TABLE OF CONTENTS

S.NO. PARTICULARS PAGE NO.

1 INTRODUCTION
2 ORGANIZATIONAL PROFILE OF THE
COMPANY
3 FINANCIAL HIGHLIGHTS:
i DIFFERENT SECTIONS IN THE
DEPARTMENT
ii BILLS PAYABLE (INLAND)
iii MATERIAL ACCOUNTS SECTION
iv BUDGET SECTION
v TIME OFFICE SECTION
vi PROVIDENT FUND SECTION
vii CATEGORIES OF OPERATION
4 RESEARCH METHODOLOGY
5 SWOT ANALYSIS
6 FINDINGS
7 CONCLUSION
8 SUGGESTIONS
9 BIBLIOGRAPHY
10 LIST OF ABBREVIATIONS

1
 INTRODUCTION OF TOPIC

Working capital management is concerned with the problems that arise in

attempting to manage the current assets, the current liabilities and the interrelationship

that exists between them.

The term current assets refer to those assets which in the ordinary course of

business can be, or will be, converted into cash within one year without undergoing a

diminution in value and without disrupting the operations of the firm. The major current

assets are cash, marketable securities, accounts receivable and inventory.

Current liabilities are those liabilities which are intended, at their inception, to be

paid in the ordinary course of business, within a year, out of the current assets or

earnings of the concern. The basic current liabilities are accounts payable, bill payable,

bank overdraft, and outstanding expenses.

The goal of working capital management is to manage the firm’s current assets

and liabilities in such a way that a satisfactory level of working capital is maintained.

This is so because if the firm cannot maintain a satisfactory level of working capital, it is

likely to become insolvent and may even be forced into bankruptcy. The current assets

should be large enough to cover its current liabilities in order to ensure a reasonable

margin of safety.

The interaction between current assets and current liabilities is, therefore, the

main theme of the theory of working management.

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 CONCEPTS OF WORKING CAPITAL

There are two concepts of working capital:

1. Gross working capital.

2. Net working capital.

 Gross working capital refers to the firm’s investment in current assets. Current

assets are the assets which can be converted into cash within an accounting

year and include cash, short-term securities, debtors, (accounts receivable or

book debts) bills receivable and stock (inventory).

Gross work capital = total current assets

 Net working capital refers to the difference between current assets and current

liabilities, Current liabilities are those claims of outsiders which are expected to

mature for payment within an accounting year and include creditors (accounts

payable), bills payable, and outstanding expenses. Net working capital can be

positive or negative. A positive net working capital will arise when current assets

exceed current liabilities are in excess of current assets.

Net working capital = current assets – current liabilities

NEED FOR WORKING CAPITAL

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 The need for working capital (gross) or current assets cannot be

overemphasized. Given the objective of financial decision making to maximize the

shareholders’ wealth, it is necessary to generate sufficient profits. The extent to which

profits can be earned will naturally depend, among other thins, upon the magnitude of

the sales. A successful sales programmed is, in other words necessary for earning

profits by any business enterprise. However, sales do not convert into cash instantly;

there is invariably a time-lag between the sale of goods and the receipt of cash. There

is, therefore, a need for working capital in the form of current assets to deal with the

problem arising out of the lack of immediate realization of cash against goods sold.

Therefore, sufficient working capital is necessary to sustain sales activity.

Technically, this is referred to as the operating or cash cycle. The operating cycle

can be said to be at the heart of the need for work capital. The continuing flow from

cash to suppliers, to inventory, to accounts receivable and back into cash is what is

called the operating cycle. In others words, the term cash cycle refers to the length of

time necessary to complete the following cycle of events.

1. Conversion of cash into inventory;

2. Conversion of inventory into receivables;
3. Conversion of receivables into cash.

4
 OPERATING CYCLE OR WORKING CAPITAL CYCLE

Operating cycle is the time duration required to covert sales after the conversion

of recourses into inventories, into cash.

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6
 The operating cycle consists of three phases;

PHASE:-1 Cash gets converted into inventory. This includes purchase of raw materials,

conversion of raw materials into work-in-progress, finished goods and finally the transfer

of goods to stock at the end of the manufacturing process. In the case of trading

organizations, this phase is shorter as there would be no manufacturing activity and

cash is directly converted to inventory. The phase is, of course, totally absent in the

case of service organizations.

PHASE:-2 In this phase the inventory is converted into receivables as credit sales are

made to customers. Firms which do not sell on credit obviously not have phase II of the

operating cycle.

PHASE:-3 The last phase represents the stage when receivables are collected. This

phase completes the operating cycle. Thus, the firm has moved from cash to inventory,

to receivables and to cash again.

The above operating cycle is repeated again and again over the period

depending upon the nature of the business and type of product etc. The duration of the

operating cycle of a manufacturing firm is the sum of:-

i. Inventory conversion period. (ICP)

ii. Debtors (receivable) conversion period. (DCP)

The inventory conversion period is the total time needed for producing and

selling the product. Typically, it includes:

a. Raw material conversion period (RMCP).

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 b. Work-in-process conversion period (WIPCP).
c. Finished goods conversion period (FGCP).

The debtors’ conversion period is the time required to collect the outstanding amount

from the customers. The total of inventory conversion period and debtors’ conversion

period is referred to as gross operating cycle (GOC).

In practice, a firm may acquire resources (such as raw materials) on credit and

temporarily postpone payment of certain expenses. Payables, which the firm can defer,

are spontaneous sources of capital to finance investment in current assets. The

creditors (payables) deferral period (CDP) is the length of time of the firm is able to

defer payments on various resource purchases. The difference between (gross)

operating cycle and payables deferral period is net operating cycle (NOC).

8
 TYPES OF WORKING CAPITAL

PERNAMENT WORKING CAPITAL: Permanent of fixed working capital is the minimum

amount which is required to ensure effective utilization of fixed facilities and for

maintaining the circulation of current assets. There is always a minimum level of current

assets, which is continuously required by the enterprise to carry cut its normal business

operations. For example, every firm has to maintain a minimum level of raw materials,

work-in-process, finished goods and cash balance. This minimum level of current assets

is called permanent or fixed working capital as this part of capital is permanently

9
blocked in current assets. As the business grows the requirements of permanent

working capital also increase due to the increase in current assets.

The permanent working capital can further be classified as regular working capital and

reserve working capital required ensuring circulation of current assets from cash to

inventories, from inventories to receivables and from receivables to cash and so on.

i. Regular working Capital: This is the amount of working capital required for

the continuous operations of an enterprise. It refers to the excess of current

assets over current liabilities. Any organization has to maintain a

minimum stock of materials, finished goods and case to ensure its smooth

work and to meet its immediate obligations.

ii. Reserve Working Capital: Reserve working capital is the excess amount

over the requirement for regular working capital which may be provided for

contingencies that may arise at unstated period such as strikes, rise in prices,

depression, etc.

Temporary or Variable Working Capital: Temporary or variable working capital is the

amount of working capital which is required to meet the seasonal demands and some

special exigencies. Variable working capital can be further classified as seasonal

working capital and special working capital.

i. Seasonal Working Capital: Seasonal working capital is required to meet the

seasonal needs of the enterprise such as a textile dealer would require large

amount of funds a few months before Diwali.

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 ii. Special Working Capital: Special working capital is that part of working

capital which is required to meet special exigencies such as launching of

extensive marketing campaigns for conducting research, etc.

Temporary working capital differs from permanent working capital in the sense

that it is required for short periods and cannot be permanently employed gainfully in the

business.

The following diagrams would show the difference between permanent and

temporary working capital. Figure (1) present temporary working capital and figure (2)

present permanent working capital.

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 BALANCE WORKING CAPITAL POSITION

The firm should maintain a sound working capital position. It should have

adequate working capital to run its business operations. Both excessive as well as

inadequate working capital positions are dangerous from the firm’s point of view.

Excessive working capital means holdings costs and idle funds which earn no profits for

the firm. Paucity of working capital not only impairs the firm’s profitability but also results

in production interruptions and inefficiencies and sales disruptions.

The dangers of excessive working capital are as follows:

 It results in unnecessary accumulation of inventories. Thus, chances of inventory

mishandling, waste, theft and losses increase

 It is an indication of defective credit policy and slack collection period.

Consequently, higher incidence of bad debts results, which adversely affects

profits.
 Excessive working capitals make management complacent which degenerates

into managerial inefficiency.

 Tendencies of accumulating inventories tend to make speculative profits grow.

This may tend to make dividend policy liberal and difficult to cope with in future

when the firm is unable to make speculative profits.

Inadequate working capital is also bad and has the following dangers:

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  It stagnates growth. It becomes difficult for the firm to undertake profitable

projects for non-availability of working capital funds.

 It becomes difficult to implement operating plans and achieve the firm’s profit

target.
 Operating inefficiencies creep in when it becomes difficult even to meet day-to-

day commitments.
 Fixed assets are not efficiently utilized for the lack of working capital funds. Thus

the firm’s profitability would deteriorate.

 Paucity of working capital funds render the firm unable to avail attractive credit

opportunities etc.
 The firm loses its reputation when it is not in a position to honour its short-term

obligations. As a result, the firm faces tight credit terms.

An enlightened management should therefore, maintain the right amount of

working capital on a continuous basis. Only then a proper functioning of business

operations will be ensured. Sound financial and statistical techniques, supported by

judgment, should be used to predict the quantum of working capital needed at different

time periods.

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 POLICIES FOR FINANCEING CURRENT ASSETS

A firm can adopt different policies vis-à-vis current assets. Three types of financing may

be distinguished:

 Long-term financing: The sources of long-term financing include ordinary

share capital, preference share capital, debenture, long-term borrowings from

financial institutions and reserves and surplus (retained earnings).

 Short-term financing: The short-term financing is obtained for a period less

than one year. It is arranged in advance from banks and other suppliers of short

term finance in the money market. Short-term finance includes working capital

funds from banks, public deposits, commercial paper, factoring of receivable etc.

 Spontaneous financing: Spontaneous financing refers to the automatic

sources of short-term funds arising in the normal course of a business. Trade

(suppliers’) credit and outstanding expenses are examples of spontaneous

financing. There is no explicit cost of spontaneous financing. A firm is expected

to utilize these sources of finances to the fullest extent. The real choice of

financing current assets, once the spontaneous sources of financing have been

fully utilized, is between the long-term and short-term sources of finances.

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 DETERMINING FINANCING MIX
Financing mix is the choice of source of financing of current assets. There are

three basic approaches to determine an appropriate financing mix:

(a) Hedging approach
(b) Conservative approach
(c) Aggressive approach

(a) Hedging approach: the term ‘hedging’ is often used in sense of a risk-

reducing investment strategy involving transactions of a simultaneous but

opposing nature so that the effect of one is likely to counterbalance the effect

of the other. With reference to an appropriate financing-mix, the term hedging

can be said to refer to the process of matching maturities of debt with the

maturities of financial needs. This approach to the financing decision to

determine an appropriate financing-mix is, therefore, also called as matching

approach.

(b) Conservative approach: A firm in practice may adopt a conservative

approach in financing its current and fixed assets. The financing policy of the

firm is said to be the conservative when it depends more on long-term funds

for financing needs. Under a conservative plan, the firm finances its

permanent assets and also a part of temporary current assets with long term

financing. In the periods when the firm has no need for temporary current

assets, the idle long-term funds can be invested in the tradable securities to

conserve liquidity. The conservative plan relies heavily on long-term financing

15
 and, therefore, the firm has less risk of facing the problem of shortage of

funds.

(c) Aggressive approach: A firm may be aggressive in financing its assets. An

aggressive policy is said to be followed by the firm when it uses more short-

term financing than warranted by the matching plan. Under an aggressive

policy, the firm finances a part of its permanent current assets with short-term

financing. Some extremely aggressive firms may even finance a part of there

fixed assets with short-term financing. The relatively more use of short-term

financing makes the firm more risky.

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 COMPUTATION OF WORKING CAPITAL

The two components of working capital (WC) are current assets (CA) and current

liabilities (CI). They have a bearing on the cash operating cycle. In order to calculate the

working capital needs, what is required is the holding period of various types of

inventories, the credit collection period and the credit payment period. Working capital

also depends on the budgeted level of activity in terms of production/sales. The

calculation of WC is based on the assumption that the production/sales is carried on

evenly throughout the year and all costs, accrue similarly.

The steps involved in estimating the different items of CA and CI are as follows.

Estimation of Current Assets

1. Raw Materials Inventory: The investment in raw materials inventory is

estimated on the basis of:-

Budgeted cost of raw Average inventory

Production x materials(s) x holding period
(In units) per unit (Months/days)
12 months/365 days

2. Work-in-Process(W/P) Inventory: The relevant costs to determine work-in-

process inventory are the proportionate share of cost of raw materials and

conversion costs (Labour and manufacturing overhead cost excluding

depreciation). In case, full unit of raw material is required in the beginning, the

unit cost of work-in-process would be higher, that is cost of full unit + 50 per cent

of conversion cost, compared to the raw material requirement throughout the

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 production cycle: S/P is normally equivalent to 50 per cent of total cost of

production. Symbolically:

Budgeted Estimated work Average time span

Production x -in-process cost x of work-in-progress
(In units) per unit (Months/days)
12 months/365 days

3. Finished Goods Inventory: Working capital required to finance the finished

goods inventory is given by factors summed up:-

Budgeted cost of goods produced finished goods

Production x per unit (excluding x holding period
(In units) depreciation) (Months/days)
12 months/365 days

4. Debtors: The WC tied up in debtors should be estimated in relation to total cost

price (excluding depreciation) Symbolically:-

Budgeted cost of sales per average debt

Credit sales x unit excluding x collection period
(in units) depreciation (months/days)
12 months/365 days

5. Cash and Bank Balances: Apart from WC needs for financing inventories and

debtors, firms also procedure of determining such and amount. This would

primarily be based on the motives for holding cash balances of the business firm,

attitude of management toward risk, the access to the borrowing sources in times

of need and past experience, and so on.

Estimation of Current Liabilities:

1. Trade Creditors:

Budgeted yearly Raw material Credit period

Production x cost x allowed by creditors
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 (in units) per unit (months/days)
12 months/365 days

2. Direct Wages:

Budgeted yearly Direct labour Average time-lag in

Production x cost x payment of wages
(in units) per unit (months/days)
12 months/365 days

3. Overheads (Other Than Depreciation and Amortization).

Budgeted yearly Overhead Average time-lag in

Production x cost x payment of overheads
(in units) per unit (months/days)
12 months/365 days

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FORMATE: Determination of Working Capital.

(i) Estimation of Current Asset: Amount

(a) Minimum desired cash and bank balances. …………

(b) Inventories:
Raw material …………
Work-in-process …………
Finished goods …………
(c) Debtors …………

Total Current Assets …………

(ii) Estimation of Current Liabilities:

(a) Creditors. …………
(b) Wages. …………
(c) Overheads …………
Total Current Liabilities …………

(iii) Net Working Capital(i-ii) …………

Add: margin for contingency …………
(iv) Net Working Capital Required …………

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 CASH MANAGEMENT

Introduction

Cash is the important current assets for the operation of the business. Cash is

the basic input needed to keep the business running on a continuous basis; it is

also the ultimate output expected to de realized by selling the service or product

manufactured by the firm. The firm should keep sufficient cash, neither more nor

less. Cash shortage will disrupt the firm’s manufacturing operations while

excessive cash will simply remain idle, without contributing anything towards the

firm’s profitability. Thus, a major function of the financial manager is to maintain a

sound cash position.

Facets of Cash Management

Cash management is concerned with the managing :-

 Cash planning: cash inflows and outflows should be planned to project cash

surplus or deficit for each period of the planning period. Cash budget should be

prepared for this purpose.

 Managing the cash flows: the flow of cash should be properly managed. The

cash inflows should be accelerated while, as far as possible, the cash outflows

should be decelerated.

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 Optimum cash level: the firm should decide about the appropriate level of cash

balances. The cost of excess cash and danger of cash deficiency should be

matched to determine the optimum level of cash balances.

 Investing surplus cash: the surplus cash balances should be properly invested

to earn profits. The firm should decide about the division of such cash balance

between alternative short-term investment opportunity such as bank deposits,

marketable securities, or inter-corporate lending.

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 Cash Management Cycle

MOTIVES FOR HOLDING CASH

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The firm’s need to hold cash may be attributed to the following three motives:

 The transactions motive

 The precautionary motive
 The speculative motive
 Compensative motive

Transaction motive: The transaction motive requires a firm to hold cash to

conduct its business in the ordinary course. The firm needs cash primarily to

make payments for purchases, wages and salaries, other operating expenses,

taxes, dividends etc. the need to hold cash would not arise if there were perfect

synchronization between cash receipts and cash payments, i.e., enough cash is

received when the payment has to be made. But cash receipts and payments are

not perfectly synchronized. For those periods, when cash payment exceed cash

receipts, the firm should maintain some cash balance to be able to make

required payments. For transactions purpose, a firm may invest its cash in the

marketable securities. Usually, the firm will purchase securities whose maturity

corresponds with some anticipated payments, such as dividends, or taxes in the

future. Notice that the transactions motive mainly refers to holding cash to meet

anticipated payments whose timing is not perfectly matched with cash receipts.

Precautionary motive: The precautionary motive is the need to hold cash to

meet contingencies in the future. It provides a cushion or buffer to withstand

some unexpected emergency. The precautionary amount of the cash depends

upon the predictability of the cash flows. If cash flows can be predicted with

accuracy, less cash will be maintained for emergency. The amount of

precautionary cash is also influenced by the firm’s ability to borrow at short notice

when need arises. Stronger the ability of the firm to borrow at short notice, lesser
24
will be the need for precautionary balance. The precautionary balance may be

kept in cash marketable securities. Marketable securities play an important role

here. The amount of cash set aside for precautionary reasons is not expected to

earn anything; therefore, the firm should attempt to earn some profit in it. Such

funds should be invested high-liquid and low-risk marketable securities.

Precautionary balance should, thus, be hold more in marketable securities and

relatively less in cash.

Speculative motive: The speculative motive relates to the holding of cash

for investing in profit-making opportunities as and when they arise. The

opportunity t make profit may arise when the security prices change. The firm will

hold cash, when it is expected that interest rates will rise and security prices will

fall. Securities can be purchased when the interest rate is expected to fall; the

firm will benefit by the subsequent fall in interest rates and increase in security

prices. The firm may also speculate on materials’ prices. If it is expected that

materials’ prices will fall, the firm can postpone materials’ purchasing and make

purchases in the future when price actually falls. Some firms may hold cash for

speculative purpose. By and large, business firms do not engage in speculations.

Thus, the primary motives to hold cash and marketable securities are: the

transactions and the precautionary motives.

Compensating motive: Yet another motive to hold cash balances is to

compensate banks for providing certain services and loans.

Banks provide a variety of services to business firms, such as clearance of

cheque, supply of credit information, transfer of funds, and so on. While for some

of these services banks charge a commission or fee, for others they seek indirect

compensation. Usually clients are required to maintain a minimum balance of

25
cash at the banks. Since the balance cannot be utilized by the firms for

transaction purposes, the banks themselves can use the amount to earn a return.

Such balances are compensating balances.

Compensating balances are also required by some loan agreements between a

bank and its customers. During periods when the supply of credit is restricted

and interest rates are rising, banks require a borrower to maintain a minimum

balance in his account as a condition precedent to the grant of loan. This is

presumably to ‘compensate’ the bank for a rise in the interest rate during the

period when the loan will be pending.

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 CASH MANAGEMENT MODEL
Two important cash management model which lead to determination of optimum

balance of cash are:-

(1) Optimum cash balance under certainty : Baumol’s Model
(2) Optimum cash balance under uncertainty : The Miller-Orr Model

Optimum cash balance under certainty : Baumol’s Model

The Baumol’s model of cash management provides a formal approach for determining a

firm’s optimum cash balance under certainty. It considers cash management similar to

an inventory management problem. As such, the firm attempts to minimize the sum of

the cost of holding cash and the cost of converting marketable securities to cash.

The Baumol’s model makes the following assumption:-

 The firm is able to forecast its cash needs with certainty.

 The firm’s cash payments occur uniformly over the period of time.
 The opportunity cost of holding cash is known and it does not change over time.
 The firm will incur the same transaction cost whenever it converts securities to

cash.

Let us assume that the firm sells securities and starts with a cash balance of C

rupees. As the firm sped cash, its cash balance decreases steadily and reaches

to zero. The firm replenishes its cash balance to C rupees by selling marketable

securities. This pattern continues over the time. Since the cash balance

decreases steadily, the average cash balance will be: C/2.

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The firm incurs a holding cost for keeping the cash balance. It is an opportunity

cost; that is, the return forgone on the marketable securities. If the opportunity

cost is k, then the firm’s holding cost for maintaining an average cash balance is

as follows:-
Holding cost = k(C/2)

The firm incurs a transaction cost whenever it converts its marketable

securities to cash. Total number of transactions during the year will be total funds

requirement, T, divided by the cash balance, C, i.e. T/C. the per transaction cost

is assumed to be constant. If per transaction cost is c, then the total transaction

cost will be:-

Transaction cost = c(T/C)

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 The total annual cost of the demand for cash will be:

Total cost = k(C/2) + c(T/C)

The holding cost increases as demand for cash, C, increases. However, the

transaction cost reduces because with increasing C the number of transaction will

decline. Thus there is a trade-off between the holding cost and the transaction

cost .

The optimum cash balance, C*, is obtained when the total cost is minimum. The

formula for optimum cash balance is as follows:-

C* =  2cT/k
Where,
C*= optimum cash balance,
c = cost per transaction,

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T = total cash needed during the year, and
k = opportunity cost of holding cash balance.

The optimum cash balance will increase with increase in the per transaction cost

and total funds required and decrease with the opportunity cost.

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Optimum Cash Balance under Uncertainty: The Miller-Orr Model
Miller-Orr model is a model that provides for cost-efficient transactional balances

and assumes uncertain cash flows and determines an upper limit and return

point for cash balances.

It assumes that net cash flows are normally distributed with a zero value mean

and a standard deviation. As shown in following figure, the MO model provides

for two control limits—the upper control limit and the lower control as well as a

return point. If the firm’s cash flows fluctuate randomly and hit the upper limit,

then it buys sufficient marketable securities to come back to a normal level of

cash balance (the return point). Similarly, when the firm’s cash flows wander and

hit the lower limit, it sells sufficient marketable securities to bring the cash

balance back to the normal level (the return point).

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The firm sets the lower control limit as per its requirement of maintaining

minimum cash balance. The difference between the upper limit and the lower

limit depends on the following factors:

 The transaction cost (c)

 The interest rate, (i)
 The standard deviation ( of net cash flows.

The formula for determining the distance between upper and lower control limits

(called Z) is as follows:

(Upper limit – Lower limit) = ( 3/4 * Transaction Cost * Cash Flow

Variance/Interest per day)1/3

Z = (3/4*cσ2/ i )1/3

We can notice from above equation that the upper and lower limits will be far off

from each other (i.e. Z will be larger) if transaction cost is higher or cash flows

show greater fluctuations. The limits will come closer as the interest increases. Z

is inversely related to the interest rate. It is noticeable that the upper control limit

is three times above the lower control limit and the return point lies between the

upper and the lower limits. Thus,

Upper limit = lower limit + 3Z

Return point = lower limit + Z

The net effect is that the firms hold the average cash balance equal to:

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 Average Cash Balance = Lower Limit + 4/3Z

The MO model is more realistic since it allows variation in cash balance within

lower and upper limits. The financial manager can set the lower limit according to

the firm’s liquidity requirement. The past data of the cash flow behavior can be

used to determine the standard deviation of net cash flows. Once the upper and

lower limits are set, managerial attention is needed only if the cash balance

deviation from the limits. The action under these situations are anticipated and

planned in the beginning.

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 MARKETABLE SECURITIES

Meaning and characteristics:

Once the optimum level of cash balance of a firm has been determined, the

residual of its liquid assets is invested in marketable securities. Such securities

are short-term investment instruments to obtain a return on temporarily idle

funds. In other words, they are securities which can be converted into cash in a

short period of time, typically a few days. The basic characteristics of marketable

securities affect the degree of their marketability/liquidity. To be liquid, a security

must have two basic characteristics: a ready market and safety of principal.

Ready marketability minimizes the amount of time required to convert a security

into cash. A ready market should have both breadth in the sense of a large

number of participants scattered over a wide geographical area as well as depth

as determined by its ability to absorb the purchase/sale of large amounts of

securities.

The second determinant of liquidity is that there should be little or no loss in the

value of a marketable security over time. Only those securities that can be easily

converted into cash without any reduction in the principal amount qualify for

short-term investments. A firm would be better off leaving the balances in cash if

the alternative were to risk a significant reduction in principal.

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 MARKETABLE SECURITY ALTERNATIVES

Marketable security alternatives are more prominent marketable/near-cash securities

available for investment. Our concern is with money market instruments.

 Treasury bills: Treasury bills (TBs) are short-term government securities. The

usual practice in India is to sell treasury bills at a discount and redeem them at

par on maturity. The difference between the issue price and the redemption

price, adjusted for the time value of money, is return on treasury bills. They have

liquidity. Also, they do not have the default risk.

 Commercial papers: Commercial papers (CPs) are short-term, unsecured

securities issued by the highly creditworthy large companies. They are issued

with e maturity of three months to one year. CPs are marketable securities, and

therefore, liquidity is not a problem.

 Certificates of deposits: Certificates of deposits (CDs) are papers issued

by banks acknowledging fixed deposits for a specified period of time. CPs are

negotiable instruments that make them marketable securities.

 Bank deposits: A firm can deposit its temporary cash in a bank for fixed

period of time. The interest rate depends on the maturity period.

For example, the current interest rate for a 30 to 45 days deposit is about 3 per

cent and for 180 days to one year is about 6-7 per cent. The default risk of the

bank deposits is quite low since the government owns most banks in India.

 Inter-corporate deposit: Inter-corporate lending/borrowing or deposits is a

popular short-term investment alternative for companies in India. Generally a

cash surplus company will deposit (lend) its funds in a sister or associate

35
 companies or with outside companies with high credit standing. In practice,

companies can negotiate inter-corporate borrowing or lending for very short

periods. The risk of default is high, but returns are quite attractive.

 Money market mutual funds: Money market mutual funds (MMMFs)

focus on short-term marketable securities such as TBs, CPs, CDs or call money.

They have a minimum lock-in period of 30 days, and after this period, an

investor can withdraw his or her money time at a short notice or even across the

counter in some cases. They offer attractive yields; yields are usually 2 per cent

above than on bank deposits of same maturity. MMMFs are of recent origin in

India, and they have become quite popular with institutional investors and some

companies.

 Repurchase agreements: These are legal contracts that involve the actual

sale of securities by borrower to the lender with a commitment on the part of the

former to repurchase the securities at the current price plus a stated interest

charge. The securities involved are government securities and other money

market instruments. The borrower is either a financial institution or a security

dealer.

 Bills discounting: Surplus funds may be deployed to purchase/discount

bills. Bills of exchange are drawn by seller (drawer) on the buyer (drawee) for

the value of goods delivered to him. During the tendency of the bill, if the seller is

in need of funds, he may get it discounted. On maturity, the should be presented

to the drawee for payment.

 Call market: It deals with funds borrowed/lent over night/one day (call) money

and notice money for periods up to 14 days. It enables corporate to utilize their

36
float money gainfully. However, the returns (call rates) are highly volatile. The

stipulations pertaining to the maintenance of cash reserve ratio (CRR) by banks

in the major determinant of the demands in the funds and is responsible for

volatility in the call rates.

RECEIVABLE MANAGEMENT

INTRODUCTION

The term receivable is defined as ‘debt owed to the firm by customers arising

form sale of goods or services in the ordinary course of business’. When a firm

makes an ordinary sale of goods or services and does not receive payment, the

firm grants trade credit and creates accounts receivable which could be collected

in the future. Receivables management is also called trade credit management.

Thus, accounts receivable represent an extension of credit to customers,

allowing them a reasonable period of time in which to pay for the goods received.

Cost associated with the extension of credit:

37
The major categories of cost associated with the extension of the credit and

account receivables are:

1. Collection cost
2. Capital cost
3. Delinquency cost, and
4. Default cost.

Collection cost: Collection costs are administrative costs incurred in collecting the

receivables from the customers to whom credit sales have been made. Included

in this category of costs are:

a) Additional expenses on the creation and maintenance of a credit

department with staff, accounting records, stationary, postage and other

related items;
b) Expenses involved in acquiring credit information either through outside

specialist agencies or by the staff of the firm itself.

These expenses would not be incurred if the firm does not sell on credit.

Capital cost: The increased level of accounts receivable is an investment in

assets. They have to be financed thereby involving a cost. There is a time lag

between the sale of goods to, and payment by, the customers. The firm should

arrange for additional funds to meet its own obligations while waiting for

payments from its customers. The cost on the use of additional capital to support

credit sales, which alternatively could be profitably employed elsewhere, is,

therefore, a part of the cost of extending credit or receivables.

38
Delinquency cost: this cost arises out of the failure of the customers to meet

their obligations when payments on credit sales become due after the expiry of

the credit period. Such costs are called delinquency cost. The important

components of this cost are:

i. Blocking up of funds for an extended period,

ii. Cost associated with steps that have to be initiated to collect the over

dues.

Default cost: the firm may not be able to recover the over dues because of the

inability of the customers. Such debts are treated as bad debts and have to be

written off as they cannot be realized. Such costs are known as default cost

associated with credit sales and account receivables.

39
40
 CREDIT POLICY

The credit policy of a firm provides the frame work to determine:

a) Whether or not to extend credit to a customer and

b) How much credit to extend.

The term credit policy is used to refer to the combination of three decision

variables:

1. Credit standards,
2. Credit terms, and
3. Collection efforts

Credit standards: Credit standards are criteria to decide the type of

customers to whom goods could be sold on credit. If a firm has more slow paying

customers, its investment in accounts receivable will increase. The firm will also

be exposed to higher risk of default.

Credit terms: Credit terms specify duration of credit and terms of payment by

customers. Investment in accounts receivable will be high if customers are

allowed extended time period for making payments.

Credit terms have three components:

41
 i. Credit period, in terms of the duration of time for which trade credit is

extended. During this period the over due amount must be paid by the

customers.
ii. Cash discount, if any, which the customer can take advantage of, that is,

the over due amount will be reduced by this amount.

iii. Cash discount period, which refers to the duration during which the

discount can be availed of.

Collection efforts: Collection efforts determine the actual collection period.

The lower the collection period, the lower will be the investment in accounts

receivable and vice versa.

The effort should in the beginning be polite, but, with the passage of time it

should gradually become strict. The steps usually taken are:

i. Letters, including reminders, to expedite payments;

ii. Telephone calls, for personal contacts;
iii. Personal visit;
iv. Help of collection agencies; and finally,
v. Legal action.

INVENTORY MANAGEMENT

MEANING AND TYPE

42
Inventories are stock of the product a company is manufacturing for sale and

components that make up the product. The various forms in which inventories

exist in a manufacturing company are:-

 Raw materials: Raw materials are those basic inputs that are converted

into finished product through the manufacturing process. Raw material

inventories are those units which have been purchased and stored for

future productions.
 Work-in-progress: Work-in-progress inventories are semi manufactured

products. They represent products that need more work before they

become finished products for sale.

 Finished Goods: Finished goods inventories are those completely

manufactured products which are ready for sale. Stocks of raw material

and work-in-progress facilitate production while stock of finished goods is

required for smooth marketing operations.

The levels of three kinds of inventories for a firm depend on the nature of its

business.

43
NEED TO HOLD INVENTORIES

Maintaining inventories involves tying up of the company’s funds and incurrence

of storage and holding costs. If it is expensive to maintain inventories, why do

companies hold inventories? There are three general motives for holding

inventories:-

 Transaction Motive: Transaction motive emphasizes the need to

maintain inventories to facilitate smooth production and sales operation.

 Precautionary Motive: Precautionary motive necessitates holding of

inventories to guard against the risk of unpredictable changes in demand

and supply forces and other factors.

 Speculative Motive: Speculative motive influences the decision to

increase or reduce inventory levels to take advantage of price

fluctuations.

COST OF HOLDING INVENTORIES

The cost associated with the inventory fall into two basic categories:-

i. Ordering or Acquisition or Set-up costs, and

ii. Carrying costs.

Ordering costs: This category of costs is associated with the acquisition or

ordering of inventory. Firms have to place orders with suppliers to replenish

44
inventory of raw materials. The expenses involved are referred to as ordering

costs. They include costs incurred in the following activities: requisitioning,

purchase ordering, transporting, receiving, inspection and storing. Ordering costs

increases in proportion to the number of order placed.

Carrying costs: Cost incurred for maintaining a given level of inventory are

called carrying costs. They include storage, insurance, taxes, deterioration and

obsolescence. Carrying costs vary with inventory size. This behavior is contrary

to that of ordering costs which decline with increase in inventory size.

The economic size of inventory would thus depend on trade-off between carrying

costs and ordering costs.

OBJECTIVE OF INVENTORY MANAGEMENT

In the context of inventory management, the firm is faced with the problem of

meeting two conflicting needs:

 To maintain a large size of inventories of raw material and work-in-

progress for efficient and smooth production and of finished goods for

uninterrupted sales operations.

 To maintain a minimum investment in inventories to maximize profitability.

Both excessive and inadequate inventories are not desirable. These are two

danger points within which the firm should avoid. The objective of inventory

45
management should be to determine and maintain optimum level of inventory

investment.

The major dangers of over investment in inventories are:

a. Unnecessary tie-up of the firm’s funds and loss of profit,

b. Excessive carrying costs, and
c. Risk of liquidity.

The excessive level of inventories consumes funds of the firm, which can not be

used for any other purpose, and thus, it involves an opportunity cost.

Maintaining an inadequate level of inventories is also dangerous. The

consequences of under investment in inventories are:

a. Production hold-ups and

b. Failure to meet delivery commitments.

The aim of inventory management, thus, should be to avoid excessive and

inadequate levels of inventories and to maintain sufficient inventory for the

smooth production and sales operation. An effective inventory management

should:

 Ensure a continuous supply of raw materials to facilitate uninterrupted

production.
Maintain sufficient stocks of raw materials in periods of short supply and

anticipate price changes.

 Maintain sufficient finished goods inventory for smooth sales operation,

and efficient customer service.

46
  Minimize the carrying cost and time, and
 Control investment in inventories and keep it at an optimum level.

DETERMINATION OF STOCK LEVELS

Various stock levels are discussed as such:

1. Minimum level (safety stock): This represents the quantity of stock that

should be held at the time, stock level is normally not allowed facing below

this level. This level of stock is a buffer stock for use during emergencies.

Fall in stock level below minimum level will indicate potential danger to the

business.

2. Re-ordering level: When the quantity of materials reaches at a certain

figure then fresh order is sent to get material again. The order is sent

before the materials reach minimum stock level. The rate of ordering level

is fixed between minimum level and maximum level. Reordering level is

fixed with the following formula:

Reordering level = Maximum consumption × maximum reorder period

3. Maximum level: It is the quantity of materials beyond which a firm should

not exceed its stock. If the quantity exceeds maximum level then it will be

over stocking. Over stocking will means blocking of more working capital,

more space of storing the materials, more wastage of material and more

chances of losses from obsolescence. The following formula may be used

for calculating maximum stock level:

47
Maximum stock level = re-ordering level + reordering quantity – (minimum

consumption × minimum reorder period )

4. Danger level: it is the level beyond which materials should not fall in any

case. If the danger level arises then immediate step should be taken to

replenish the stock even if more cost is incurred in arranging the materials.

If materials are not arranged immediately there is a possibility of stoppage

of work. Danger level is determined with the following formula:

Danger level = average consumption × maximum reordering period for

emergency purchase

48
 5. Average Stock level: The average stock level is calculated as such:

Average stock level = minimum stock level + ½ of reordering quantity

INVENTORY MANAGEMENT TECHNIQUES

1) A B C Inventory control system: A B C Inventory control system is an

inventory management technique that divides inventory into three

categories of descending importance based on the rupee investment in

each on the basis of the cost involved, the various inventory items are,

according to the system categorized into three classes - A, B and C.

The high value items are classified as ‘A item’ and would be under the

tightest control. ‘C items’ represents relatively least value and would be

under simple control. ‘B items’ fall in between these two categories and

require reasonable attention of management.

2) Just-in-time (JIT) Systems: Japanese firms popularized the Just-in-time

system in the word. In the JIT system material or the manufactured

components and parts arrive to the manufacturing sites or stores just few

hours before they are put to use. The delivery of material is synchronized

with the manufacturing cycle and speed; this eliminates the necessity of

carrying large inventories, thus, saves carrying and other manufacturing

costs.

3) Out-Sourcing: A few years ago there was a tendency to manufacture all

the parts of components in house, but now companies are adopting the

practice of out sourcing. It is a system of buying parts and components

49
 from out side rather than manufacturing internally for example Tata Motors

developed number of units around its manufacturing sites that supply

parts and components to its manufacturing units.

4) Computerized Inventory Control system: Now days this system is

adopted by every firm, large or small for controlling inventories. This

system enables a company to easily track large items of inventories. It is

an automatic system of counting inventories, recording withdrawals and

revising the balance. There is an inbuilt system of placing order as the

computer notices that the re-order point has been reached.

5) Economic order quantity (EOQ) analysis: EOQ is the inventory

management technique for determining optimum order quantity which is

the one that minimize the total of its order and carrying cost. It balances

fixed ordering cost against variable ordering cost.

EOQ can be calculated with the following formula-

EOQ = 2 × quantity required × ordering cost

Carrying costs

50
 The EOQ can be determined with the help of following graph:-

In the above figure, it can be seen that the ordering cost of an item is

decreasing and carrying cost is increasing as the size of the order is

increases. The trade-off of these two costs is attained at a level at which total

cost is least. This level is designated as economic order quantity.

OBJECTIVES OF THE STUDY

51
This training as per scheduled under syllabi has been emphasis on getting aware with

the practical environment of an organization and specifically with the concerned

department related to the specialization. There are certain objectives stated as under:

1 To integrate theoretical knowledge with practical orientation through assignments.

2 To get aware with the procedure of financial department.

3 To know how the functions passes through other departments in relation to

financial departments.

4 To become familiar with the formats of different documents and their meaning.

5 To know each departments decision effect on finance department and vice-versa.

6 To coincide each functioning with the accounting perspective.

7 Try to generate new ways of performing a task.

8 To differentiate the practical task from theoretical knowledge.

52
9 To know organizational structure and specifically financial department.

10 To get habitual with the stressful working condition.

53
ORGANIZATIONAL PROFILE OF

THE COMPANY

54
India’s first Public Sector Unit (PSU) - ITI Ltd was established in 1948. Ever

since, as a pioneering venture in the field of telecommunications, it has contributed

to 50% of the present national telecom network. With state-of-the-art

manufacturing facilities spread across six locations and a countrywide network of

marketing/service outlets, the company offers a complete range of telecom

products and total solutions covering the whole spectrum of Switching,

Transmission, Access and Subscriber Premises equipment.

ITI joined the league of world class vendors of Global System for Mobile (GSM)

technology with the inauguration of mobile equipment manufacturing facilities at

its Mankapur and Rae Bareli Plants in 2005-06. This ushered in a new era of

indigenous mobile equipment production in the country. These two facilities

supply more than nine million lines per annum to both domestic as well as export

markets.

The company is consolidating its diversification into Information and

Communication Technology (ICT) to hone its competitive edge in the convergence

market by deploying its rich telecom expertise and vast infrastructure. Network

55
Management Systems, Encryption and Networking Solutions for Internet

Connectivity are some of the major initiatives taken by the company.

Secure communications is the company's forte with a proven record of engineering

strategic communication networks for India's Defense forces. Extensive in-house

R&D work is devoted towards specialized areas of Encryption, NMS, IT and

Access products to provide complete customized solutions to various customers.

56
Shri K.L.Dhingra
Chairman and Shri K.L. Dhingra joined ITI as Chairman and Managing Director on
Managing Director April 8, 2010. He has an illustrious career spanning over 30 years in the
fields of Banking, Financial Services, Lending, Corporate Governance
and Business Leadership. Shri Dhingra is a Master in Commerce
(M.Com), Bachelor in Law, Master in Business Administration (MBA
Finance) from Faculty of Management Studies (FMS), Delhi University
. He has acquired additional Banking qualifications from India (CAIIB)
and UK (ACIB, London ).

He holds the distinction of being the only employee of an Indian

Financial Institution who passed A.C.I.B. ( London ) examination
globally in July 1997. He holds the rare distinction of being the Fellow
of The Institute of Banking and Finance, Mumbai, the Fellow of The
Chartered Institute of Bankers in Scotland , Fellow of The Financial
Services Institute of Australasia (Finsia) and also an Associate Member
of Chartered Institute of Bankers, UK , now renamed as IFS School of
Finance , UK .

Shri Dhingra is also the Vice Chairman of Standing Conference of

Public Enterprises (SCOPE) for more than two years from April 1,
2009. He is the Chairman of Finance Committee, SCOPE. Shri
Dhingra, before that, was member of SCOPE Board for two terms of
two years each from April 2005 to March 2009 and has been associated
with the Western Indian Regional Council of SCOPE and also its
Finance Committee.

Shri Dhingra has participated in number of training programmes in

India and abroad. He had extensive training exposures in Singapore ,
Germany , Austria , Australia and China . Many leading organizations
have conferred on him awards for `Corporate Excellence’, `Industrial
Excellence’, `Performance Excellence’ and `Management Excellence’.
He has been a member of the prestigious Experimental Reimbursable
Seeding Operation (ERSO) Trust Fund of UN-Habitat, as a financial
expert representing Asian countries.

Out of total of 37 years of experience, Shri Dhingra has been Board

level Executive for more than ten years including 3 ½ years as the
Chairman and Managing Director. Prior to his joining ITI Ltd., he was
Chairman and Managing Director of Housing and Urban Development

57
 Corporation Ltd. (HUDCO) for more than 2 ½ years. He has also been
Director (Finance) in Mumbai Railway Vikas Corporation Limited
(MRVC), a PSU under the Ministry of Railways and also in Indian Rare
Earths Limited (IREL), a PSU under the Department of Atomic Energy
for a period totaling to about seven years.
Shri R K Agarwal
Director Shri R K Agarwal took over as Director (Marketing) of ITI Ltd from
March 9, 2010. Prior to this, he was General Manager (Corporate
Marketing). An industrial engineering graduate, Shri Agarwal joined ITI
Ltd in 1976 as an assistant executive engineer in the Company’s
(Marketing) Bangalore Plant. Shri Agarwal’s 33 year experience spans areas such as
manufacturing, quality control and marketing.
Shri K.K. Gupta
Director(Production) Shri K.K. Gupta took over as Director (Production) of ITI Limited on
May 1, 2010. Prior to this, he was General Manager, Corporate HR and
GSM (South Zone). An Electronics and Telecommunication Engineer,
Shri Gupta joined ITI in 1977 as an Assistant Executive Engineer at the
Company’s Naini Plant. Shri Gupta’s 33 years of experience covers the
diverse fields of manufacturing - telephones and transmission, GSM
projects and human resources.
Shri Ravi
Khandelwal Shri Ravi Khandelwal has taken over as Director (Finance) of ITI Ltd
Director (Finance) from March 5, 2011. Prior to this, he was Executive Director of
Container Corporation of India Ltd., (CONCOR), a PSU under the
Ministry of Railways. Mr. Khandelwal is Cost Accountant and has done
MBA (Finance) and a Commercial Public Enterprises Management
Course from University of Bradford , U.K. He has extensive overseas
training exposures in Holland , Belgium and Portugal on various
subjects including Financial Planning. Mr. Khandelwal brings along
with him from CONCOR the competence and capability to achieve
outcome from compelling situations owing to his `Out of the box’
thinking. During his tenure in CONCOR, he was instrumental in
bringing various JV Companies where he was CONCOR’s nominee
Director to start making profits within a short time of their inception.
Over all, Mr. Khandelwal has 28 years of rich professional experience.
He is recipient of prestigious national individual excellence awards
from the Union Minister of State for Railways.
Shri N.K. Srivastava
Director

58
Company Secretary

Smt.Rachana Choudhary
Company Secretary
Independent Directors

Prof.M.
Balakrishnan Shri T.S. Narayanasamy
Independent Independent Director
Director
Dr. S.K. Chaudhury
Independent
Director

59
60
61
 INFRASTRUCTURE

In house Research & Development

Network System Unit capable of undertaking turnkey jobs

Self contained component evaluation centre

Fully automated assembly lines

In circuit tester (ICT)

Modern Chemical, Metallurgical Labs

Mechanical fabrication/Machine shops with modern CNC machines

Molding & Die casting

Full fledged state of the art tool rooms

SMT (Surface mount technology)

Environmental testing

Component approval center approved by BSNL

FACILITIES

PCB manufacturing facilities

Mechanical Fabrication / Machine Shop with modern CNC machines and

Finishing shop

Card assembly and Testing including In circuit tester

SMT Line

Plastic Injection Technology

Through-Hole Component Assembly

62
Manufacturing facilities for Mechanical items

Fabrication of Towers and Shelters for GSM.

63
64
BTS
Base Trans-Receiver Station (BTS) “BTS A-
9100”, is radio frequency mobile
communication product based on GSM
technology. It is a set of equipments that
facilitates wireless communication between
user equipment (UE) and a network. A BTS
in general consists of Trans-receiver module,
Antenna Network Combiner, Controller
(SUMA) & Alarm Extension System
(XIBM). It is a self contained unit for
transmitting / receiving signal for mobile
communication.

Types of BTS:
1. Indoor BTS
2. Outdoor BTS
3. Dual Band BTS
4. Twin TRX BTS

BTS SHELTER
 Shelter is a portable Sealed cabin made up
of sandwiched insulated panels with
polyurethane as filler material between
galvanized pre-coated steel sheet.
 Floor is made up of 19mm thick marine
plywood and is covered with PVC antistatic
flooring.
 MS tube is reinforced inside floor panel for
higher floor load capacity.
 Secondary slanting roof is provided to

65
 protect primary roof from direct sunlight and
rainwater.
 Door is fixed with heavy-duty hinges. It is
equipped with hydraulic closer & three way
locking arrangement.
 Shelter is installed on suitable base frame
of galvanized I-beam supported on concrete
pedestal.
 ITI LIMITED Rae Bareli is manufacturing
Prefabricated Shelter for housing of BTS & its
accessories used in Telecom Mobile Service.

PRODUCT RANGE
The following three types of shelter of internal dimensions (all in mm)
are being manufactured:
Type I : 3000 L x 2000 x W x 2500 H
Type II : 4000 L x 3500 x W x 3000 H
Type III : 5000 L x 3500 x W x 3000 H

66
 PRODUCT RANGE
Square Lattice Type of RTT(as per
GR) : - 10M, 15M, 20M Height.
Triangular Type RTT(SERC) : - 9M,
12M, 15M & 18M Height.

TECHNICAL SPECIFICATION
 Square Lattice type of RTT are
manufactured as per GR No.
GR/TWR-09 FEB. 2004
 Design of triangular type RTT is
duly approved from Structural
Engineering Research Center (SERC),
Chennai.
 All members of RTT are made up
of structural steel as per IS2062
Grade A & hot dip Zinc galvanized as
per IS 4759.
 It can carry 6 Nos. GSM/WLL
Antenna & 3 Nos. 0.6M dia
Microwave Antenna.
 Basic design of RTT is for wind
speed 200 Km/h. It can survive wind
velocity up to of 210 km/h for short
duration.

67
TRANSCEIVER
 Alcatel's new Twin TRX radio
transceiver doubles the capacity of existing
equipment, while occupying the same
space in the rack.
 The new Twin TRX is particularly
adapted for densely populated urban areas,
with a maximum capacity of 24 TRX per
Base Station cabinet.
 Twin TRX transceivers can be installed
in the full range of Alcatel's indoor and
outdoor BTS.

CDMA (Code Division Multiple Access)

CDMA (Code Division Multiple Access) is
a digital wireless technology to provide
mobile communication. CDMA works by
converting speech into digital information,
which is then transmitted as a radio signal
over a wireless network. CDMA uses a
unique code to distinguish each different
call. The receiving device is instructed to
decipher only the data corresponding to a
particular code to reconstruct the signal.
This enables many subscribers to share the
same frequency band and, at the same
time, without any cross talk or
interference.
CDMA WLL technology provides option
of limited as well as full mobility to the
customers. This helps to provide faster

68
last mile connectivity, where laying of
cables is difficult.

69
 Financial Highlights:

ANNUAL REPORT 2010-2011

70
71
72
BALANCE SHEET

73
PROFIT AND LOSS

74
SOURCES AND APPLICATION OF FUNDS

75
 FINANCE AND ACCOUNTS DEPTT.

SYSTEMS MANUAL

INTRODUCTION

The finance and Accounts department occupies a very important position in any

organization as it has a role to play in almost the activities right from

conceptualization of a project till its successful implementation for smooth

running and thereafter.

A System manual of a department proves to be an effective tool and guide

not only in the hands of the personnel responsible for proper discharge of their

duties and responsibilities but also a helpful tool for other departments’ personnel

foe their reference and understanding the functions to progress their issues

concerning Accounts and Finance. It is the department having large customers

in-house as well as outside the organization.

This Manual has been prepared giving activities of each section in the

department in brief. Details, forms and formats used in the working have not

been incorporated here and the same can be obtained from the Accounts

Department.

76
 FUNCTIONS AND RESPONSIBILITIES

The department is entrusted with the following functions and responsibilities:

(a) To ensure financial discipline as per guideline of the company.

(b) To advise management for all matters having financial implications including

financial co-ordination before commitments are made.

(c) Regulations of payments for supply and services including salaries, wages

and other payments required for furthering legitimate objectives of the

company.
(d) Compilations of Accounts and getting the same audited by statutory and Govt.

Auditors.
(e) Compilation and co-ordination of fixed price quotation for sale of company‘s

product and services as per the norms of the company.

(f) Collecting dues on beI.T.I.f of the company from the customers as well as

other agencies.
(g) Financial Appraisal of the company.
(h) To prepare budgets and to exercise budgetary control for the utilization of

available resources in the best possible manner.

(i) Inter-action with various operating levels in the division.
(j) Co-ordination and inter-action with the managing director and corporate

office.

(k) To have an effective M.I.S. for prompt reporting to the higher management for

decision making.
In order to fulfill these responsibilities the finance and Accounts Department

has been divided into different sections as per convenience and for smooth

flow of activities in discharging the above responsibilities.

77
DIFFERENT SECTIONS IN THE DEPARTMENT

1. BILLS PAYABLE
(a) Inland Bills
(b) Foreign Bills
(c) Services & Civil works
2. FINANCE
78
3. PAYROLL
4. CASH OFFICE
5. BILLS RECEIVABLE
6. COST ACCOUNTS
7. MATERIAL ACCOUNTS
8. BOOK KEEPING
9. BUDGET & M.I.S.
10. TIME OFFICE
11. PROVIDENT FUND

79
 BILLS PAYABLE (INLAND)

FUNCTIONS

The following functions are the functions of Bills Payable (inland) section:

(i) Payment of Advance to suppliers as stipulated in the purchase order.

(ii) Payment of Final Bills.
(iii) Bank dealings with relation to suppliers e.g. Opening of letter of credit, Bank

Guarantee and the payment to bank on the due dates.

(iv) Accounting and Pricing of R.D.R. (Receiving cum discrepancy report).
(v) Maintenance of Commitment Register for Budgetary Purpose.
(vi) Payment of Misc. Advance/imp rest approved by the competent authority.

FLOW OF WORK

(i) All the P.O. received are first entered in the P.O. Register before putting the

same in a separate file.

(ii) If the P.O. stipulates for payment of Advance to vendor, an Advance payment

is given.
(iii) After receipt of the goods, suppliers invoice duly linked with relevant R.D.R

are received from the Purchase Department which are scrutinized with

reference to relevant Purchase Order and then passed for payment after

making adjustments for Advance Payments already made. Remittance

vouchers are prepared based on the passed invoices and are forwarded to

cash section for issuance of cheque.

(iv) In respect of P.O. where payment is stipulated as “through bank” the BPI

section, after intimation from the Bank through Purchase Department, makes

entry in the Register and after checking the documents with the P.O. passes

80
 the invoice and sends the remittance Voucher to the cash section to arrange

payment and collection of Documents from the Bank by the Purchase

Department
(v) In respect of local purchases made on “cheque against Delivery basis” the

proforma invoice is linked with the relevant Purchase Order and the payment

is authorized and Remittance voucher is sent to the cash section for making

payment.
(vi) Pending the receipt of R.D.R from transit in the respect of material received

but not taken on charge due to delay in inspection/commissioning/rejections

the payments made to suppliers as Advance on receipt of goods through

Bank.
(vii) Documents/Cheque against delivery basis are put in G.I.T. i.e. goods in

Transit Account at the year end.

(viii) In respect of those P.O. where material has been received but the payment

has not been released, the appropriate liability is provided for at the year-end

so as to account for all expenses.

(ix) Follow up with I.M.M. Department for release of R.D.R in respect of those

P.O’s where advance payment has been made so as to clear Advances.

(x) In respect of rejected materials, follow-up is to be made with I.M.M. Deptt. to

get those rejected materials replaced from the vendor so as to clear G.I.T.

81
 BILLS PAYABLE (FOREIGN)

FUNCTIONS

(i) Payment and accounting of:

 Advance to suppliers as per the terms and conditions of Purchase

Order.
 License fees, Royalty etc as per the license agreement with the foreign

collaborator.
 Customs duty, freight bills.
 Final bills.
(ii) Opening of letters of credit on the advice of I.M.M Deptt and Liaisoning with

Banks for foreign Exchange release and payments on maturity date.

(iii) Maintenance of commitment registers for budgetary purposes.
(iv) Maintenance of deferred liabilities accounts.

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(v) Pricing of R.D.R (Receiving-cum-discrepancy Report) with P.O. rates and

loading of customs duty, freight and insurance charges.

(vi) Priced R.D.R are sent to materials Accounts Section/E.D.P for punching in

Batch mode for the processing of materials ledger.

FLOW OF WORK

(i) All purchase orders, contracts received are entered in the registers before

opening of separate file for each P.O.

(ii) All the P.O. opened in favour of foreign suppliers as per the terms of purchase

orders are entered in register to record the particulars about their extension,

revalidation and utilization. On maturity of the L.C. the Bank Adjustment

voucher is prepared on the basis of bank advice and sent to cash section for

adjustment. Particulars of payments are also noted in the relevant P.O.

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 BILLS PAYABLE -- SERVICES

FUNCTIONS

 Payment and accounting of advances.

 Payment and accounting of running bills to contractors.
 Payment and accounting of final bills.
 Adjustment and recovery of advances.
 Accounting and adjustment of earnest money and security deposits.
 Capitalization of buildings.
 Payment of all service bills e.g. telephone, electricity, water, canteen,

transportation and sanitation etc.

 Payments to all consultants e.g. architects, advocates, part time doctors etc.
 Payment of misc. advances/ imp rest approved by the competent financial

authority and their adjustments.

 Payment to all casual employees.

FLOW OF WORK

(i) Advances to contractors are given as per the acceptance letter given to the

contractor which is recovered with interest by any of deduction from on

account payment bills in suitable percentage in relation to the progress of

work so as to recover all sums advanced by the time 80% of the contract is

completed.

(ii) Material advances to the extent of 75% of the value of materials brought by

contractors and lying at the site are given on certification of the engineer-in-

charge and are recovered from running/ final bills.

(iii) In respect of running bills the works accounts section links the bill, submitted

by contractors duly certified by Engineers-in-charge, with the

contract/acceptance letter/work order etc., and arranges payment after

84
 deducting income tax, balance security deposits and other advances if any

and retaining the prescribed percentage of the bill towards the retention

money. However, where the contractor has given bank guarantee toward

retention money no deduction is to be made on this account.

(iv) Similarly the final bill submitted by the contractor is checked with the

Measurement book and the gross amount payable is determined. The amount

settled against running bills, advances if any, penalty for delay in completion

of work, recovery towards consumption of material, T.D.S. etc is deduced

from the gross amount payable. One I.T.I.f of the security deposit refundable

to the contractor is retained as defect liability deposit.

(v) Capitalization of the buildings and other capital works is done on receipt of

the completion certificate and final bills and the classification of the building is

done in accordance with the rules in force.

(vi) Payment of bills for services e.g. electricity, telephone, water etc, received

from plant Maintenance Deptt/concerned user duly verified by them and

approved by the competent authority are made.

85
 FINANCE SECTION

OBJECTIVES

 To ensure that the financial description is maintained in the Division.

 To ensure that all expenditure is incurred with due regard to principles of financial

propriety.
 To ensure that the final proposals are routed to the competent authority as per

delegation/sub-delegation of powers so as to ensure compliance of the

provisions of the companies act, the Memorandum and Articles of association of

the company and the relevant rules and regulations of the company and the

guidelines issued by the company.

 To ensure that the funds are available in the approved Capital and performance

budget so as to cover the relevant proposals.

 To submit MIS reports to Corporate Office monthly.

FUNCTIONS

 To scrutinize and give financial concurrence as per delegation of power for each

proposal involving:
(i) Capital expenditure
(ii) Revenue expenditure
(iii) Purchase of materials/stores/tools and other services
(iv) Manpower requirements
(v) Waiver of dues/write off of losses
(vi) Cases involving relaxation of rules etc as per delegation of powers
(vii) Sale, lease, alienation or disposal of company’s assets
(viii) Award of contract in respect of civil/electrical works/other works/plant

orders
(ix) Project Reports

86
 Certification for availability of funds with reference to capital and performance

budget and appropriation of funds.

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 PAYROLL SECTION

OBJECTIVES

 To regulate salaries and wages of all employees as per terms of employment.

 To regulate payment of welfare facilities extended bi the management e.g. L.T.C.,

Medical, Interest subsidy, School fee etc.

 Payment and recovery of various nature of advances such as Travel advance,

LTC advance, conveyance advance and timely adjustment thereof.

 To ensure timely remittance of amounts recovered from employees to various

agencies like LIC, UPICA, and HDFC etc.

 To ensure all statutory deductions e.g. TDS, PF etc are made from the salaries of

the employees and deposited timely with the appropriate authority.

 To ensure proper accounting is done as per the requirement of statue and

corporate office guidelines.

 To adhere the provisions laid down in the Personnel Manual relevant to the

above functions.

FUNCTIONS

(1) The payroll record is updated from time to time entering therein increment drawn,

promotion, transfer etc.

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 (2) The master data in regard to all officers/employees is sent to computer Deptt. In

respect of basic pay, DA, HRA, CCA etc. and this data is updated every month

depending upon the changes.

(3) The deductions to be made are fed to the Computer Deptt by means of deduction

statement. Computer Deptt. in turn prints out the deduction statement in the form

of the check lists by 25th of the every month. Payroll section corrects the same

with reference to the various documents and recovery registers and send it back

to Computer Deptt. for final adoption by 26th/27th of the month.

(4) The computer deptt prints the payroll in duplicate in which one copy is

maintained in the payroll section for record purpose and the original copy is

distributed to the employees concerned.

(5) Disbursement of salary and wages
Payment of salary to officers is made through Bank based on the payroll received

from the computer Deptt. In case of non-supervisory personnel the payment is

made by cash by various groups except few cases where the payment is made

through P.N.B, I.T.I. branch. Cash is drawn two days in advance i.e. last day of

month and filled in the envelopes and these envelopes are kept in safe custody

in cash office for disbursement on list of next month.

(6) Remittance of Recoveries
Various recoveries made from employees in respect of LIC premium, HDFC loan,

Income tax etc are remitted to the various agencies within the stipulated date by

means of cheque.

(7) Payment of advances and adjustment thereof and reimbursement of expenses

Various types of advances such as car/scooter advance, contingency advance,

TA/DA etc are paid and adjusted/recovered as per the rules of the company. Also

reimbursement of expenses like medical school fee, conveyance etc is made as

per the rules of the company.

(8) Accounting procedures

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 Monthly payroll journal entry is made both for supervisory and non-supervisory

personnel and sent to book keeping sections for adoption. For payment made to

persons from other divisions, proper accounting is done to ensure that necessary

advice is raised to the concerned division.

(9) To make payments to Ex-employees towards final settlement of their dues.
(10) To monitor the controllable expenditures e.g. medical exp., conveyance exp. Etc

on monthly basis and to ensure it does not exceed the budget provided for it.

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 BILLS RECEIVABLE SECTION

OBJECTIVES
 To ensure that dues from customers in respect of goods supplied and serviced

rendered are recovered timely as per Ministry in accordance with the Govt. letter

issued by Ministry of Defense dated 24th Aug, 1995.

 To ensure that invoices in respect of Advances, stage payments, final deliveries

are raised timely in order to have smooth cash flow position.

 To ensure that proper accounting is done as per the requirement and accounting

instruction laid down by the corporate office.

 To ensure that all statutory payments e.g. sales tax, excise duty, custom duty is

recovered from the customer and is deposited timely with the appropriate

authority.

FUNCTIONS
The following are the functions of bills receivable section:
 Preparation and rendering of Invoices to I.A.F. in respect of the following

activities in accordance with the guidelines laid down in the Govt. letter dated

30th Sept, 1997:

a) Manufacturing activity
b) Repair and Overhaul
c) Supply of spares against R.M.S. order
d) Deferred Revenue Expenditure

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 The following documents sI.T.I.l be produced in support of the invoices rendered:
a) Initial balances are recorded on the basis of customer order:
i. Firm/ forecast task given by the Air Force;
ii. C.R.I. co-ordinated I.D.T.O. for divisional task;
iii. R.M.S. order.
b) Subsequent stages final payments are claimed on the basis of milestones

achieved, dispatch advices, acknowledgement received from Air Force in

form Q423, inspection note certified by the C.R.I. about the progress of

work done.
c) In respect of repair and overhaul work the payment is strictly regulated

based on the nature of work carried out e.g. functional test, defect

investigation, and zero hours servicing, repaired, overhauled.

 To prepare and render invoices to non AIF customers in respect of following

activities:
i. Development sales for customer financed projects,
ii. Supplies and services rendered to civil customers,
iii. Supplies against R.M.S. orders from Army, Navy.
 To claim payments from AO(DAD) on the basis of fitment details received from

the user Division.

 To submit invoice for reimbursement of Royalty from Air Force and setup sales

for these claims and create claims receivable.

 To follow up with AO(DAD) and other customers for collecting the payment

against the invoices raised.

 To provide details to budget section for compilation of sales budget on the basis

of sales orders, firm/forecast task, I.D.T.O. for budget estimates, revised

estimates, F.C.
 To collect sales tax from the customers and deposit the same.
 To compile sales tax returns and submit the same to IMN Deptt. and to sales tax

authority for assessment.

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93
 COST ACCOUNTING SECTION

OBJECTIVES

 To establish a costing system in line with the activities and the product range of

the division.
 To determine the price realizable from the customer for the products

manufactured/ repaired/ overhauled/ serviced/ supplied by the division.

FUNCTIONS

 To determine the rate of absorption/recovery of labour and other overheads for

recovering labour cost on the different jobs undertaken i.e. man-hour rate

computation.
 To accumulate the labour and overheads content of each activity based on

evaluated L.T.B. generated by E.D.P. from work orders/ time dockets.

 To keep track of different jobs completed and job lying incomplete in different

stages over a reasonable period of time and to co-ordinate with concerned

production controllers for justification for jobs lying unfinished beyond a

reasonable period of time and to ensure their early disposition.

 To review work orders on which no material/ labour cost has been recorded and

finding out the reasons for the same.

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 To get the W.I.P. statement as on 31st march from E.D.P. for all mfg. components,

sub-assembly W.I.P., assembly W.I.P. for physical verification by the concerned

production shops.
 To ensure that the valuation of W.I.P. has been done correctly keeping in view the

percentage of completion of the job.

 To keep track of S.I.T. transaction with different division.
 To keep record of all I.D.T.O. received and issued.
 To send debit advices to other division for items dispatched against I.D.T.O.

received from them.

 To accept the debit raised by other divisions for items received by the division in

respect of requirements raised by or through I.D.T.O.

 To evaluate P.C. Memo for S.I.T. issues, Russian consumption for overhaul and

amortization of D.R.E.
 To work on the cost of sales and to reconcile the same with the designation of

various customers financed projects.

 To work out the royalty payable to different licensors as per the license

agreement.
 To liaise with AO(DAD) for verification of claims in respect of labour booking on

production and D.R.E. items and other issues like wage arrears, idle hours etc.
 To prepare fixed price quotation/ price catalogue for the different items

manufactured/ repaired/ overhauled/ serviced/ supplied by the division and to get

the same approved by the AHQ.

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 MATERIAL ACCOUNTS SECTION

OBLECTIVES

 To ensure that all the receipts and issues of materials from stores are recorded

and accounted for properly.

 To ensure that all non-moving/slow moving materials are identified as “surplus”

by I.M.M. and a suitable redundancy provision is made against them and is

disposed off.
 To ensure that bin card balances are reconciled with the Material Ledger

balances in co-ordination with I.M.M. and the balances of material ledgers tallies

with the General Ledger.

FUNCTIONS
 To send the priced R.D.R. received from Bills Payable section to E.D.P. for

opening in the Batch Mode and thus all the Receipts are recorded and control is

exercised over all the Purchases Value-wire.

 To generate exception list for missing R.D.R. and getting it resolved with Bills

Payable Sections.
 All the materials drawn excess when returned are credited to stores through

Stores Return Voucher.

 The E.D.P. after processing of all M.R./Issue Vouchers prints the Material Issue

Analysis Statements monthly indicating:-

 The cost of materials drawn against various job orders, Expense

accounts;
 The cost of material issued to Contractors and others;
 The cost of tools issued to various tool cribs from Main Tool Stores;

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 On the basis of list of materials/transfers reclassification indicating the material

code no./Quantity and value, necessary Journal entries are passed debit/credit to

relevant inventory accounts.

 On the basis of stock verification sheets indicating stock verification note no.,

material code no., shortages/overages, necessary Journal entries are passed

after obtaining clarification from stores department by debit/credit to stock

adjustment account and credit/debit to relevant inventory accounts after taking

approval of C.F.A. wherever required for adjustments/write-off of stores.

 A list of materials not moved for over 5 yrs is given by E.D.P. which is reviewed

by stores/concerned for programming deptt. Materials not required for production

or for other purposes are identified and suitable action is taken by I.M.M. for

finding their usage in other divisions or is auctioned.

 Redundancy provision is made in the books of accounts at the rate of 100% for

Non Moving inventory and for closed Projects as special Provision on the basis

of list given by E.D.P. further a normal provision at 1.5% is made on the balance

inventory.

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 BOOK KEEPING SECTION

OBJECTIVES

1. To compile the accounts of the company are prepared as per the requirement of

the statute/corporate office guidelines.

2. To assess the performance of the company in financial terms such as sales

debtors, profit, value of production, value added etc.

3. To furnish data/information in respect of Income Tax Assessment done at

corporate office.
4. To get the accounts or the company audited by the Internal Statutory &

Government auditors as prescribed by law.

FUNCTIONS:

1. Journal entries originated by the various sections of Finance and Accounts Deptt.

are sent, to book keeping section. Those entries are serially numbered and

punched in to the computer and thereby posted to the General Ledger.

2. Preparation of Trial Balance, Profit & loss A/C and Balance Sheet Accounts are

computerized and are drawn for every quarter as on 30 th June, 30th Sept, 31st

December and final accounts as on 31st March of each Financial year.

3. Maintenance of Fixed Asset Register and depreciation schedule.

(i) For all capital items purchases, RDR are furnished by the bills payable

section like wise details of assets like buildings etc. capitalized are also

furnished by civil works section to the book keeping section. The maintenance

98
 of Asset ledger is computerized in which the details like date of purchase,

nature of item, P.O. No. location of asset etc. are recorded.

(ii) Depreciation on capital assets is calculated as per the policy of the company

and is reckoned accordingly as an operating expense of the division.

4. Inter Division transactions are accounted through control account adjustment

advices which are reconciled twice in a year at the clearing house.

5. Physical verification of fixed assets is done as per the guidelines of corporate

office.
6. To provide support to other Sections of accounts in their reconciliation and

control functions.

BUDGET SECTION

OBJECTIVES

1. To layout a comprehensive plan of action expressed in financial and physical

terms and to achieve the targets of the company against the available resources.

99
 2. It is a tool in the hands of the management to establish goals, objectives and

targets of the company and measure the performance against the above targets.
3. To ensure the overall control over expenditures it is necessary that all

expenditures (except that of contingent nature) is authorized through the budget

approval.

FUNCTION:

1. The period of budget is the financial year from April to March and covers a period

of three years as under:

Current year - Revised estimates i.e. R.E.

Budget year - Budget estimates i.e. B.E.

(Next year)

Forecast year - Forecast estimates i.e. F.C.

(Next to Budget year)

Thus budget in the sole authority to authorize expenditure.

The Budgets are broadly classified into two categories.

CAPITAL BUDGET PERFORMANCE BUDGET

1. New projects. 1. Order status.
2. Existing project 2. Production budget.
3. Improvement & rationalization 3. Sales budget.
4. Replacement. 4. Purchase budget.
5. Welfare Budget. 5. Foreign Exchange.
6. Design & Development 6. Manpower budget.
7. Computers. 7. Training budget.
8. Profit & loss budget.
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 9. Welfare budget.
10. Overhead budget.
11. Ways & means budget.
12. Projected Balance sheet.

2. To insure that capital facility is made available in time to meet the production

requirement. The proposals are classified under three categories i.e. plant &

machinery, civil works & others.

3. Presenting estimates and expenditures in terms of function, programmes

activities and project with their financial and physical aspects closely interwoven.

4. The targets set the critically reviewed from the point of view of availability of

resources and their optimal utilization and to achieve cost reduction.

5. Analysis of variances and to find out the reasons of such variances and take

suitable remedial measures.

6. All important budgets like production, sales, profit & loss, working capital etc.

after approval of the Board are broken into monthly budgets to ensure uniform

production from month to month.

101
102
 TIME OFFICE SECTION

OBJECTIVES:

 Maintenance of leave records and feeding of attendance records to Computer

Deptt.
 Maintenance of attendance records of Casual dallies, Project Engineers and

Contract Diploma Technicians.

 To provide data for the vacation leave provision to be made in the books of

accounts.

FUNCTIONS:

 To issue leave cards for the calendar year to all the employees/officers of the

division.
 To maintain leave ledgers PB No wise for all the personnel. Credit is given to

each account according to his entitlement as per the guidelines laid down by the

Corporate office and the posing is done simultaneously from the attendance

reports received from the concerned deptt.

 To verify the applications of V.L. encashment and advice accordingly to payroll

section.
 To make calculations for payment of attendance bonus to Group A to Group D

employees.

103
 To make calculations for provision of vacation leave to be accounted for the final

accounts.
 To verify the applications for advanced vacation leave approved through P/A

Deptt. and making adjustment thereof in subsequent time period.

 To maintain night duty roaster of officers deputed on night duty and to ensure that

time off claimed in lieu of such duty is not availed beyond 90 days.
 To verify the time off claimed in lieu of extra work done/Sunday duty, sports

duty/Scouts duty etc.

 To provide data to payroll section for payment of single wages in lieu of work

done on general holidays and double wages in lieu of work done on National

Holidays.
 To provide data for gratuity payment in case of final settlement.
 To provide data to payroll section for deduction of time loss on the basis of late

arrival report received from security deptt.

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 PROVIDENT FUND SECTION

OBJECTIVES:

 To ensure timely collection of provident fund money recovered from members

every month by the employer.

 To invest the provident fund accumulations in approved securities as stipulated

by statute.
 To make payment of loans to members as per the rules/guidelines/Bye-laws.
 To prepare Income and Expenditure Account and Balance sheet of the fund and

getting the same duly audited and approved by the Trustees.

 To file the returns of provident fund to RPFC.

FUNCTIONS:

 The PE subscription of members if deducted monthly from salary. The amount so

deducted (which is 10% of basic pay and DA) along with Company’s contribution

is collected from the payroll section before 10 th of each month and credited to

fund’s account.
 Payment of loans (Refundable and Non-Refundable) to members as per the

rules of the company, subject to availability of funds.

 The investments of provident fund money is made in the approved securities and

details of investment is approved by the Board of Trustees.

 To watch timely recovery of interest and keep watch on securities.

 Interest is credited to the account of each member at such rate as may be

determined by the Board of Trustees, taking into account the income of the Trust

during each Financial year.

 To maintain family pension account of each member and remittance RPFC at the

stipulated cites and file monthly and yearly returns.

105
  To remit the amount of PE deduction for contractual/casual workers by cheque to

RPFC and file the the return in respect of the same.

 To distribute the annual statement of PE to all the members in the format

prescribed by RPFC.
 To make final payment of PE due to a member on his retirement/resignation or to

the nominee in the case of death of a member as per rules.

 To maintain accounts of provident fund transactions and get audited by the

statutory auditors of the company and approved by the board of trustees.

 To fine the monthly returns in the prescribed formats and submit to RPFC by 25 th

of each month in respect of provident fund and family pension fund.

 To forward insurance claims to LIC Bangalore in respect of deceased members.

CATEGORIES OF OPERATION

In I.T.I. Division the work carried out in the following categories.

1. MAINUFACTURING AND ASSEMBLING OPERATIONS:

a. Of aircrafts, aero-engines avionics ground radars, accessories and

instruments.

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 b. Of spares required for overhaul of aircrafts, engines, etc. and DRDL for

supply to IAF against RMS order, navy, army, etc.

c. Of other equipments like foreign and costing.

2. REPAIRS AND OVERHAUL ACTIVITIES:

a. Aircraft, engines, avionics ground radars, accessories and instruments.

b. Other equipments.

3. DESIGN AND DEVELOPMENT ACTIVITIES:

Of aircrafts, aero-engines, avionics, ground radars, accessories and instruments.

Though I.T.I. manufactured do not come in the range of products under cost audit

and cost. Accounting Records rules formed by the Government of India, a full fledged

cost accounting system is essential for effective cost monitoring and cost control.

Participation of Lucknow Division in Totality

(Rs. in Lakhs)

Sr.No. Name Material Labour Other Total Profit Selling

consumed Consumed Overheads Cost % of Price

of the
Cost
Project

1. Chetak 190 169 63 422 10% 464

2. GSE 112 99 37 248 71/2% 266

3. Rigs 101 90 34 225 10% 247

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4. HPT-32 137 122 45 304 10% 334

5. Jaguar 234 208 78 520 10% 572

6. Kiran 58 51 19 128 71/2% 137

7. MIG 411 366 137 914 10% 1005

8. SU-30 1958 1740 652 4350 10% 4785

9. ALH 18 16 6 40 10% 44

10. Dornier 142 126 47 315 10% 346

108
109
 Research Methodology

Research Problem: In every step of life resources are always scarce. In the same

way, Business organizations are also facing such type of problems. In this respect every

organization wishes to use available resources in an optimum manner. This study refers

to the all aspects of current assets, namely cash, marketable securities, debtors and

stock and current liabilities.

Research Objective: To study the process of Working Capital Management with

main emphasis on the technique which is used in I.T.I, Raibareilly.

Research Design: Descriptive Research

Type of Research: Analytical

Data Collection Methods: Secondary

110
 SWOT ANALYSIS

STRENGTH :

1) I.T.I. is headed by an excellent and extra ordinary chairman, who is most capable of

managing the organization by getting the work load from Indian Air Force, Navy,

Army and Coast Guard for its financial growth and management.

2) The technological know how are very confidential and have the best – suited for

making and overhauling the Defense Aircraft that is incomparable with any

technologies.

3) I.T.I. is a very good pay-master to its employees as it is very much financially healthy

due to its existence under Ministry of Defense.

4) The monitoring of the Finance and the manufacturing and delivery of Aircraft to the

customers timely for the best use of the same.

5) The reputation of I.T.I. being the Defense organization has its importance and

technically and financially renowned among PSUs (Public Sector undertakings) as

Navratna and carries ISO: 14001 company .Quality in the world/Internal Business

Organization.

111
WEAKNESSES:

1) IAF is fully satisfied with the performance of I.T.I. so far as the following of licences

Technical know how are concerned, but due to recent Air crashes of MIG Aircraft and

few other Aircrafts there are few problems which are minor.]

2) Sometimes the foreign vendors on whom I.T.I. depends for procuring raw materials

for projects are not in a position to deliver the same in time this causes financial

loses to I.T.I. by paying liquidated damages to IAF / Customers.

3) Sometimes I.T.I. use to make payment to suppliers as advance for procurement of

raw-material because there are some parties who can not supply without advance

payment due to their financial problems.

4) Sometimes I.T.I. does not get the approval from IAF against the items appeared in

FPQ (Fixed Price Quotation) at the rate prevalent in the International market with

then approved suppliers. Escalation percentage in respect of the items where it is

much more than permissible limit can put to loss to the extent it is more.

5) Machineries required from Foreign vendor take abnormal time leading to-delay in the

normal manufacturing function, hence now I.T.I. wants get similar type of

machineries if approved by the customers.

112
OPPORTUNITIES:

1) I.T.I. is the only manufacturer of the Defense Aircrafts; hence the job opportunities as

well as profit earning opportunities are more to day and in the forthcoming years.

2) Promotion opportunities are in-vogue to all the professionals including technical and

non-technical areas Departments.

3) As I.T.I. has monopoly in the manufacturing and overhauling of aircraft, so it can

explore all the advantages related to this field.

4) As I.T.I. has developed its own R & D centers so now it would not have to depend on

Russia for Technical know how.

THREATS:

1) I.T.I. has fear to terrorist as it is a defense organization producing fighter aircrafts.

2) Though I.T.I. is manufacturing fighter Aircrafts in confidence and getting the same

inspected by the authorized officials of Air force. There is a fear that during testing

there should not be any unwanted happening / rejections of Aircrafts which may

cause the losses.

3) During war, I.T.I. has its fear of attack by enemy – countries as I.T.I. is very famous

for a very good supporting organization with arms / fighter aircraft.

4) Threatening is given by many agencies / users that the materials modules / parts /

equipment are not be touched by any country’s ship or otherwise. In case any

project is given by false that the above, materials / modules / part have been

touched by any ship during importing then the user suspect on unnecessarily.

113
 FINDINGS

1. In case of Customer financed Projects, funds are provided by the parties other

than IAF. For e.g. Navy, Coast guard or Border Security Forces. I.T.I. has to work for

them.

2. The term loan or other Government loan which is provided to I.T.I. by IAF is at very

minimum rate of interest i.e. 2-3%.

3. Only 40% of Internal Resources are available for funding capital expenditure and

Rest 60% is used in provisions & Reserves.

4. Pricing policy which is adopted by I.T.I. is based on FPQ. 10% profit is taken on

total cost, which is fixed price of the company.

5. I.T.I. invests 60% in the form of securities.

6. The share of I.T.I. is 45%. The share of Government is 51% and the rest 4% share

are taken by Tata Steel.

7. While purchasing any machines I.T.I. adopt pay back period in order to know the

period in which total cost of the machines can be recovered.

8. Replacement cost involves cost of machine and the processing charges which

include labour overhead and installation charges.

9. I.T.I. has no big competitor in the whole market i.e. means I.T.I. has monopoly in

the field of aircraft industry.

10. I.T.I. is listed amongst the top ten public sector units in the country.

11. Main customer of I.T.I. is IAF; ADA is one other customer of I.T.I.. Ratio between

IAF and other customers is 87:13 approx.

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12. All standards related to production more or less depend upon direct workers.

13. Efficiency of direct workers is calculated 66%. Earlier it is used to be 75%. It is

decreased by 9%. It is one of the causes of increasing of MHR.

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 CONCLUSION

The topic undertaken for study was too wide to be studied in detail & in all

aspects. Duration of the summer training was limited and the sample size was restricted

to accessories division Raibareli only. The data so collected to write this report is the

result of direct personal accounts department. This study not only makes me familiar

with big organization like I.T.I., but also provided me the practical view that how the

financial functions and theories are applicable in an organization.

I.T.I. is listed among top ten public sector units which are running in profit. Its

main customer is IAF; its other customers are ADA and other civil customers, Navy, Air

Force and Coast Guard etc.

All sections of Finance & Accounts department functioning separately but in a

coordinated manner. Their functioning depends on each other. One section provides

data as an input to other section, the section processes it and gets output in this manner

these sections are interdependent.

Budget and budgetary control system is a wide area to cover. The method of

budgeting is differs from industry to industry on the basis of requirements. In I.T.I.

budgeting system, the period considered for budgeting is the financial year from April to

March. It lays a comprehensive plan of action expressed plan of action expressed in

financial and physical terms. It acts as a tool in the hands of management to establish

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goals, objects and target of the company. It ensures the overall control over the

expenditure as all the expenditures are sanctioned in the budget.

It is ensured that working capital facility is made available in time to suit

production requirement. Estimates and expenditures are presented physical and

financial aspects. Approval of Board is required to break the budget into monthly budget

to ensure uniform production from month to month. In the context of I.T.I., budgeting

system that is prevailing can be said to be an effective one of the organization.

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 SUGGESTIONS

1) Before preparation of cash Budget, the records documents available in the locations

of Current Assets physically present should be checked to compare with that of

items physically available.

2) The source of supply with the details of Purchase Orders and dealers. If any

available in India alternatively should be computerized and maintained.

3) Lead time for receiving raw materials from suppliers is more, it should be reduced.

4) No. of years which the total value of the capital items to be depreciated, should be

indicated against each item on the basic of type of the capital items.

5) If existing machineries / plants are in need of frequent repairs / maintenance, then

history book should be maintained with the details of date of breakdown, repair /

maintenance cost.

6) Two Registers i.e. one for purchase of plant / machineries from foreign vendors and

other for Indigenous source should be maintained to know the feasibility of procuring

similar type of capital items within or below the procuring time with economical

condition.

7) A team consisting of concerned user department for this there is need of the capital

items. Finance, commercial should be proposed for incorporating the capital item in

the Budget.

8) Budgeting should include every pie of amount so that there is no embarrassing

situation during procurement; so far the funds are concerned to pay.

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9) While preparing capital budget Present Value of money should be taken.

10)Intranet facility should be frequently used so as to save money and time.

11) The system of company should be elastic and capable of adopting changes.

12)Year wise records showing the value of the items with the gross value and written

down value should be maintained.

13)The exchange rate applied in case of anticipated foreign sources for procurement

should have the authentic record for cross- check.

14)Similar kind of working conditions should be provided to employees of same level.

15)The company should try to set orders from other customers other than permanent

customers so that company could get economy of scale and reduce cost of

production to maximize its profit.

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 BIBLIOGRAPHY

 I.M. Pandey: Financial Management, 4th edition Tata McGraw-Hill Publishing

Company Limited, New Delhi (2004).

 V.K. BI.T.I.l: “Working Capital Management”, 5 th edition Anmol Publication New

Delhi (2003).

 Prasanna Chandra: Financial Management Theory and Practice, 6 th edition Tata

McGraw-Hill Publishing Company Limited, New Delhi (2004).

 Khan and Jain: Financial management, 4th edition Tata McGraw-Hill Publishing

Company Limited, New Delhi (2004).

 Annual Report of I.T.I. Raibareli.

 Financial websites :-

 www.I.T.I.-india.com

 www.hindubusiness.com

 www.mag-india.com

 www.domail-b.com

LIST OF ABBREVIATIONS
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Abbreviation Description
P.O. PURCHASE ORDER
R.D.R RECEIVING-CUM-DISCREPANCY REPORT
G.I.T GOODS IN TRANSIT
S.I.T STOCKS IN TRADE
B/E BILL OF ENTRY
L/C LETTER OF CREDIT
M.I.S. MANAGEMENT INFORMATION SYSTEM
F.P.Q. FIXED PRICE QUOTATION
P.C. PRICE CATALOGUE
I.D.T.O. INTER DIVISIONAL TRANSFER ORDER
I.F.D. INTER FACTORY DEMAND
D.R.E. DEFERRED REVENUE EXPENDITURS
R.M.S.O. REPAIRS MAINTENANCE SUPPLY ORDER
L.T.B. LABOUR TIME BOOKING
W.I.P. WORK IN PROGRESS
A.H.Q. AIR HEAD QUARTERS
M.R. MATERIAL REQUISITION
C.F.A. COMPETENT FINANCIAL AUTHORITY
B.E. BUDGET ESTIMATES
R.E. REVISED ESTIMATES
F.C. FORECAST
AO(DAD) ACCOUNTS OFFICER (DEFENCE ACCOUNTS
DEPARTMENT)

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