
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budgeting system is a comprehensive system of planning and control
covering all segments of an undertaking and giving a sense of direction.
the budget system should be such that it makes it imperative for the
management to establish goals and objectives# define policies# develop
programs# both longCterm and shortCterm # and allocate resources
#measure performance against the targets and in the process # revise
the objectives and policies# if found necessary.
&he budget period is the financial year commencing from April
to March and the budgetary e>ercise !ill commence from mid une. &he
budget is projected in a three year time frame covering estimates for
Cuet %e' (ei*ed e*tim'te*) i.e. R. E
1ud5et %e' (bud5et e*tim'te*) i.e. 1.E
(Ne/t %e')
Foe,'*t %e' (3oe,'*t e*tim'te*) i.e. F.E
(Ne/t to bud5et %e')
Projections under the current year represent revised estimates 0).?1 for
the current year. For comparison purpose# actual of the year previous to
the current year# the budgeted projections approved earlier for the
current year as !ell as
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&he actual for the first four or five months of the current year
are also given. &he budget is being presented for a three year time
frame considering the lead time for the supply from the date of order and
the reasonable span of control of e>penditure# keeping in vie! the
fluctuations in prices.
&he divisions have a long term perspective plan of# not less
than five year spelling out their production and allied resources for the
on going projects and for the possible ne! lines. &he facilities for such
activities by !ay of capital e2uipments and manpo!er and other
infrastructure are assessed. &he budgets and forecast are based on
such long term plans. &his long term plan is a rolling plan to facilitate
long term perspective planning at corporate /divisional levels.
For understanding any manufacturing and repair and overhaul
programs# e>pense are incurred both on capital revenue accounts.
+apital e>penditure relate to the e>penditure on ac2uisition of assets
meant for use but not for sale and intended to give long term benefit. All
other e>penses are categori-ed under revenue e>penditure. "o!ever#
certain items of revenue e>penditure like tooling# project management#
training# document etc. are identifiable to a specific project /program and
are to be incurred for the project/program. As the benefit from these
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e>penses is derived over the total period of the program# these
e>penses are treated as deferred revenue e>penditure and recovered
over the product/services by !ay of amorti-ation.
t is to be noted that a budget is formulated taking many factors
in to account. &here are certain factors in each budget !hich have a
direct bearing on that budget and any variation in that factor !ill have
direct impact on the budget. Such factors are identified as key factors.
For e.g. in "A: situation# order status forms the key factor for all other
budgets. Production capacity# trained manpo!er etc.# are key factors in
production budget. t is essential to identify key factors in respect of
each of the budgets and their influence on the budget is taken note of
!hile preparing the budget.
t is necessary to lay do!n the norms in the key areas like
inventory# profitability# productivity etc. Budget being a plan of action and
a document for monitoring and control should be oriented to!ards these
norms to satisfy and assure that the areas are planned according to the
norms.
n the process of budgeting# it is very essential that the
concerned managers in charge of production and support departments
are involved from the very beginning of the preparation of the budgets to
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the point of finali-ation. &his type of grass root budgeting is essential so
that all managers !ho initiate and incur e>penditure in respect of
activities included in the budget are involved and they feel responsible
for achievement of the physical and monetary targets laid do!n for them
in the budgets and the process of monitoring and revie! !ill thus be
facilitated . =ith this end in vie! the participation of the concerned
managers in the preparation of various budgets has been provided for.
&he process of budgeting# monitoring and revie! is continuous.
t is therefore essential that there is a specific group to super !ise the
preparation and submission of budget as per targeted dates# revision of
budgets at appropriate times# monitoring and revie! of budgets at
periodical intervals either monthly or 2uarterly. For this purpose a budget
committee is to be constituted in each division.
&hus budget is the sole authority to authori-e e>penditure.
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CAPITAL BUGET
C'&it'+ bud5et i* 3',i+itie* &+'i5. T'i5 ito ',,out
te +e'd time e;uied$ te 3',i+itie*
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"elps to consider the best proposals according to !hich priority
can be fi>ed.
"elps to control capital e>penditure i.e. utili-ation in effective
manner.
"elps a systematic procedure for appraising profitability
performance of the company.
+apital investment proposals are submitted in sections as underC
%. e! Projects
'. +ontinuing Projects
(. )eplacement
*. =elfare
. Design and Development.
$enerally top e>ecutives of the corporate and operational level
take initiation for proposals of capital e>penditure as per re2uirement. t
is generally the concerned department and project in charge !ho feel its
need.
Proposes under each section are detailed under ( heads a under
%. plant and machinery
'. civil !orks
(. other
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Time *,edu+e 3o bud5et ,om&i+'tio > '&&o'+:
&he budgetary e>ercise starts in the divisions by une so as to
ensure availability of divisional budget in corporate office by % august
after due clearance by the concerned MD.
!" Ne# Pro$ect
n "A: fresh capital outlay is envisaged !hen any ne!
!ork/project is assigned to "A:.
&his covers the facilities necessary to implement ne! projects
sanctioned duly supported by preliminary / detailed project report
0PP)/DP)1. e! project are sanctioned by government or "A:
board of directors depending on the project outlay involved.
A Preliminary Project )eport 0P.P.).1/Draft Project )eport 0D.P.).1
is prepared !hich covers the follo!ing
%. ,bjectives of the scheme.
'. &echnology consideration choice.
(. Project description.
*. Si-e.
. ?nvironment.
5. +apital e>penditure.
7. Deferred revenue e>penditure.
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8. Manpo!er re2uirement.
9. Production planning.
%. Enit production cost in different phases.
%%. Fund flo!# both under capital and revenue.
%'. Financial analysis to assess financial viability of the
project.
Mainly the techni2ues used are
)eturn ,n nvestment
Pay Back Approach
Discounted +ash Flo!
nternal )ate of )eturn.
2. Cotiui5 &o4e,t
&his covers facilities to improve productivity# reduce costs and remove
bottlenecks on account of inade2uate balancing# through improvements
and rationali-ation.
+apital e>penditure re2uired improving productivity and capacity of the
plant and the balancing facility re2uired to introduce technological
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improvements and cost reduction are projected under the follo!ing
categories
A1 &echnological up gradation
B1 +ost reduction/?fficiency improvement.
+1 Production diversification.
?. Re&+',emet
Substantial investments are made from time to time !hile embarking on
Ine! projectsJ.
?>perience sho!s that the plant and machinery# in addition to normal
useful life# has also an economic life. Diverse factors such as design#
material and technology adopted# environment conditions etc. determine
the normal life of the plant and machinery.
&his covers replacement of facilities !hich have completed their life or
are beyond economical repairs. tems planned for replacement should
be scrutini-ed by an e>pert committee comprising technical# commercial
and finance members and cleared for replacement.
)eplacement is necessitated broadly for the follo!ing reasons
A1 due to normal !ear and tear.
b1 )easons like change in service re2uirement# technology#
obsolescence# uneconomical repairs etc.
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@. !e+3'e
&his section deals !ith the investing proposals relating to
!elfare activity vi-. +anteen# &ransportation# "A: &o!nship# Medical
facility# Schools# Sports etc. =hile making projections in this section# the
norms for !elfare of the staff are kept in vie!.
BP? has specified the satisfaction level for the residential
accommodation for the plants/projects based on the area of location of
the plant / project. &hese are kept in vie! !hile making the proposals.
&he capital facilities needed for the !elfare of the employees
figure under this head. =here certain !elfare facilities are contemplated
in the PP)/DP) of Ine! projectsJ# those are reflected under the head
Ine! projectJ itself.
&he follo!ing details are furnished !hen making proposals for
the 2uarters
a1 Details of manpo!er# category !ise# e>isting and for the future
period.
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b1 )esidential 2uarters re2uired to satisfy the BP? normsK different
types of 2uarters proposed.
c1 ?>isting and proposed level of satisfaction.
d1 Availability of rental accommodation in the vicinity of the factory.
e1 o. of employees in receipt of ")A/ having o!n houses.
f1 Phases of construction
. De3eed eeue e/&editue (DRE)
For undertaking any ne! manufacturing and repair program
e>penditure is incurred to provide necessary tooling# documentation#
inspection e2uipment etc for carrying out the programs. &he benefit from
these e>penses is derived over a long period and can be identified to the
specific project. As such these e>penses are treated as deferred
revenue e>penditure 0D)?1.
?>amples of items are
&ooling
Payment for services of specialists of collaborators
&raining
Project management
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Static test/long test/life test
on standard e2uipment/inspection e2uipment
:arge sums are sanctioned by board/government under the
head 0D)?1 !hen approving a project. A separate budget to cover the
above specific items is prepared.
ERFOR#ANCE 1UDGETING
An effective mechanism of financial management and control can be
built up only on a sound budgetary system. &he budget of a public
enterprise serves the re2uirement of internal accountability and also
to e>ternal agencies besides providing a plan of action against !hich
performance is revie!ed. e3om',e bud5eti5 i*$ i e**e,e$'
&o,e** o ' te,i;ue 3o &e*eti5 e*tim'te* 'd e/&editue
i tem* o3 3u,tio*$ &o5'm*$ ',tiitie*$ 'd &o4e,t*. It
bi5* out te tot'+ bu*ie** o&e'tio* tou5 ' ,+'**i3i,'tio
b% 3u,tio*$ &o5'm* 'd ',tiitie*.&hrough suitable narrative
statement and !ork load data that form an integral part of
presentations# it indicate the !ork done# proposed to be done and the
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?nsure the initiation of action for implementing schemes
provided in the budget.
,versee the regular flo! of e>penditure and prevent cost
overrun.
Te ,oetio'+ eeue bud5et '* bee e*tu,tued '*
&e3om',e bud5et
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B. ORDER STATUS
,rder status is compiled in respect of major products# jobs and indicates
the follo!ing
%1 &otal order book position of the division / company# product
!ise.
'1 Luantity delivered there against as at the beginning of the
budget period.
(1 Luantity outstanding for delivery at the beginning of the
budget period.
*1 Luantity proposed to be delivered yearly during the ( yrs.
Period vi-. +.?# B.?# F. ?.
1 ,rders likely to be received 4 proposed yearly delivery
schedule there against.
2. RODUCTION 1UDGET
Production budget is compiled product !ise/service !ise in
respect of major products and services.
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All others are listed under different groups like the manufacture
of sparesK miscellaneous overhaul jobsK rotable overhaul etc. this
indicates the 2uantitative targets and value !here 2uantification is not
possible# or voluminous# such as spares manufacture and miscellaneous
overhaul jobs. &his budget is linked to order status and sales budget.
Te 3o++oamines the projections made by the divisions and after making such
changes as deemed necessary for integrating various divisional
budgets# approval is conveyed to the divisions. &hese approved budgets
form the basis for other operating budgets.
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&o evaluate the performance against these targets it is
necessary to correlate this !ith monetary values. &o do so# the
resources re2uired for production in terms of material# labor and
amorti-ation 0direct e>penses1# besides standard man hour content in
the production should be given.
t is also necessary to spell out the details of amorti-ation# total
amount amorti-ed. &his !ill include amorti-ation of special tooling and
test e2uipments as !ell as other D)?.
?. SA"ES 1UDGET
&his budget indicates the 2uantities to be delivered#
product/activity !ise !ith values# during the budget period. n the case of
direct deliveries by the divisions to customers# the 2uantities indicated in
this budget must match !ith the deliveries indicated in the order status.
As per "A: accounting policy# sales are set up on the basis of
signaling out and delivery. Duly signed forms L*'( / L( or forms
evidencing signaling out of aircraft by the +.). constitute delivery for
this purpose. t is therefore imperative that the sales budget reflects the
items targeted to be delivered during the budget period.
&he sales budget is presented in t!o parts i.e.
0i1 for firm orders and
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0ii1 for anticipated orders.
Further# the budget under each part lists services and products
phase !ise# customer !ise 0AF# avy# +oast $uards# Army# +ivil
+ustomer# etc.1 and also e>ports.
For jobs other than cost plus# F.P.L. submitted or approved#
form the basis for sales computation for the current year and likely
prices for deliveries in the relevant years form the basis for sales
computation for budget year and forecast year.
For cost plus jobs sales computation is estimated based on
technical evaluation and past actual for similar jobs.
t is necessary that the items targeted for sales during the
budget period are valued to convert the anticipated accomplishment into
monetary figures.
&o facilitate effective monitoring# revie! and control# the
approved sales targets are thereafter broken up month !ise and actual
achievements are monitored !ith reference to the monthly targets#
variances are determined and analy-ed for taking suitable control
measures.
@. !A8S AND #EANS 1UDGET
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=ays and means budget indicates the inflo! and outflo! of funds during
the budget period. &he sources for inflo! of funds are receipts from AF#
avy# Army# +oast $uards and other non traditional customers.
?mphasis is paid on linking the estimation of receipts from these
agencies !ith the production plan. ,utflo! comprises of e>penditure on
establishment of capital facilities# revenue purchases# salaries and
!ages# advances# deferred payments# royalty/license fee# interest and
other payments.
A finance and accounts department is responsible for the
preparation of !ays and means budget after taking into account
projections made in various other functional budgets.
&he projections made in the !ays and means budget#
particularly in respect of receipts# are to be accurate and realistic. Ad
hoc reductions in projected payments to sho! a favorable cash flo!
position are not to be restored to. Ender the financial arrangements !ith
the main customers i.e. AF# the government agencies# a substantial
portion of the e>penditure is reimbursed as advances from time to time.
=hile in respect of manufacturing jobs reimbursement is obtained up to
the e>tent of 9 of labor and overhead# % of deferred revenue
e>penditure and imported material# stage payments are received in
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advance for )MS orders and overhaul jobs. &hus e>penditure gets
reimbursed !ithout much loss of time and receipts should not normally
be less than the payment made.
&he !ays and means budget is supported by a detailed
e>planatory note on the assumptions and basis for projections of
receipts and payments. Details of other receipts and Iother services and
e>pensesJ are also to be furnished.
&he payments indicated in this budget are to tie up !ith the
projections made in various other budget s like capital budget# purchase
budget etc. +ash outflo! on account of repayment of loans# interest on
loans/cash credit# dividend and income ta> centrally incurred by
corporate office and allocated to the divisions !ill also be included in this
budget to arrive at the net surplus/deficit.
&he approved !ays and means budget is split into month !ise
targets. Actual are monitored monthly against these targets and
revie!ed in the monthly divisional +,M.
. #ANO!ER 1UDGET
Man po!er budget is a plan of manpo!er re2uirement for the
budget periods indicating the manpo!er mi> of direct !orkers# indirect
!orkers and officers. &his budget brings out the manpo!er strength at
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the end of the previous year and projects the re2uirement under different
categories during the three year period covered in the budget for
meeting the planned production tasks in these years.
&he preparation of the manpo!er budget involves close
interaction bet!een production planning department and management
services department to carry out detailed analysis of the re2uirement of
manpo!er vi-C a Cvi- the available strength. t enables the future
recruitments !ith a vie! to achieve the ma>imum utili-ation of the
human resources.
t is a plan providing ade2uate !ork load to the e>isting
manpo!er# redeployment of e>cess manpo!er# if any# from one !ork
centre to another# thereby removing imbalance in the distribution of
manpo!er.
&his budget is for!arded along !ith the production budget to
the corporate office for the approval.
Man po!er budget is compiled by the management services
department in coordination !ith the offices of the production
engineering# factory manager and the administration.
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&he projections are to conform to the norms laid do!n by the
corporate office from time to time. &he actual build up of manpo!er is
restored to only after approval of the budget.
&he ratio bet!een the direct and indirect !orkers should not
e>ceed % %.'. &he strength of the officers may be projected on the basis
of departmental organi-ation and the !ork load but 3should not e>ceed
the ceiling laid do!n from time to time from the corporate office.
&he manpo!er budget is directly linked !ith the production
budget and has a bearing on the operating budgets i.e. profit and loss
budget# =ays and Means budget and =elfare budgets.
. URCHASE 1UDGET
Purchase budget# essentially a )evenue budget is both
commitment and e>penditure plan relating to budget period. &he value
of the material purchase re2uisitions pending at the beginning of the
year to be converted into purchase order during the year and the
2uantum of commitment e>pected to be made during the year constitute
the proposed commitment during the year. &he e>tent of the
commitment made during the previous periods !hich have not been
paid for !ould be the Ioutstanding commitments at the beginning of the
year I.the sum of these t!o !ould constitute the final commitment.
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&he process for inventories is necessarily to be based upon the
norms corporate office has laid do!n for maintenance of the various
components of the !orking capital. =hen the production budget is
planned# the inventory for finished goods and stock in trade and also the
!ork in progress is to be maintained as per norm.
t is necessary to see at a glance ho! the various components
of the !orking capital are emanating out of the budgets and ho! they
compare !ith the actual of the previous year and !ith reference to the
desired norms.
&he norms for inventory and sundry debtors# as fi>ed by the
company from time to time are to be adopted. &he present norm for =P
and S& put together is 9 months production of the follo!ing year and for
sundry debtors #it is ' of sales to be progressively brought do!n to
%5.
Enless each one of the ingredients of !orking capital is
efficiently managed there !ould be blocking of funds resulting in
mounting interest liability and conse2uent reduction in profitability. in
every division there should be a nodal point to monitor the performance
of !orking capital management.
. FOREIGN E6CHANGE 1UDGET
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&his covers the foreign e>change re2uired to purchase the
capital and revenue items including e>penditure on payment of :icense
Fee /)oyalty /Foreign technicians< fees# during the budget periods.
Details of Free Foreign ?>change and the non convertible rupee 0+)1
amounts are given. n order to serve as a control device# it is essential
that the item !ise details for the provisions made form part of this
budget.
&he projections in this budget cover the re2uirements of FF? on
commitment basis and the +) re2uirements both on commitment and
cash basis.
For reducing variation bet!een Budget and actual it is ensured that
%1 ?stimates are critically e>amined by a committee consisting
of representatives of planning# commercial and financial
department.
'1 $uidelines issued by the corporate office from time to time
are follo!ed so that uniformity in projections is achieved.
(1 +ommitments of high value are monitored !ith a system for
a timely feed back.
*1 A critical revie! is made at the )? stage.
9. ROFIT AND "OSS 1UDGET
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Profit and :oss Budget is the ;Master Budget< reflecting the sum
total of the revenue items in various other budgets. &he items included
in this budget are to the items figuring in the profit and loss account in
annual accounts and closely adhere to the schedules of profit and loss
account as !ell as corresponding account heads in master chart of
accounts.
&he Profit and :oss budget is prepared by the finance department and is
based on the projections made in the various other functional budgets
like Sales budget# ,verheads budgets Depreciation correlating +apital
Budgeted.
&he figures reflected under the head ISA:?SJ in the profit and loss
budget are the same as in sales budget.
&he budget under this head is based is based on both on past
actual as !ell as other data available i.e. e>penditure on employees
using transport/canteen# old assets condemned and detailed for
disposal# unserviceable/surplus stores# disposal and other details#
handling charges received on bought out items# procured on behalf of
customers for non "A: inventory are also classified under this head.
B0. ROECTED 1A"ANCE SHEET
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Projected balance sheet indicates the summary of financial
position of the budget periods. &he projections made therein
automatically flo! into the projected balance sheet from the contents of
the various other budgets. &his budget is prepared by Finance and
Accounts Department of the Division.
&he starting point for the projected balance sheet is the
finali-ed/budgeted balance sheet for the immediately preceding
accounting year.
BB. ERO 1ASE 1UDGETING
A method of budgeting in !hich all e>penditures must be
justified each ne! period# as opposed to only e>plaining the amounts
re2uested in e>cess of the previous periodNs funding
&he economics of Oero Base Budgeting 0OBB1 is implicit in its
concept and philosophy itself# !hich re2uires very organi-ation and its
activities to justify their very e>istence and effectiveness. Being# in
essence# an ex-ante rather than post-facto cost benefit analysis of all
decision making in an organi-ation/unit# OBB seeks to reverse the !hole
process of conventional budgeting by its une2uivocal assertion that it is
not e>penditure that should justify the output. n stead# it should be the
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output that must justify the e>penditureK its implementation re2uirements
and implications.
At the government level# the objectives of OBB e>ercise are to
optimi-e the cost of governance by making the public e>penditure more
effective and needCbased. &hus the $overnment of ndia !as reiterated
its intention of implementing OBB !hile presenting the budget for the
year %999C'.
t is necessary for top management to e>amine and endorse
foundational assumptions of OBB. &he basic tenets of OBB are
ot!ithstanding the prosperity of an organi-ation# there !ill al!ays
be a gap bet!een desirability and affordability. n other !ords all
!hat is desirable may not be affordable.
As a corollary to the above# the greatest challenge to the decision
makers# therefore# lies in identifying the NDesirableN !ithin the limits
of NaffordabilityN.
I&here is no room for improvementJ is an operating philosophy of
DoomCSayers. n reality even best can be improved provided
there is a =:: to do so.
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manner and permits the reCallocation of resources from lo! to high
priority programs. Finally# OBB is the ex-antecostCbenefit analysis of all
decision making in an organi-ations.
OBB re2uires each manager to
?stablish objectives of his or her functions consistent !ith
organi-ational objectives and gain agreement on themK
Define and devise alternative !ays of achieving the objectivesK
Select the most practical and effective alternative from the aboveK
Break the chosen alternatives into incremental levels of effortsK
Assess the cost and benefits of each incremental levelK
Describe the conse2uences of disapproval of the activityK and
)ank all the activities of his function according to the importance of
each one of them in achievement of functional objectives.
n OeroCBase Budgeting approach one reconstructs the
operation from -ero or scratch. ?ach activity competes for funds on
e2ual footing and the funding decisions are as per the relative
importance.
Oero Base Budgeting 0OBB1 can be used in any area on !hich
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cost/benefit analysis can be carried out and for !hich standard costs
and norms are not available.
&he process of formulation of -ero Base Budget consists of the
follo!ing steps
dentification of NDecision EnitsN
Preparation of NDecision PackagesN
)anking/Prioriti-ation of decision packages !ithin a decision unit.
)anking /prioriti-ation of decision packages of various decision
units.
Allocation of resources for the chosen decision packages under
each decision unit.
Monitoring and evaluation.
BUGETAR% CONTROL
Budgetary control is an important financial techni2ue by !hich
the business concerned can be efficiently managed enabling for!ard
thinking and thereby carrying out the operations according to plans. &his
system is not entirely mechanistic so as to automatically put to operation
once set in motion but it re2uires coordination and involvement of
number of persons belonging to various departments of the concern.
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Follo!ing are some of the behavioral factors re2uiring attention for the
success of the system
0a1 Fuller participation of the persons being made responsible
in the process of setting the budgets !hich motivates in
achieving the budget targets.
0b1 Proper training and education for such persons to enable
them to appreciate their o!n budget and in achieving the
corporate objective.
0c1 Fi>ation of individual responsibility for the costs they
control.
0d1 Hariance analysis as a means to achieve the objective but
not for !itch hunting.
Budgetary control involves comparison of actual !ith the
budgets and ascertainment of variance there from !ith a vie! to find out
the reasons for !hich such variance and takes suitable remedial
measures. &he budgetary control is a very important activity to insure
that the actual conform to the plans set up through the budgets. &he
meaning and purpose of setting up of budgets !ill not be achieved
!ithout an effective Budgetary +ontrol System. "ence it is necessary tohave an effective system of Budgetary +ontrol through !hich actual are
monitored periodically.
All the important budgets vi-. Production# Sales# Profit and
:oss# =orking +apital# =ays and Means# after approval by the Board#
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monitor the commitments and e>penditure made during the period# !ith
respect to budget and actual# under the capital head.
?. Foei5 E/,'5e Re&ot: C
For the gro!th of any global company# foreign e>change is vital
resource as it enables the company to stand in importCe>port market. Foreign
e>change keeps a check on foreign e>change committed and the e>penditure
made during the prescribed period. t enables the management to monitor the
condition of the foreign e>change !ith the company.
@. C.O.#. #eeti5 Re&ot:-
+,M i.e. +ommittee ,f Members Meeting takes place in "A: !here
different issues are discussed such as sales# profit# inventory# !ays and
means# etc. &he report of this meeting is prepared including all the subjects
discussed. &his report is meant for committee members only.
. SU-?0 Re&ot:-
SuC( i.e. SukhoiC( is a project undertaken by "A:. SuC( report is
prepared by "A: to monitor the progress i.e.SuC( project and the sanctions
made for the project.
. "CA-"S REORT:-
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:+AC:SP is a customerCfinanced project# !hich is funded by
Aeronautical Development Agency# Bangalore per the Mou 0Memorandum of
Enderstanding1. Ender this project a 2uarterly report of commitment and
e>penditure is prepared submitted to the customer.
7. #IS REORT:-
MS i.e. Management nformation System report is a report !hich isprepared to inform the management about the various activities beingperformed at "A: and their progress. t involves all the issues as !ays and
means# performance of employees# overheads# inventory# sales# and cost ofproduction# value of sales# profitability and other issues. t can be said thesummary of all the reports made by this section. &his report is prepared !ith avie! to give a brief idea of division.
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Bi&&s Recei'a(&e Section
Bills receivable section is one of important sections under
the finance department of ".A.:. As the name suggests the main
function of Bills )eceivable sections is to receive. &he payments of the
sales made during the budget period.
Ob4e,tie*
&o ensure that dues from +ustomers in respect of $oods supplied
and services rendered are recovered timely as per the Fi>ed Price
Luotation /Price +atalogue approved by the Ministry in
accordance !ith the $overnment letter issued by the Ministry of
defense dated '* Aug %99.
&o ensure that nvoices in respect of Advances# Stage Payments#
Final Deliveries are raised timely in order to have smooth cash
flo! position.
&o ensure that proper accounting is done as per the re2uirement
of Statute and accounting instructions laid do!n by the corporate
office.
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b1 Subse2uent Stages /Final Payments are claimed on the basis of
Milestones achieved #Dispatch Advice# Ackno!ledgement received
from Air Force in form L*'(#nspection note certified by the +.).
about the progress of !ork done
n respect of )epair and ,verhaul !ork the payment is strictly
regulated based on the nature of !ork carried out e.g. Functional test#
Defect nvestigation# and Oero hours servicing# )epaired#
,verhauled.
&o prepare and render nvoices to on 3AF +ustomers in respect
of follo!ing Activities
i1 Development Sales for +ustomer Financed Projects
ii1 Supplies and Services rendered to +ivil +ustomers
iii1 Supplies against ).M.S. orders from Army# avy.
&o raise debit on other Divisions as S..&. in respect of parts
/accessories supplied for fitment in ?ngines and Aircraft /
"elicopters manufactured by them for Supply to +ustomers.
&o claim payment from A, 0DAD1 on the basis of Fitment details
received from the user Division.
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&o submit invoice for reimbursement of )oyalty from Air Force and
Set up Sales for these claims and create claims )eceivable.
&o follo! up !ith A, 0DAD1 and other customers for collecting the
payment against the nvoices raised.
&o provide details to Budget section for +ompilation of Sales
Budget on the basis of Sale orders# Firm /Forecast &ask# .D.&.,
for Budget ?stimates #)evised ?stimates #F.+.
&o collect Sales &a> from the +ustomers and deposits the same.
&o compile Sales &a> returns and submit the same to MM
Department for on!ard submission to Sales ta> Authorities for
Assessment.
"A: deals in three main areas# vi-C
%. Manufacturing/Production of ne! projects
'. )epair and overhaul of products supplied to AF
(. )epair# Maintenance and Supply of spares 4 rotables
#'u3',tui5 o4e,t*:-
&he main customer of "A: is ndian Air Force. Most of the
manufacturing projects undertaken by "A: are from .A.F. only. ,ther
than .A.F.# ndian Army# avy# +oast $uards# Border Security Force
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and other foreign customers also demand for ne! products. For ne!
projects Bill )eceivable department generally takes funds in advance.
&he payment pattern is fi>ed !hich is as follo!sC
%st stageC ' of total approved FPL on receipt of )MS,#
'ndStageC ( of the batch 2uantity on start of manufacturing#
(rdstageC ( on start of assembly#
*thstageC %on commencement of e2uipping at aircraft division#
and
thstageC on delivery of Aircraft.
&he advances are paid annually in installments for material
procurement. &he total amount of installment must not to e>ceed )s
5.(cr.
!oi5-
For ne! projects# the costing department prepares the FPL
0Fi>ed Price Luotation1 on the basis of !hich B/) Section claims the
advances. After raising the advances B/) Section intimates for start of
production. After that production invoices are prepared and !ith the form
L*'( duly coordinated by +.).. the bills are sent to A, 0DAD1 or
D+DA# Bangalore.
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n case of delayed dispatch the li2uidity damage is charged
by .A.F. at the rate of . to ' per month or per !eek as per the
terms laid do!n in purchase order.
,ther than above stated customers "A: accessories
division# :uckno! also !orks on the demands of other divisions of "A:
kno!n as FD i.e. nter Factory Demand. For these manufacturing
payment is raised on the preC decided agreements bet!een different
divisions.
Re&'i 'd oe'u+*:- (R > OH):
,ther than production of ne! accessories assemblies and
subCassemblies "A: :uckno! Division also !orks on repairs and
overhauls of its products. For repair and overhauls .A.F. loads a ;&ask
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Defence 0MoD1 for verification after !hich the due payment is made
generally by che2ue.
For )epair and overhaul also there is a fi>ed pattern of
payment decided by "A: and .A.F. C
5 of total approved amount on loading of task#
order#
( of total amount on completion of task through
bills.
:ike manufacturing projects for repair and overhaul also the
:i2uidity Damage is charged by .A.F. if there is any delay in dispatch of
repaired part. &he time period given for such tasks is 8 months and '
months grace period is given. &he :.D. is charged at the same rate as in
manufacturing projects.
Re&'i$ #'ite',e 'd *u&&+% (R#S):-
For replacement of e>hausted parts rotables etc. the .A.F.
issues )MS, i.e. )epair Maintenance and Supply ,rder to "A:. ,n
receipt of )MS, the e>hausted part/assembly or rotable is replaced !ith
fresh part/assembly or rotables. Luality control department of "A:
checks the efficiency and capability of replaced part !hich is further
checked by +) i.e. +entral )esearch nstitute !hich is authori-ed by
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&his is the reason behind limited transactions bet!een "A:
and Army# avy. $enerally all the processes involved in manufacturing
a ne! project# repair 4 overhaul and )MS are same as that in the case
of AF.
Payment pattern and the channels for payment are also
same in the case of Army. &he final payment is made to "A: through
A, 0DAD1.
As it has been mentioned that avy has a very small portion
of !ork done by "A: thus no advances are collected from avy the
payment on behalf of avy is done by +DA 0+ontroller of Defence
Accounts1 $oa/Mumbai.
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C)oyal Air force of ,man
CAir Force of Mauritius
CAir Force of epal etc.
For dealing !ith above mentioned customers "A: sends
2uotation clearly mentioning the terms and conditions of payment.
&he case is different !ith B.S.F and +oast $uard. For these
t!o the +ontractor Bills are made.
,n accepting the order or contract given by the customer a
letter of order acceptance is sent to ordering authority/party.
&hen the !ork is done as per the re2uirement of customer. f
the !ork re2uires the material or help from foreign# the import is done on
the !ish of the party for !hich party has to pay along !ith % packing
4 handling charges. After completion of all !ork# dispatch advice is
prepared by dispatch section. ,n the basis of D.A. the B.). section
raises the bills and collects the payments.
For B.S.F. 4 +.$. the contractors bill is sent to +DA
0+ontractor Bill1 is a government certified from for giving contracts
related to defence production. ,n verification of contractor bill +DA
makes payment to "A:. From +ivil customers "A: is generally paid by
che2ues.
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n case of civil customers# :.D. is charged by the customers
but only on manufacturing projects# not on repair# manufacturing or
overhaul the :.D. is charged at the rate of . to per !eek. n case
of e>port to foreign customers bills are sent !ith dispatch of item to
customers. +ustomer has to pay on the bills. &he payment is done by
bank transfers i.e. by use of :etter of +redit on Sight Draft.
f payment is done after the closing of accounts the
e>change rate variance is calculated and charged into Profit and :oss
account.
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Bi&&s Pa)a(&e
An organi-ation can survive if and only if it meets
organi-ation
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Geeping proper accounts of payments as per the
re2uirements and directions of corporate office is another function of this
section.
Ob4e,tie*:
&o regulate the payments to suppliers and service providers as per
the terms and conditions of the Purchase orders/Agreement.
&o ensure that the payments to different parties are made
promptly so that supplies and services to the division is maintained
uninterruptedly in furthering the objects of the ,rgani-ation.
&o ensure that proper accounting is done as per the re2uirements
of the statute/standing instructions from the ".,.
&o ensure that all statutory deductions e.g. &.D.S. etc.# are made
from the Bills of suppliers/service providers and Deposited timely
!ith the appropriate authority.
Due to different nature of services and service providers this
section has been segregated into three sub sectionsC
Bills Payable 0Foreign Bills1
Bills Payable 0ndigenous Bills1
Bills Payable 0+ivil !orks 4 services Bills1
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Bi&&s Pa)a(&e *Foreign Bi&&s+
Foreign Bills subCsection of Bills Payable section generally
deals !ith the payments related to foreign suppliers as stipulated terms
and conditions of purchase order.
Fu,tio*
i1 Payments and Accounting of C
Advances to suppliers as per the terms 4conditions of Purchase
,rder.
:icense fees# )oyalty etc as per the license agreement !ith the
foreign collaborator.
+ustoms Duty# Freight Bills.
Final Bills.
ii1 ,pening of letters of credit on the advice of .M.M Department and
liasoning !ith Banks for Foreign ?>change release and payments
on maturity date.
iii1 Maintenance of commitment registers for budgetary purpose.
iv1 Maintenance of Deferred :iabilities accounts.
v1 Pricing of ).D.) !ith P.,. rates and :oading of +ustoms duty#
Freight and nsurance charges.
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vi1 Priced ).D.) are sent to Materials Accounts Sections /?.D.P for
Punching and Batch mode for the processing of Material :edger.
vii1 For any re2uirement of material/machine the demand goes to
purchase office !hich invites tenders and after a long chain of
procedure the purchase orders are issued. ,n the basis of
purchase orders issued to foreign parties/suppliers the payment is
done.
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F+o< o3 !o:-
i1 All Purchase ,rders /+ontracts received are entered in the
registers before opening of separate file for each P.,.
ii1 All the :.+. opened in favour of Foreign Suppliers as per the terms
of Purchase ,rders are entered in )egister to record the
particulars about their ?>tension# revalidation and utili-ation .,n
maturity of the :.+. the Bank Adjustment Houcher is prepared on
the basis of Bank advice and send to +ash Section for Adjustment.
Particulars of payments are also noted in the relevant P.,.
iii1 =here Purchase terms provide for IDocuments through BankJ the
Bills Payable section after checking the document !ith the
Purchase ,rder passes the nvoice and issue :etter of Authority to
the Bank for arranging payment.
iv1 All the contractual payments in respect of )oyalty# :icense fee
4&echnical Assistance fees are made as per the :icense
/+ollaboration Agreement after obtaining Foreign ?>change
release from the Ministry# ).B. and Producing .,.+. from the
ncome &a> Department.
v1 Bills of ?ntry received from the MM Department are entered in the
)egister to record value of the goods assessed #amount of duty
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paid to ensure that the duty levied is correct and the amount of
duty paid is loaded to the inventory accounts correctly .A copy of
the B/? is sent to the Bank for for!arding the same to )B
vi1 After receipt of $oods the Stores Department sends the ).D.) to
the Foreign Bills for Pricing and making necessary accounting.
vii1 Pending the Pricing of ).D.).# the payments made to foreign
vendors through :.+. /Sight drafts are put temporarily in $oods in
&ransit Account.
viii1 n respect of Material dispatched by the vendor against P.,. raised
by us# the liability is provided in our Books of Accounts if payment
has not been made for such supplies.
i>1 Follo!Cups !ith .M.M Department for timely release of ).D.) so
as to clear the $..&.
>1 +oCordination !ith the .M.M for replacement of rejected materials
so as to clear $..&.
#ode o3 &'%met to Foei5 'tie*
0i1 Sight Draft
0ii1 :etter of +redit
0iii1 Advances
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Si5t D'3t:-
As the name tells# sight draft is a mode of payment to foreign
parties !here the payment is done on seeing i.e. receiving the
documents related to the imports. n case of payment through sight draft
the purchase order stipulates payment terms as ;Document through
bankporting company i.e. seller dra!s a sight draft on the
company and sends it through bank !ith enclosed documents like
invoices# bills# air!ay/shipment bills etc. &he bank of "A: on receipt of
documents sends them to "A:. ,n verification of documents "A:
orders the payments and on behalf of "A: the bank pays to the bank of
seller.
"ette o3 ,edit:-
:etter of credit# popularly kno!n as :.+. is the fastest and
therefore most preferred mode of payment among by the vendors. :.+.
is a kind of bank guarantee !hich ensures the payment to supplier
through his bank in his country !ith the dispatch of material. A letter of
credit is opened in favour of the supplier as per the terms and conditions
of the P.,. or demanded by the supplier in 2uotations or negotiation.
"A: intimates its bank i.e. Punjab ational Bank or State Bank of ndia
to open an :.+. in favour of the supplier for a certain period say (
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months i.e. the payment has to be done in ( months on receipt of
re2uired documents. &he bank of "A: contacts its branch/related bank
in that country and as the supplier produces the re2uired documents to
the bank !ithin prescribed period# the bank in suppliers country pays on
behalf of "A:porters generally ask for advances so as they can meet out !orking
capital re2uirements. Advance is paid as per the terms and conditions of
the P.,. For this "A: authori-es its bank by the means of letter of
authority to arrange the payment to foreign supplier after obtaining the
relevant from ).B.. !hich is mandatory. ormally these advances are
paid after obtaining the bank guarantee from supplier
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is prepared and sent to cash office for entry into cash book or bank
book.
Bi&&s Pa)a(&e *Indigenous+
Fu,tio*
CC&he follo!ing are the functions of Bills Payable 0nland1 Section
i1 Payment of Advance to supplier as stipulated in the purchase order.
ii1 Payment of Final Bills
iii1 Bank Dealings !ith relation to suppliers e.g. ,pening of letter of
credit# Bank $uarantee and the payment to bank on the due dates.
iv1 Accounting and pricing of ).D.) 0)eceiving cum Discrepancy
)eport1.
v1 Maintenance of commitment registers for budgetary purpose.
vi1 Payment of Misc. Advances /imprest approved by the competent
authority.
F+o< o3 !o:-
i1 All the P.,.s received are first entered in the P.,. )egister before
putting the same in a separate file.
ii1 f the P.,. stipulates for payment of Advance payment is given.
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iii1 After receipt of the goods# suppliers invoice duly linked !ith
relevant ).D.) are received from the Purchase Department !hich
are scrutini-ed !ith reference to relevant Purchase ,rder and then
passed for payment after making adjustments for Advance
Payments already made. )emittance vouchers are prepared
based on the passed invoices and are for!arded to cash section
for issuance of +he2ue.
iv1 n respect of P., !here payment is stipulated as I&hrough BankJ
the BP sections# after intimation from the Bank through Purchase
Department# makes entry in the )egister and nvoice and sends
the remittance Houcher to the +ash section to arrange payment
and collection of Documents from the Bank by the Purchase
Department.
v1 n respect of :ocal purchases made on Iche2ue against Delivery
basisJ the Performa invoice is linked !ith the relevant Purchase
,rder and the payment is authori-ed and )emittance voucher is
sent to the cash section for making payment.
vi1 Pending the receipt of ).D.) from transit in respect of material
)eceived but not taken on charge due to delay in inspection
/commissioning /rejections the payment made to suppliers as
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Advance on receipt of goods through Bank Documents /+he2ue
against delivery basis are put in $..& i.e. $oods n &ransit
Account at the year end.
vii1 n respect of those P.,.s !here material has been received but
the payment has not been released# the appropriate liability is
provided for at the yearCend so as to account for all e>penses.
viii1 Follo! up !ith .M.M Department for release of ).D.). in respect
of those Po1 n respect of rejected materials# follo!Cup is to be made !ith
.M.M. Department to get those rejected materials replaced from
the vendor so as to clear $..&.
Bi&&s Pa)a(&e *Ser'ices ci'i& ,Construction pa)-ents+
Fu,tio*
Payment and Accounting of Advances.
Payment and Accounting of running bills to contractors.
Payment and Accounting of final bills
Adjustment and )ecovery of Advances
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canteen# casual !orks# maintenance contracts and other daily use items
payments as telephone bills# tele># freight and cartages# stationary#
electricity etc.
For obtaining the services as stated above the tendering is
done. &he tender document is prepared !ith all the terms and conditions
mentioned properly !ith the consent of A.$.M.
After receiving the 2uotations from service providers# a
committee of "A: members opens the 2uotations and as per the terms#
conditions and re2uirement the :% i.e. :o!est ,ne is chosen and the
tender is a!arded to the party 2uoted the least amount i.e. :% party. At
the time of allotment of tenders % amount of total tender value is
charged as security kno!n as ?MD 0?arnest Money Deposit1 and an
agreement is made bet!een "A: and service provider and as per the
agreement if the services are not up to the mark# then the service
provider is liable to pay the penalty !hich is deducted by "A: !hile
making payments.
,ther than payments this department also takes care of
deducting income ta># sales ta> etc of service provider and submitted
the same !ith concerned authorities.
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n case of services the advance payments are very rare and
if it is paid then to take care of advances and balance is also the job of
this subCsubCsection.
Do,umet*:
&a> )egister
onC&a> )egister
Bi&&s Pa)a(&e *Ci'i& Construction+
+ivil construction subCsubCsection takes care of all the
payments regarding the civil constructions !hether a ne! construction
or repair# renovation etc.
For civil construction# again the tendering is done. &hese
tenders are managed and issued by civil engineering department and
after the process of choosing :% as in ServicesK the contract is a!arded
to the contractor after a negotiation/bargaining meeting. "ere also the
contractor has to pay the earnest money deposit as the security. ,ther
than this in case of contracts involving payments above )s. % lakhs# a
bank guarantee from the contractor is prescribed !ith certain norms.
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F+o< o3 !o
i1 Advances to +ontractors are given as per the Acceptance letter
given to the contractor !hich is recovered !ith interest by !ay of
deduction from on account payable bills in suitable percentage in
relation to the progress of !ork so as to recover all sums advance
by the time 8 of the contract is completed.
ii1 Material Advice to the e>tent of 7 of the value of materials
brought by contractors and lying at the site is given on certification
of the ?ngineer nCcharge and is recovered from running/final bills.
iii1 n respect of running bills the !orks account section links the bills#
submitted by contractor duly certified by ?ngineers nCcharge# !ith
the contract/acceptance letter/!ork order etc. and arranges
payment after deducting income ta># balance security deposit and
other advances if any and retaining the prescribed of the bill
to!ards the retention money. "o!ever# !here the contractor has
given the Bank guarantee to!ard retention money no deduction is
to be made on this account.
iv1 Similarly# the final bill submitted by the contractor is checked !ith
the measurement book and the gross amount payable is
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determined. &he amount settled against running bills# advances if
any# penalty for delay in completion of !ork# recovery to!ards
consumption of material# &.D.S etc. is deducted from the $ross
Amount payable. ,ne "alf of the security deposit refundable to the
contractor is retained as defect liability deposit.
v1 +apitali-ation of the buildings and other capital !orks is done on
receipt of the completion certificate and final bills and the
classification of the buildings is done in accordance !ith the rules
in force.
vi1 Payments of bills for services e.g. ?lectricity# &elephone# =ater
etc.# received from plant maintenance department/concerned user
duly verified by them and approved by the competent authority are
made.
vii1 Payment in respect of other services received by the company is
made after it is duly approved by the competent authority.
Dei'tio St'temet:-
&o keep a check# on the variation bet!een the set targets
and the actual a deviation statement is prepared as per the "A: rules
' deviation in actual from set targets is admissible in e>penditure but
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in case of more than ' deviation the contractor is liable to give
reason for deviation.
e'+t%:-
As per the conditions laid do!n in tenders on 2uotations or
during negotiations % to % penalty is charged per !eek for late
!ork.
Com&+etio o3 !o:-
,n completion of !ork a completion certificate is given by
the contractor and in turn no dues certificate is issued by "A:.
After completion of !ork of the security amount is
retained by "A: for the period of si> months to keep a check on final
construction so that the contractor can be traced in case of any fault in
construction.
Tedei5:-
For civil construction# different types of tenders are issued
0%1 ,pen &enders
&hose tenders are open for every party/contractor !ho think
they are able to undertake the job. &hese tenders are advertised in
press.
0'1 :imited &enders
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&he MM dept. prepares a list of contractors# service
providers# vendors !ho are kno!n and capable and had good!ill in
market. &his type of tenders are sent to these parties only land they are
numbered i.e. Hery limited
0(1 Single &enders
&hese tenders are issued in emergency cases.
0*1 PreCLualified &enders
&hese types of tenders are given to those !ho are preC
2ualified by "A: for a certain job.
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2:
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2;
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Finance Section
Finance section of Finance and Account Department !orks
as a checkpoint for all types of transactions. &his section carries out the
scrutini-ing function !hich has a major role to play in capital and
revenue e>penditure decisions in regard to purchase of material# stores#
tools# repair# replacement or sanctions. &he section also ensures that all
the e>penditure is made !ith the reference to the budget and in
accordance !ith the principle of financial propriety. Finance section
ensures that funds are in proportion to meet out the approved budgeted
amount. t also ensure that the financial proposals are routed to
competent authority as per delegation of po!ers so as to ensure the
compliance of the provisions of companypenditure
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Finance section comes into play !ith the start of stages of
purchase i.e.
0i1 ndenting stage from user department
0ii1 )e2uest to MM section for procurement of material 0MP) is
made1
0iii1 Floating of in2uiry i.e. inviting the 2uotations.
0iv1 )eceiving of 2uotation
0v1 n2uiry of 2uotations.
Before floating the in2uiry MM send the related files to
finance section for justification of purchase and then the 2uotation are
asked and the section comes into play again !hen 2uotations are
received and :% is chosen it is sent back to finance section to check the
terms and conditions of purchase and appropriatibility of purchase. After
a nod from finance department the final purchase is done.
o,edue:-
Finance section plays a major role in accounts department. t can be
termed as centre point of activities# because this section clears all the
files for proceedings by the concerned authorities as per delegation of
po!er.
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First of all material purchase re2uest is send by the purchase
department# it is re2uest for procurement of material !hich is sent to
store and then store sends this file to finance section for further
proceedings.
&hese re2uisitions are broadly classified as under
%. non recurring items
'. )ecurring items
+oncerned authority in the section approves the files.
+ommittee members as per the amount mentioned in the files do
approval of the files. Different committees have been formed for different
approvals.
,ne committee approves the proposal !hich amount unto )s lakhs#
different committee is authori-ed for the amount above )s lakhs and
so on. Approval is done by +.M 0inventory and material management1#
Manager 0Maintenance1# and senior Manager 0Maintenance1.
After +M
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opened in front of concerned authority. &here are fi>ed days of opening
sealed tendersCFriday and &uesday. Amongst these sealed tenders :%
is selected# !hich represents the lo!er amount amongst all tenders. n
spite of considering lo!er amount other factors are also taken in to due
consideration subject to the companyimum# reorder# monthly consumption# reference of old
supply# delivery date# department re2uisition etc.
n the same manner for foreign purchase re2uest P)S 0Procurement
)evie! Sheet1 is prepared. Procedure for clearance of foreign material
re2uest is same as follo!ed in indigenous case.
n nutshell# any approved in terms of e>penditure !ill be
routed through the finance department.
,nly after the approval from finance department the
concerned purchase files are sent to higher authorities for
verification/approval.
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,ther than approvals finance section has the authority to
justify any e>penditure !hich re2uires more amount than the forecasted
amount or an e>penditure !hich !as not forecasted at all. t matches the
e>penditure !ith budget and keeps a check on outflo! of funds.
Finance section is a small but most important part of the
finance department because it not only deals !ith the reasonability and
justification of e>penses but it also takes care of clearance of stock in
trade# goods in trade# sundry debtors etc.
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Boo. .eeping section
All of the organi-ations have to have the records of their functions#
activities# and specially the inflo! and outflo! of funds. "A: in this case
is no e>ception.
"A: also has a separate book keeping section !hich takes of
maintenance of all the records# ledgers# books of accounts etc.
Fu,tio*:-
%. $enerali-ation and consolidation of records.
'. Preparation of full and final record.
(. Preparation of ledgers.
*. Preparation of Balance Sheet.
. Preparation of &rial Balance.
5. $eneration of various reports such asC Sales# Purchase# ?>port#
mport# etc.
7. Geeping records of employees going to/coming from other
divisions.
8. Geeping records of material sent to/brought from other divisions.
9. Geeping record of all fi>ed assets.
%. Participation in +ompany Audit.
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!oi5:-
All the sections prepare their separate records for their individual
section. &hen these records are for!arded to Book Geeping Section.
&he Bank of )ecords i.e. Book Geeping Section# then combines the
various records sent by various sections in various forms to form a
general and all purpose record. &hen these records are segregated into
the form of ledgers# trial balance# and balance sheet to present the
"A:
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4:
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COST AN ACCOUNTS EPART/ENT
&he cost account section is responsible to establish a costing
system in line !ith the activities and the product range of the division. t
is responsible for maintaining records associated !ith the accounting for
material# labor and overhead. t analyses all cost for manufacturing#
selling and distribution for use of management in planning and control.
Accounts related to costing and pricing of items are prepared in this
section. &his section acts as a central hub of accounts department. &his
section is also responsible for determination of price reali-ed from the
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customer for the products manufactured /repaired /
overhauled/serviced/supplied by the division.
Co*t A,,outi5:
dentification# measurement 4 reporting of product
manufacturing 4 service costs# )ole of product costs in income
determination. +ost classification# product costing# and treatment of
materials# labor and overhead# ob costing# Process costing# integrated
financial and costing records. +ost classification systems 4 recording of
cost flo!s. +ost apportionment# allocation 4 absorption including service
departments. Standard cost systems# including variance analysis#
variance investigation# and correction
+ost accounting is the process of tracking# recording and analy-ing
costs associated !ith the activity of an organi-ation# !here cost is
defined as re2uired time or resources.
Fu,tio*:
&o determine the rate of absorption / recovery of labor and
other overheads for recovering the labor cost on the different
jobs undertaken that is man hour rate computation.
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&o accumulating the labor and overhead content of each
activity project !ise based on evaluated :&B generated by
?DP from !ork order / time dockets.
&o keep track of different jobs computed and jobs lying
incomplete in different stages over a reasonable period of
time and to co ordinate !ith concerned production
controllers for justification for jobs lying unfinished beyond a
reasonable period of time and to ensure their early
disposition.
&o revie! !ork order on !hich no material / labor cost has
been recorded and finding out the reasons for the same.
&o get the =P statement as on (%
st
march from the ?DP
from all the manufacturing components# sub assemblies#
=P assembly# =P for the physical components verification
by the concerned production shops.
&o ensure that the valuation of =P has been done correctly
keeping in vie! the percentage