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SUMMER TRAINING PROJECT REPORT
ON
“DIFFERENT FUNCTIONS OF FINANCE AND ACCOUNTDEPARTMENT WITH SPECIAL REFERENCE TO
CAPITAL BUDGETING”
TOWARDS PARTIAL FULFILLMENT OFMASTER OF BUSINESS ADMINISTRATION
UNDER GUIDANCE OF: SUBMITTED BY:
Mr. D.R.NAHAK RUPESH KAPASIA
Senior Manager, Roll No. 94092235619
Finance Department, MBA 3rd Semester
H.A.L, Lucknow ARYAN SCHOOL
OFMANAGEMENT
CHANDIGARH
2009-2011
ARYANS SCHOOL OF MANAGEMENT
1
Vill. Nepra, Chandigarh-Patiala Highway, Near Chandigarh.Helpline 98762-99888 , 98765-99888
PREFACE
This project report embodies the result of summer training in partial fulfillment of
M.B.A., affiliated to Punjab Technical University (P.T.U). It was a great opportunity to
me to work with such a flagship organization. Management of Hindustan Aeronautics
Limited Lucknow Division has given me this golden opportunity to get familiar with the
organization and its functioning. Since the duration of summer training was short so it
become difficult to cover each and every aspect in detail but I tried my level best to give
due consideration to all important aspect related to my study. This study provided me
practical exposure of the functioning of accounts and finance department. The
information so gathered for the presentation of this report is collected by the personal
contact with the concerned person of different department.
The project report is merely concerned with the study of different functions, which are
dealt by account department. In the course of study I became aware of the concepts,
which are used in H.A.L., while dealing with costing and pricing related matters. The
cost and costing system that prevails in HAL is different from the system that followed
by other organizations.
The project report incorporates the procedure and flow of work applied by different
sections of the account department and how these sections are linked. Although these
sections are separate and perform there separate operations but these are interrelated
with each other.
2
ACKNOWLEGEMENT
I oblige the HAL organization for providing me an opportunity to get aware
with their environment and supporting me as could be possible
I am grateful to Mr. D.R. Nahak, Sr. Manager (Finance) under whose expert guidance
this training was completed.I am thankful to Mr. S.A.Z. Rizwi (Manager Cost &
Material Accounts), and I wish to express my deep sense of gratitude to Mr. S.K.
Singh, Mr. G.R.B. Saxena of Costing Department who inspired, guided and gave there
valuable suggestions.
I would like to affirm my gratitude to Mr. R.S. Sachdeva (Account Officer of Payroll),
Mr. Mohd. Afzal Ahamad (A.A.O of P.F. section), Mr. K.K. Lalwani (Manager Book
Keeping), Mr. K.C. Mishra of Time Office, Mr.Arun Narula of Budget Section for their
necessary help and encouragement intended in this project.
RUPESH KAPASIA
MBA 3rd Semester
3
OBJECTIVES OF THE STUDY
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.
9. To know organizational structure and specifically financial department.
10. To get habitual with the stressful working conditions.
4
CONTENTS
S.NO. PARTICULARS PAGE NO.
1. Introduction: About the Organization 1
2. Objectives of HAL 4
3. History and Growth of HAL 6
4. Organization Growth of H.A.L. 8
5. Services of HAL 10
6. Exports 15
7. Present Setup of the Organization 24
8. Organization Structure of HAL Corporate 25
9. Organization Chart 26
10. Financial Highlights 27
11. HAL Financial Perspective 28
12. HAL Customers 29
13. HAL Lucknow Accessories Division 31
14. Sections in Accounts Department of HAL Lucknow 35
15.1 Bills Payable
(a) Bills Payable (Inland) 38
(b) Bills Payable (Foreign) 41
(c) Bills Payable (Services) 43
15.2 Payroll Section 45
15.3 Bills receivable 49
15.4 Cash Section 55
5
15.5 Material Account Section 58
15.6 Book keeping Section 62
15.7 Finance Section 66
15.8 Provident Fund Section 67
15.9 Time Office 71
15.10 Cost Account Section 76
16. Flow chart of Purchasing, receiving, 93
Recording & paying material
16. Budget system 94
17. Research Methodology 99
18. Findings 100
19. SWOT ANALYSIS 103
20. Suggestion 105
21. Recommendations’ 107
22. Conclusion 109
23. List of Abbreviations 110
24. References and Bibliography 111
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INTRODUCTION
ABOUT THE ORGANISATION :
HAL a flagship company of our country is a great organization, with a glorious future.
The Hindustan Aeronautics Limited is the only organization of its kind engaged in the
production; maintenance and overhauling of defense Aircraft and missiles. MIG 27,
MIRAGE 2000, DORNIER, JAGUAR, CHEETAH, LIGHT COMBAT AIRCRAFT
(LCA), SU-30, HJT-36 (IJT) AJT, ADVANCE LIGHT HELICOPTOR (ALH) are some
of the major Aircrafts supplied by H.A.L. to the Indian Air Force. Organization is also
involved in the manufacture and assembly of system for India’s space program.
Hindustan Aeronautics Limited is an organization, where integrated air-borne weapons
platform are conceived, developed, manufactured and service. It has got a rare distinction
of holding the capability spanning from the entire range of production conception to after
sales report.
The beginning of HAL can be traced to the year 1940, when a far-sighted industrialist,
the late Seth Walchand Hirachand set up a company called Hindustan Aircraft Limited at
Bangalore with the object of establishing an Aviation Industry that can manufacture,
assemble and overhaul aircraft under license. Initially, aircraft like Curtiss Hawk, Vultee
Bomber and Harlow trainer were taken up for manufacture and overhaul in collaboration
with Intercontinental Aircraft Company of USA.
With the escalation of the Second World War, the government of India took over the
management of the company in 1942 and handed it over to US Air Force for repair and
overhaul of various aircraft. Between 1942 and 1945, a total of 1000 aircraft and 3400
7
engines were overhauled. The main activity for the next few years after the war was
reconditioning and conversion of war surplus aircraft for the use of IAF and Civil
operators.
MISSION & VALUES
MISSION:
“To become a globally competitive aerospace industry while working as an instrument
for achieving self-reliance in design, manufacture and maintenance of aerospace Defense
equipment and diversifying to related areas, managing the business on commercial lines
in a climate of growing professional competence”.
VALUES:
We are committed to these values to guide us in our activities.
CUSTOMER SATISFACTION:
We are dedicated to building a relationship with our customers where we become
partners in fulfilling their mission. We strive to understand our customer’s needs and to
deliver products and services that fulfill and exceed all their requirements.
COMMITMENT TO TOTAL QUALITY:
We are committed to continuous improvement to all our activities. We will supply
products and services that conform to highest standards of design, manufacture,
reliability, maintainability and fitness for use as desired by our customer.
COST AND TIME CONSCIOUSNESS:
We believe that our success depends on our ability to continually reduce the cost and
shorten the delivery period of our products and services. We will achieve this by
eliminating waste in all activities and continuously improving all processes in every area
of our work.
INNOVATION AND CREATIVITY:
8
We believe in striving for improvement in every activity involved in our business by
pursuing and encouraging risk- taking, experimentation and learning at all levels within
the company with a view to achieving excellence and competitiveness
TRUST AND TEAM SPIRIT:
We believe in achieving harmony in work-life through mutual trust, transparency, co-
operation and sense of belonging. We will strive for building empowered teams to work
towards achieving organization goals.
RESPECT FOR THE INDIVIDUAL:
We value our people. We will treat each other with dignity and respect and strive for
individual growth and realization of every one’s full potential.
INTEGRITY:
We believe in a commitment to be honest, trustworthy and fair in all our dealings. We
commit to be loyal and devoted to our organization. We will practice self-discipline and
own responsibility for our actions. We will comply with all requirements so as to ensure
that our organization is always worthy of trust.
OBJECTIVES OF HAL
In April, 1971 the board of directors of HAL appointed a committee of HAL to review
the total functioning of the company and make its recommendations. One of the study
teams set up by committee had gone into various aspects of the objectives of HAL in
great detail and made valuable suggestions for determining the objectives of HAL.
The objectives of HAL can be divided into two parts:
1. Basic objectives
2. Other objectives
Basic Objectives:
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(i) To serve as an instrument of the national policy to achieve self-reliance in the
design, development and production of aircraft and aeronautical equipment to meet
the country’s changing and growing needs with special emphasis on military
requirements.
(ii) In fulfillment of this objective the company shall regard itself fundamentally
responsible for design and development, relaying however upon such relevant
facilities as are available in other national institutions but always holding itself
basically responsible for the growth and furtherance of the country’s aeronautical
capacity.
(iii) To so conduct its business economically and efficiently that it can contribute its due
shares to the national efforts to achieve self-reliance and self-generating economy.
(iv) Towards this end, to develop and maintain this organization which will readily
respond to and adopt the changing matrix of socio-techno economic relationship
and wherein a socio climate of growing professional competence, self-discipline,
mutual understanding, deep commitment and a sense of belonging will be fostered
and each employee will encouraged to grow in accordance with his potential for the
furtherance of the organizational goal.
Other Objectives:
Consistent with the basic objective of the company, the personnel development of the
corporate office has adopted certain specific objectives which will act as a source of
inspiration and guidance in involving personal policies and farming rules and regulation
for growth and development of employees and to ensure their deep commitment and
sense of belonging to the company. The specific objectives are stated below:
(i) Ensure quality of personnel of all level and provide them the right work
environment, job satisfaction and professional challenges.
(ii) Provide a healthy blend of employees who have growth with the organization and
those selected from outside.
(iii) Ensure employment of minimum number of personnel and avoid surpluses.
(iv) Motivate employees to be increasingly achievement oriented.
10
(v) Provide adequate opportunities for personnel to improve the level of their
professional knowledge.
(vi) Personnel with talent and potential growth to be developed to should have higher
responsibilities.
(vii) Ensure uniformity in principal conditions of service
HISTORY AND GROWTH
Hindustan Aeronautics Limited (HAL) came into existence on 1st October 1964. The
Company was formed by the merger of Hindustan Aircraft Limited with Aeronautics
India Limited and Aircraft Manufacturing Depot, Kanpur.
The Company traces its roots to the pioneering efforts of an industrialist with
extraordinary vision, the Late Seth Walchand Hirachand, who set up Hindustan Aircraft
Limited at Bangalore in association with the erstwhile princely State of Mysore in
December 1940. The Government of India became a shareholder in March 1941 and took
over the Management in 1942.
Today, HAL has 16 Production Units and 9 Research and Design Centers in 7 locations
in India. The Company has an impressive product track record - 12 types of aircraft
manufactured with in-house R & D and 14 types produced under license. HAL has
manufactured 3550 aircraft (which includes 11 types designed indigenously), 3600
engines and overhauled over 8150 aircraft and 27300 engines.
HAL has been successful in numerous R & D programs developed for both Defense and
Civil Aviation sectors. HAL has made substantial progress in its current projects.
11
Dhruv, which is Advanced Light Helicopter (ALH).
Tejas - Light Combat Aircraft (LCA).
Intermediate Jet Trainer (IJT).
Dhruv was delivered to the Indian Army, Navy, Air Force and the Coast Guard in March 2002, in the very first year of its production, a unique achievement.
HAL has played a significant role for India's space programs by participating in the manufacture of structures for Satellite Launch Vehicles like
PSLV (Polar Satellite Launch Vehicle)
GSLV (Geo Stationary Launch Vehicle)
IRS (Indian Remote Satellite)
INSAT (Indian National Satellite)
There are three joint venture companies with HAL:
BAeHAL Software Limited
Indo-Russian Aviation Limited (IRAL)
Snecma HAL Aerospace Pvt Ltd
Apart from these three, other major diversification projects are Industrial Marine Gas
Turbine and Airport Services. Several Co-production and Joint Ventures with
international participation are under consideration.
HAL's supplies / services are mainly to Indian Defense Services, Coast Guards and
Border Security Forces. Transport Aircraft and Helicopters have also been supplied to
Airlines as well as State Governments of India. The Company has also achieved a
foothold in export in more than 30 countries, having demonstrated its quality and price
competitiveness.
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HAL has won several International & National Awards for achievements in R&D,
Technology, Managerial Performance, Exports, Energy Conservation, Quality and
Fulfillment of Social Responsibilities.
HAL was awarded the “INTERNATIONAL GOLD MEDAL AWARD” for Corporate
Achievement in Quality and Efficiency at the International Summit.
ORGANISATIONAL GROWTH OF HAL
1940: H.A.L was set up by Seth Warchand Hirachand in association with the
government of Mysore as a private limited company.
1941: First product “HARLOW TRAINER AIRCRAFT” & “CURLINESS HAWK
AIRCRAFT” handed over to government of India.
1942: Company was handed over to the U.S. AIR FORCE. HAL repaired over 100
different varieties of aircraft and 3800 piston engines.
1945: Government of India took over the management of HAL again after the Second
World War.
1949: First percivical apprentice aircraft assembled.
1951: The control of HAL was shifted to ministry of defence from ministry of industry.
1954: The first HINDUSTAN TRAINER II (HT—II) had its maiden flight.
1956: HAL comes under the public sector.
1960: Aircraft Manufacturing Department at Kanpur was established.
1962: HINDUSTAN AERONAUTICS INDIA LIMITED (HAIL) was formed to
manufacture MIG-21 aircraft. Three factories at Nasik, Koraput, and Hyderabad
were established.
1964: HAIL was dissolved and its assets merged with aeronautics India limited and
company by the name of HAL was formed.
1969: An agreement with USSR AWS reached for the license production of MIG-21
AIRCRAFT.
1970: Helicopters Division was established to manufacture Helicopters.
13
1973: Lucknow Division was formed for manufacture of more than 500 types of
Instruments and Accessories.
1976: An agreement with USSR for license for MIG-21 AND BIS – AIRCRAFT.
1979: Agreement with British aerospace for manufacture JAGUAR AIRCRAFT.
1982: Agreement with USSR for license manufacturing of MIG-27M AIRCRAFT.
1983: Korwa Division lraged division for HAL formed.
1990: Design and Development of Advanced Light Helicopter.
1996: Major servicing of the first batch of MIRAGE – 2000 AIRCRAFT was under
taken. It conducted several “C” CHECKS ON BOEING 737 AIRCRAFT.
1998: IGMT a new Division was established at Bangalore.
1998: Establishment of Industrial & Marine Gas Turbine Division for aerodoriative gas
turbines / Industrial engines.
2000: Establishment of Airport Service Service Centre for C0-ordinating the operations
at HAL Airport – Bangalore.
2002: Establishment of Sukhoi Engine Division at Koraput.
2002: Expansion of Nasik Division as Aircraft Manufacturing Division and Aircraft
Overhaul Division.
2006: HAL ranked 45th among Top Defense Firm in the World.
2006: 19th July, HAL – IAI cooperation in Aero structure.
2006: 21st July, Rolls – Royce & HAL celebrate 50 year of partnership.
2006: HAL launches newspaper from Minsk square on 1st September.
2006: 3rd September, SU-30 MKI Programme on schedule: HAL.
2006: 14th October, HAL Launches Helicopter ambulance, Charter Service named
“Vayu Vahan”.
2006: 20th December, HAL receives EEPC Award for the year 2004-05.
2007: 5th June, HAL completes planting 25 Lakh saplings.
2007: 22nd June, HAL gets Navratna Status.
2007: 2nd July, Ashok Nayak is HAL’s new MD.
2007: 6th August, HAL ranked 34th among top 100 defence firm in the world.
14
2007: 16th August, DHRUV with SHAKTI ENGINE and Weapons make maiden flight.
OUR DIVISIONS
15
OUR SERVICES
16
PRESENT SETUP OF THE ORGANISATION
Hindustan Aeronautics Limited has three production complexes – Bangalore, MIG and
Accessories and one Design complex each headed by a Managing Director, reporting to
Chairman, HAL. HAL has spread its wings to cover various activities in the area of
Design, Development, Manufacturing and Maintenance. Today HAL has 16 production
divisions / units, 7 at Bangalore and 1 each at Nasik, Koraput, Lucknow, Kanpur,
Korwa, Hyderabad and Barrackpore. These divisions / units are fully backed by nine
Design Centres, these Centres are engaged in the design and development of the
Combat aircraft, Helicopters, Aero engines, Engine test beds, Aircraft communication
and Navigation Systems Accessories of Mechanical and Fuel system and instruments.
Major products of Accessories Complex:
Lucknow Division Landing Gear, Wheels, Brakes, Hydraulic
& Fuel accessories & aircraft instruments
GSE & GHE, ECS etc.
Korwa Divison INS, HUDWAC, NAV attack LRMTS,
FDR, Auto Stab System.
Hyderabad Division Surveillance Radar, Precision Approach
Radar, INCOM, RAM, IFF, VHF /
UHF(5).
17
Kanpur Division DO-228, HPT-32 and Civil aircrafts.
ORGANISATION STRUCTURE HAL CORPORATE
18
DESIGN COMPLEX
Aircraft R & D Center
Rotatory wing R & D Center
Engine & Test bed R & D Center
Strategic Electronics R & D Center
Aircraft Updates R & D Center
Aerospace System & Equipment R & D Center
Gas Turbine R & D Center
Control Materials & Processes lab & NDT Center R & D Center
BANGLORE COMPLEX
Aircraft Division
Engine Division
Foundry & Forge Division
Helicopter Division
Aerospace Division
Overhaul Division
Industrial & Marine gas Turbine Division
ACCESSORIESCOMPLEX
Accessories Division Lucknow
Avionics Division Korwa
Avionics Division Hyderabad
Transport Aircraft Division Kanpur
MIGCOMPLEX
Nasik Division
Koraput Division
Financial Highlights:-
Hindustan Aeronautics Limited (HAL) has cruised past the Rs.7, 500-crore mark for the
first time with a sales turnover of Rs.7, 783.61 crores ($1.82 billion) during the Financial
Year 2006-07, The Value of Production has also gone up by 55.54% to Rs. 9, 201.88
crores, while the Profit of the Company (Profit Before Tax) soared to Rs.1, 743.60 crores,
which is an increase of 54.88% over the previous year's performance. Contracts worth
Rs. 17,800 crores (4 billion USD) were concluded during the year.
The highlights are given below:
Rupees in Crores
Particulars 2005-06 2006-07Growth over
Previous Year
Sales 5342 7783 45.69%
VOP 5916 9202 55.54%
Profit before tax 1126 1744 54.88%
Profit after tax 771 1149 49.03%
19
Gross Block 1694 2081 22.85%
HAL FINANCIAL PERSPECTIVE
Hindustan Aeronautics Limited is a large manufacturing organization and its main
customers is Indian Air Force which gives HAL various orders for manufacturing, repairs
and overhaul, design and development etc. and provides 90% amount of ordering in
advance and rest 10% after receiving the complete order, so in this way HAL realizes
90% ordering amount before the supply of the items and only 10% of the amount blocks.
Therefore, the need of working capital in case of HAL is not much high with respect to
other manufacturing organizations. HAL has civil customers and it also takes contracts
from Navy and Coast Guard, Aeronautical Development agency (ADA) etc. The projects
undertaken by HAL are either company financed or customer financed. It takes money
from customers in advance for the functioning of the projects. Company also finances
some of the projects and in these cases funds are provided by the government. Company
does not suffers from losses because there is no risk in the investment of projects because
investment is made on the basis of orders and some percentage of total amount of the
project is provided to the company in advance to start the projects.
The organization has its Corporate Office in Bangalore; all the financial activities are
controlled from the corporate office. Since it is a major manufacturing company of the
government therefore no investment policy is being followed by it at Accessories
Division, Lucknow.
20
Capital structure theories are not applied by this organization because being a Public
Sector Unit; its main power is in the hands of government.
HAL CUSTOMERS
International Customers:
1 Airbus Industry, France
2 Chelton. UK
3 Coast Guard, Mauritious
4 Corporate Air, Philippines
5 Cosmic Air, Nepal
6 Dassault Aviation, France
7 Dowty Aerospace Hydraulics, UK
8 EADS, France
9 ELTA, Israel
10 Gorkha Airlines, Nepal
11 Hampson, UK
12 Honeywell International, USA
13 Island Aviation Services, Maldives
14 Israel Aircraft Industries, Israel
15 Messeir Dowty Ltd., UK
16 Mistubishi Heavy Industries, Japan
17 MOOG, USA
18 Namibian Air Force, Namibia
21
19 Peruvian Air Force, Peru
20 Rolls Royce Plc, UK
21 Royal Air Force, Oman
Royal Malaysian Air Force, Malaysia
22 Royal Nepal Army, Nepal
23 Royal Thai Air Force, Thailand
24 Snecma, France
25 The Boeing Aircraft Company, USA
26 Transworld Aviation, UAE
Domestic Customers:
1 Air India
2 Air Sahara
3 Airports Authority Of India
4 Border Security Force
5 Coal India
6 Govt. of Andhra Pradesh
7 Govt. of Jammu & Kashmir
8 Govt. of Karnataka
9 Govt. of Maharashtra
10 Govt. of Rajasthan
11 Govt. of Uttar Pradesh
12 Govt. of West Bengal
13 Indian Air force (IAF)
14 Indian Airlines
15 Indian Army
16 Indian Coast Guard
17 Indian Navy
18 Indian Space Research Organization
19 Jet Airways
20 Nalco
22
HAL ACCESSORIES DIVISION LUCKNOW
Hindustan Aeronautics Limited was established in 1971 to meet the accessories
requirement of KIRAN and MARUT aircraft. Initially Lucknow division was
manufacturing Hydro mechanical accessories under licensed agreement from m/s
DOWTY, Dunlop etc. It has grown into highly diversified accessories factory
handling a wide spectrum of technologies. Its facilities are spread over 5 lakhs square
feet of areas. The accessories produced at Lucknow Division have wide diversity
based on manufacturing can be clubbed into affinity.
1 Mechanical, hydro – mechanical and accessories.
2 Engines accessories.
3 Instrument accessories.
In addition the division in manufacturing a wide range o0f ground support equipment
like ground power unit, hydraulic trolley, weapons loading trolley, transportation
trolley etc.
This is a high precision oriented manufacturing organization engaged in the
production of aircraft accessories including aircraft hydraulic systems, fuel system,
air-conditioning and pressurization system, ejection seat instruments and navigation
equipment etc.
The products of the factory are meant for fitment of sophisticated military aircrafts
and can be classified under the category of “Light precision” mechanical industry.
Products of manufacturing processes produce no hazardous or toxic chemicals, gases
etc. complete environment control is exercised in the assembly shop and dust free
environment is a necessity during most final assembly operations.
Stringent quality control is exercised at all stages of manufacturing. In the
manufacturing activities of factory no hazardous fumes are involved, no toxic-
effluents are released in the air as result of various production activities out in the
division.
H.A.L. Lucknow division was established for the manufacture of Aircraft accessories.
Initially licensed agreements were entered into with the following companies –
a) Dunlops of U.K for wheel and brakes.
b) Dowty of U.K for under – carriage and hydraulic equipments.
c) Normalali Garret of U.K for air pressurization and conditioning
equipments.
d) Smith of U.K, SFIM, SFENA for panel instrument and gyros.
e) Martin Bakor of U.K for ejection seats and
f) Lucas of U.K for engine fuel system.
By 1983, more than 5000 types of instruments and accessories were manufactured.
These items of accessories and instruments produced are for fitment on Marut, Kiran,
Ajeet, Chetak, Cheetah, MIG21, JAUGAUR etc.
OFFICIAL HIERARCHY
Managing Director(L.
M.Bharadawaj)
General Manager(E.S.Francis)
AGM
Chief Manager
SeniorManager
Manager
DeputyManager
Engineer
AssistantEngineer
Executive Director
Technician
DIFFERENT SECTIONS IN THE ACCOUNTS
DEPARTMENT IN HAL LUCKNOW DIVISION
1. BILLS PAYABLE
a) INLAND BILLS
b) FOREIGN BILLS
c) SERVICES & CIVIL WORKS
2. PAYROLL
3. BILLS RECEIVABLE
4. CASH OFFICE
5. MATERIAL ACCOUNTS
6. BOOK KEEPING
7. FINANCE
8. PROVIDENT FUND
9. TIME OFFICE
10. BUDGET & M.I.S.
11. BUDGETARY CONTROL
12. COST ACCOUNTS
FINANCE & ACCOUNTS DEPARTMENT
FUNCTIONS & RESPONSIBILITIES
1. To ensure financial discipline as per guidelines of the company.
2. To advice management for all matters having financial implications including
financial co-ordination before commitments are maid.
3. Regulation of payment for supply and service including salaries, wages and other
payments required for furthering legitimate objectives of the company.
4. Compilation of accounts and getting the same audited by statutory and Govt.
Auditors.
5. Compilation co-ordination of Fixed price Quotation for sale of Company’s
product and services as per the norms of the company.
6. Collecting dues on behalf of company from the customer as well as other
agencies.
7. Financial Appraisal of the project.
8. To prepare Budget and to exercise budgetary control for the utilization of
available resources in the best possible manner.
9. Inter-action with various operating levels in the Division.
10. Co-ordination and inter-action with the Managing Director Corporate office.
11. 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.
BILLS PAYABLE SECTIONS
OBJECTIVES:-
To regulate the payment of suppliers and service providers as per the terms and
conditions of the purchase order/ agreement.
To ensure that the payment of different parties are made promptly so that
supplies and services to the division are maintain uninterruptedly in furthering the
objects of the organization.
To ensure the proper accounting is done as per the requirement of statute/ standing
instructions from the H.O.
To ensure that all statutory deductions e.g. - T.D.S. etc., are made from the bills of
suppliers/ service providers and deposited timely with the appropriate authority
Bill
Payable section is divided his work into three parts these are :-
1. Bills Payable inland (Indigenous).
2. Bills Payable Foreign.
3. Bills Payable Services.
BILLS PAYABLE (INLAND)
FUNCTIONS :-
The following are the functions of Bills Payable (Inland) section:
1. Payment of Advance to suppliers as stipulated in the Purchase order.
2. Payment of Final Bills.
3. Bank dealings with relation to supplier’s e.g. Opening of Letter of credit, Bank
Guarantee and the payment to bank on the due dates.
4. Accounting and pricing of R.D.R. (Receiving cum discrepancy report).
5. Maintenance of Commitment Register for Budgetary Purpose.
6. Payment of Misc. Advances / imprest approved by the competent authority.
Flow of Work :-
1. All the P.O. received is first entered in the P.O. Register before putting the same
in a separate file.
2. If the P.O. stipulates for payment of Advance to vendor, an Advance payment is
given.
3. 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 P.O. and then passed for payment after making adjustments for Advance
Payments.
4. Already made Remittance vouchers are prepared based on the passed invoices and
are forwarded to cash section for issuance of Cheque.
5. In respect of P.O. where payment is stipulated as “Through Bank” the BPT
section after intimation from the Bank through Purchase Department, makes entry
in the Register and after checking the documents with the P.O. passes 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.
6. In respect of Local purchase made on ”Cheque against Delivery basis” the
Performa invoice is linked with the relevant P.O. and the payment is authorized
and Remittance voucher is sent to the Cash section for making payment.
7. Pending the receipt of R.D.R. from transit in 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
Documents / Cheque against delivery basis are put in G.I.T. i.e. Goods in Transit
Account at the year-end.
8. In respect of that 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.
9. Follow up with I.M.M Department for release of R.D.R. in respect of those PO’s.
Where Advance payment has been made so as to clear Advances.
10. In respect of rejected materials, follow-up is to be made with I.M.M. Department
to get those rejected materials replaced from the vendor so as to clear G.I.T.
FLOW CHART OF BILLS PAYABLE (INLAND)
Yes No
Start
Purchase Orders received are Entered in to the P.O. register
Does P.O. Stipulates for payment
Of Advance
Advance payment is given toVendors
R.D.R. received by purchase Department
& scrutinized with purchase order
R.D.R. received by purchase Department scrutinized
with purchase order
Adjust the advance payment
Based on invoice remittance vouchers are
prepared & passed to Cash Section
Cheque issuedBy Cash section
Based on invoice Remittance vouchers are prepared &
passed to Cash Section
Cheque issuedBy Cash sectionStop
BILLS PAYABLE (FOREIGN)
FUNCTIONS :-
1. Payment and accounting of :
Advance to suppliers as per the term and conditions of
Purchase Order.
License fees, Royalty etc. as per the license agreement with the
foreign collaborator.
Customs duty, Freight bills.
Final bills.
2. Opening of letter of credit on the advice of I.M.M. Department and lassoing with
banks for Foreign Exchange release and payment on maturity date.
3. Maintenance of differed liabilities accounts.
4. Pricing of R.D.R. (Receiving- Cum- Discrepancy Report) with P.O. rates and
loading of Customs Duty, Freight and custom charges.
5. Priced R.D.R. is sent to Material Account Section / E.D.P for purchasing in batch
mode for the processing of Materials Ledger.
FLOW OF WORK :-
1. All purchase order / contrasts received are entered in the registers before opening
of separate file for each P.O.
2. All the L.C. opened in favor of Foreign Suppliers as per the terms of Purchase
Order are entered in register to revalidation and utilization. On maturity of L.C.
the Bank Adjustment Voucher is prepared on the basis of Bank Advice and send
to the Cash Section for Adjustment. Particulars of payment are also noted in the
relevant P.O.
3. Where Purchase terms provide for “Documents through Bank” the Bills Payable
section after checking the documents with the Purchase Order passes the invoice
and issues Letter of Authority to the Bank for arranging payment.
4. All the Contractual payments in respect of Royalty, Licence fee & Technical
Assistance fees are made as per the Licence / Collaboration Agreement after
obtaining Foreign Exchange release from the Ministry, R.B.I and Producing N.O.C.
from the Income Tax Department.
5. Bills of entry received from the IMM Department are entered in the register to
record value of goods assessed, correct and the amount of duty paid to ensure that
the duty levied is inventory accounts correctly. A copy of B/E is sent to the Bank
for forwarding the same to RBI.
6. After receipt of Goods the Store department sends the RDR to the foreign bills for
pricing and making necessary accounting.
7. Pending the pricing of R.D.R., the payments maid to foreign Vendors through
L.C. / Sight Draft is put temporarily in Goods In Transit Account
8. In respect to Material dispatched by the vendor against P.O. raised by us, the
liability is provided in our Books of Accounts if payments have not been made for
such supplies.
9. Follow-ups with I.M.M. Department for timely release of R.D.R. so as to clear the
G.I.T.
10. Co-ordination with the I.M.M. for replacement of rejected material so as to clear
G.I.T.
BILL PAYABLE (SERVICES)
FUNCTIONS:-
1. Payment and accounting of advances.
2. Payment and accounting of running bills to contractors.
3. Payment and accounting of final Bills.
4. Adjustment and Recovery of Advances.
5. Adjustment and recovery of Earnest money and Security Deposits.
6. Capitalization of buildings.
7. Payment of all Consultants e.g. Architects, Advocates, part time Doctors etc.
8. Payment of Misc. advances / imprest approved by the Competent Financial
Authority and their adjustments.
9. Payment to all casual employees.
10. Payment of all services Bills e.g. Telephones, Electricity, Water, Canteen,
Transportation Sanitation etc.
FLOW OF WORK:-
1. Advance to contractors are Given as per the acceptance Letter given to the
contractor which are recovered with interest by way 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.
2. 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 engineer-in-charge
and are recovered from running/ final bills.
3. In respect of running bills the works account section links the bill,
submitted by contractors duly certified by engineer- in- charge, with the contract /
acceptance letter/ work order etc. and arranges payment after deducting Income
tax, balance security deposit and other advances if any and retaining the
prescribed percentage of 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.
4. 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 toward consumption of material, T.D.S. etc. is deducted from the
gross amount payable. One half of the security deposit refundable to the
contractor is retained as defect liability deposit.
5. 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.
6. Payment of bills for services e.g. Electricity, Telephone, Water etc.
received from plant Maintenance Dep’t. / Concerned users duly verified by them
and approved by the competent authority are made.
7. Payment in respect of other services received by the company is made
after the competent authority duly approves it.
PAYROLL SECTION
OBJECTIVE:-
The main objective of this section is to regulate the salaries and wages of the
employees.
1. To regulate Salaries and Wages of all employees as per terms of employment.
2. To regulate payment of welfare facilities extended by the management e.g. L.T.C.,
Medical, Interest subsidy, School fee etc.
3. This section also regulated with the payment of T.A, C.A., D.A, L.T.C, medical
reimbursement etc.
4. A part from this, they also make arrangement for interest, subsidy & housing loans.
5. Payment and recovery of various natures of advances such as TA, LTC advance,
C.A., and timely adjustment thereof.
6. To ensure timely remittance of amounts recovered from employees to various
agencies like LTC, UPICA, and HDFC etc.
7. To ensure that all-statutory deductions like TDS and 12% PF etc are made from the
salaries of the employees and deposited timely with the appropriate authority.
8. To ensure proper accounting is done as per the requirement of the statute and
corporate office guidelines.
9. To adhere to the provisions laid down in the Personnel Manual relevant to the above
functions.
FUNCTIONS :-
1. Based on the appointment / transfer notification from personnel Department,
individual files are opened in the payroll section to record the particulars of the
employees such as grade / group date of appointment / transfer , department code,
P.B. No., scale of pay Quarter details etc.
2. The payroll record is updated from time to time entering therein increment drawn,
promotion, transfers etc.
3. The master data in regard to all officers / employees is sent to Computer
Department in respect of Basic pay, DA, HRA, CCA etc and this data is updated
every month depending upon the changes.
4. The deductions to be made are fed to the computer Department by means of
deduction statement. Computer Department in turn prints out the deduction
statement in the form of check lists by 25th of every month. Payroll section corrects
the same with reference to the various documents and recovery registers and sends it
back to computer department for final adoption by 26th / 27th of the month.
5. The computer department 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.
6. Disbursement of salary & wages
Payment of salary to officers is made through Bank based on the payroll received
from the computer department. 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., H.A.L. Branch. Cash is drawn two days in advance i.e. last day of
month and filled in the envelops and these envelops are kept in safe custody in
cash office for disbursement on 1st of next month.
7. 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.
8. 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.
9. Accounting Procedures
Monthly payroll Journal entry is made both for supervisory and non-supervisory
personnel and sent to book keeping section for adoption.
For payments made to persons from other divisions, proper accounting is done
to ensure that necessary advice is raised to the concerned division.
10. To make payments to ex-employees towards final settlement of their dues.
11. To monitor the controllable expenditures e.g. Medical expenditure, conveyance
expenditure etc on monthly basis and to ensure not exceeds the budget
provided for it.
FUNCTIONING OF THIS SECTION:-
All files regarding appointment, transfer of individuals from personnel department are
opened in the Payroll Section to record the particulars pf employees like date of
Appointment, Department Code, pay-seal, P.B. number, and grade of employees. This
section maintained by E.D.P. Section. This dept. prepared all the date relating basic
pay, D.A., H.R.A., etc. according to the feedback of payroll section to disbursement
of salaries and payment of recoveries to employees as per rules.
CALCULATION OF INCREMENT%
Grade No. of officersAs on 1-4-08
Increment rate Product
1 ----- ----- -----
2 ----- ----- -----
3 ----- ----- -----
4 ----- ----- -----
5 ----- ----- -----
6 ----- ----- -----
7 ----- ----- -----
8 ----- ----- -----
9 ----- ----- -----
10 ----- ----- -----
Grade No. of employeesAs on 1-4-08
Increment rate Product
1 Scale 1 ----- ----- -----
2 Group A ----- ----- -----
3 Scale 3 ----- ----- -----
4 Group B ----- ----- -----
5 Scale 5 ----- ----- -----
6 Group C ----- ----- -----
7 Group D ----- ----- -----
8 Group E ----- ----- -----
9 Group F ----- ----- -----
10 Scale 10 ----- ----- -----
Grand Total
Total
BILLS RECEIVABLE SECTION
OBJECTIVES:-
1. To ensure that dues from customers in respect of good supplied and services
rendered and recovered timely as per the fixed price Quotation/ price
catalogue approved by the ministry in accordance with the govt. letter issued
by Ministry of Defense dated 24th Aug., 1995.
2. To ensure that voices in respect of advances stage payments, final deliveries
are raised timely in order to have smooth cash flow position.
3. To ensure that proper accounting is done as per the requirement of statute and
accounting instructions laid down by the corporate offices.
4. To ensure that all statutory payments e.g. Sales Tax, Excise duty, Customs
duty is recovered from the customer and is deposited timely with the
appropriate authority.
5. Beside this B/R Section also provide details of budget section for compilation
of sales orders, firm/ forecast task, I.D.T.O. for budget estimates, revised
estimates, F.C. estimates etc. It also collect sales tax from customer and
deposited the same.
FLOW OF WORK:
Start
Preparation & rendering of invoices to I.A.F. & Non I.A.F.
Customers
To raise debit on other division in respect of supplied for fitment
manufacture by them for supply to customers
To claim payment from AO (DAD) on the basis of fitment details received
from the user division.
To create claims Receivable on the basis of sales order
To follow up customers for all the pay against invoices raised
Stop
Beside this B.R.S. also provide details of budget section for compilation of sales
orders, firm/ forecast task, I.D.T.O. for budget estimates, revised estimates, F.C.
estimates etc. It also collect sales tax from customer and deposited the same.
Bills receivable section prepare and render to I.A.F. in respect of the following
activities, these are:-
a) Manufacturing activity.
b) Repair overhaul.
c) Supply of spares against R.M.S. orders.
d) Differed Revenue expenditure.
To non I.A.F. customers it prepares invoices in respect of the following
activities:-
a) Development sales for customer financed projects.
b) Supplies and services rendered to civil customers.
c) Supplies against R.M.S. order from Navy and Army.
For doing his work B.R. section used different types of formats and maintaining
records. These are:-
FORMAT OF CONTROL ADVICE
Months Particulars Amount
FORMAT OF BILLS REGISTER
SI. no. date Orderno.
date Party name
Value ofItem
Advance S.Debtors Pay scaletax
total
FORMAT OF SALES ORDER
CUSTOMER ADDRESS :-AUTHORITY ORDER NO. :-TERMS OF PAYMENT :-ADVANCE COLLECTED :-CONSIGNEE :-SPECIAL INSTRUCTION :-
FORMAT OF ORDER OF REQUIREMENT
SL. No. REF/ Part no.Qtyordered
Unit price(Rs.)
Total cost(Rs.)
PR- SI No.
FORMAT OF INVOICE
Particulars / Part No.
Sl. no. DANo.
Year Qty. Rate Amount
FORMAT OF DISPATCH ADVICE
Day No.Sl. No.
Day-Date
Party Division S.I.T.(Newitems)
IFD Civil Rep/Oh (Air Force)
RMS ArmyNavy
FUNCTIONS :-
The following are the functions of Bills Receivable section:
1. Preparation and rendering of Invoices to I.A.F. in respect of the following
activities in accordance with the Guidelines laid down in the Government letter
dated 30th Sept.,97 :
a) Manufacturing Activity
b) Repair and Overhaul
c) Supply of Spares against R.M.S. Orders
d) Deferred Revenue Expenditure
The following Documents shall be produced in support of the Invoices rendered:
Initial advances are recovered on the basis of Customer order :
o Firm / Forecast task given by the Air Force ;
o C.R.I. Co-ordinate I.D.T.O. for Divisional Task ;
o R.M.S. Order.
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.
In respect of Repair & 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-I.A.F. Customers in respect of following
activities :
o Development Sales for Customer Financed Projects.
o Supplies and Services rendered to Civil Customers.
o Supplies against R.M.S. Orders from Army, Navy.
To raise debit on other Divisions as S.I.T. in respect of parts / accessories supplied
for fitment in Engines / Aircraft / Helicopters manufactured by them for supply to
Customers.
To claim payment from AO (DAD) on the basis of fitment details received from
the user Divisions.
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 Sale 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 IMM Department for onward
submission to Sales tax Authorities for Assessment
CASH SECTION
Cash section deals with receipts and payment of cash and cheques. Accounting of all
cash or bank transactions is done as per the guidelines provided by corporate office.
This section ensures timely drawl of cash from bank to cater to the daily needs of cash
vouchers.
OBJECTIVES :-
1. To ensure timely and accurate receipts and payments of cash and cheques.
2. To ensure accounting of Cash / Bank transactions is done as per the statutes /
corporate office guidelines.
3. To ensure safe custody of cash, cheque books, bank guarantees, deposit receipts
etc.
4. To ensure timely drawl of cash from bank to cater to the daily needs of payments
of cash vouchers.
FUNCTIONS:-
1. All amounts collected by different sections either from employee or from external
agencies is send to the cash office through cash credit vouchers.
2. Cash received in excess of requirement, cheque, bank draft, postal orders are
deposited into the company’s bank account the same day for realization.
3. Payment of employees such as medical reimbursement, TA/DA advances etc. are
made through payment vouchers, which are punched into the computer through
online system. The cash office in turn after proper identification makes the
payment through cash teller.
4. For payments to outside parties cheques are made on the basis of remittance
voucher send by different sections. These cheques are handed over the purchase
department for taking necessary action.
5. Entries are made every day on the basis of cash credit vouchers are remittance
vouchers and the cash balance are arrived at which is certified by the in charge of
cash office.
6. Based on the analysis of payments and receipts transactions computerized
monthly journal vouchers are prepared and send to book keeping section for
adoption.
7. Preparation of monthly bank reconciliation statement and liaisoning with the bank
authorities to check any discrepancy.
8. Periodical physical verification of cash is done by system audit representatives
and by the internal auditors on the last day of the financial year.
FLOW OF WORK:-
All amount are received are recorded in a receipt register by section and send to the
cash office accompanied by the cash credit vouchers. Likewise cash credit vouchers
for cash remittance made by employee toward repayment of advances, bus/ train
passes, canteen receipt etc. are sending by the respective section of the account
department. After receipt of cash/ cheque etc cashier initials in the receipt register in
acknowledgement and issue official’s receipts for cash/ cheque received.
In respect of out station cheques etc. where collection charges are leaved by the bank,
adjustment vouchers are prepared and accounted in respect of such charges based on
the bank advice.
Payment of employees and others in cash is maid on the basis of cash vouchers issued
by various accounting sections after proper identification. Entries in the cash book are
made every day on the basis of these paid cash vouchers.
Remittance vouchers are made by the various accounting sections for payment to
suppliers, contractors and other and sent to cash office for writing cheques. The
cheques are written/ typed by the cash office and the officers authorized to sign the
cheques, sign the same. The cheques are then send to purchase department for
collection of documents or dispatched directly to the parties.
Entries in the cash/ bank book are maid daily on the basis of the remittance vouchers
in respect of which cheque is issued.
MATERIAL ACCOUNTING SECTION
OBJECTIVES:-
To ensure that all the receipts and issues of materials from stores are recorded and
accounted for properly.
1. To ensure that all the receipts and issues of materials from stores are recorded and
accounted for properly.
2. To ensure that all non moving/ slow moving materials are identifies as surplus by
I.M.M. and a suitable redundancy provision is maid against them and are disposed
off.
3. 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 :-
1. To send the priced R.D.R. received from Bills Payable section to E.D.P. for
punching in the Batch Mode and thus all the Receipts are recorded and control is
exercised over all the Purchases Value-wise.
2. To generate exception list for missing R.D.R. and getting it resolved with Bills
Payable Sections.
3. All the materials drawn excess when returned are credited to stores through Stores
Return voucher.
4. The E.D.P. after processing of all M.R./ Issue Vouchers prints the Material Issue
Analysis Statements monthly indicated :-
a) The cost of materials drawn against various Job Orders, Expense accounts;
b) The cost of material issued to Contractors and others;
c) The cost of tools issued to various tool cribs from Main Tool Stores;
d) Based on the above statements accounting for issue of materials is done by
debit to Work-in-progress / Expense/ Contractors account and credit to
relevant inventory accounts.
e) On the basis of List of Materials / transfers reclassifications indicating the
material Code No. / Quantity and Value, necessary Journal entries are passed
by debit / credit to relevant inventory accounts.
f) On the basis of stock verification sheets indicating stock verification Note No.,
Material Code No., Shortage /Overages, necessary Journal entries are passed
after obtaining clarifications from Stores Department by credit / debit to
relevant inventory accounts after taking approval of C.F.A. wherever required
for adjustments / write-off of stores.
g) A list of materials not moved for over 5 years is given by E.D.P. which is
reviewed by Stores / concerned programming department 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.
h) 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.
Flow Chart of Material Accounting Section
YES NO
E.D.P. process all MR / issue vouchers & print the material issue analysis statement
Resolved with Bill Payable Section
E.D.P. Process all the MR/ issue vouchers & print the material issue analysis statement
On the basis of statement accounting for issue of material is done.
On the basis of M.I.A. statement accounting for issue of material is done.
R.D.R received from bills payable
R.D.R. Sent to E.D.P. for punching in batch
Are all the Receipts recorded its purchase value wise
Generate exception list for missing R.D.R.
Start
Stop
Material issue analysis statement indicates the following:-
A. The cost of material drawn against various job orders; expense accounts.
B. The cost of material issued to contractors and others.
C. The cost of tools issued to various tools cribs from main tool stores.
Different types of Material Stores in HAL Lucknow Division are:-
1. Commercial Store.
2. Raw Material.
3. Jaguar’s parts.
4. Russian project.
5. Western project.
For doing his work properly MATERIAL ACCOUNTING SECTOON use
different types of format these are:-
PERFORMA OF ISSUE (KMR)
Sl. No. Q.T.Y Req. Part no. NomenclatureH.A.L.
Code no.
No. of
qty.
issued
Bin no. Balance
PERFORMA FOR R.D.R
P.O
.
no.
P
nameDec
Qty.
ad
Qty.
revSort Over
Qty.
Rej
Ins
Re
m
Qty.
acc
stock
LocBin
Bal.
A
Val
u
Purchas
rate
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 of 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
Department are sent to book keeping section. These entries are serially numbered
and punched into 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 30th June, 30th September,
31st December and Final Accounts as on 31st March of every financial year.
3. Maintenance of Fixed Asset Register and depreciation schedule.
o 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 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.
o 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 Divisional Transaction 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
function.
Performa maintained in Book Keeping Section.
Journal Voucher.
Profit & Loss Account.
Balance Sheet.
H.A.L. Lucknow Division
Journal Voucher
Account
No.Debit Credit
J.V. No.
Sectional Sr.
No.
J.V. Nos.
Book keeping
Section
Control
Adjustment A/c
PROFIT & LOSS A/C
Particulars Schedule Amount Amount
Income:
Sales 16
Transfer to interdivisional unit 16(A)
Changes in W.I.P./S.I.T./Scrap 23(a/b)
Other Income 17
Charges received in interdivision
Transactions
17(A)
Transfer from R&D Reserves 2
Expenditure
Consumption of raw material components 18
Direct Expenses 19
Salaries & Wages 20
Other Expenses 21
Charges paid to interdivision transactions 21(A)
Interest 22
Depreciation
Provision 22(A)
Inter Services/ Common Services
Transfer of I.D.T.
Deductions
Exp. Related to Capital A/c & other 23
Net Exp.
Profit for the year
Profit for Tax
Profit after Tax
Balance b/d from last year profit
Appropriation reserves
Proposed dividend
Tax on Distributed Profit
General reserve
Total of Appropriation
FLOW OF WORK :-
All departments send their records to book keeping and Accounting entries. They
collect and feed the data in computer. Firstly they prepare J.V. and ledger of each
every particular like purchase, cash etc. Then they prepare P/L A/c or Income and
Expenditure A/c. At last this section deals with the Balance Sheet of the company to
know the financial position of company.
H.A.L Accessories Lucknow Division
Balance Sheet as on 31 st March
Particulars Schedule Amount Amount
Source of funds:-
Shareholder Funds
Capital 1
Reserve & Surplus 2
Loan funds 3
Secured loan
Unsecured loan
Different liability (net) 4
Application of Funds:-
Fixed Assets
Gross Block 5
Less:- Depreciation 6
Net block 7
Special tools & Equipments
8
Investment 9
Current Assets, Loans & Advances
Inventories 10
Sundry Debtors 11
Cash & Bank Balance 12
Loan & Balances 13
Less:- Current liabilities & Provisions
Liabilities 14
Provisions 14
Net C.A.
Miscellaneous Expenditure 15
FINANCE SECTION
OBJECTIVES:-
1. To ensure that the financial discipline is maintained in the Division.
2. To ensure that all expenditure is incurred with due regard to principles of financial
propriety.
3. To ensure that financial 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 & regulations of the company and the guidelines issued by the
company.
4. To ensure that the funds are available in the Approved Capital & Performance
Budget so as to cover the relevant proposals.
5. To submit MIS reports to corporate office monthly.
FUNCTIONS:-
To scrutinize and give financial concurrence as per delegation of power for each
proposal involving :
1. Capital expenditure
2. Revenue expenditure
3. Purchase of materials / stores / tools and other services
4. Manpower requirements
5. Waiver of dues / write off of losses.
6. Cases involving relaxation of rules etc. As per Delegation of powers.
7. Sale, lease, alienation or disposal of company’s assets.
8. Contracts entered into with suppliers / collaborators / sub contractors.
9. Award of contract in respect of civil / electrical works / other works / plant
orders.
10. Project Reports.
Certification for availability of funds with reference to Capital and Performance
Budgets and appropriation of Funds.
PROVIDENT FUND SECTION
This section ensures the timely collection of provident fund money from members
every month. The money so collected from employees is invested in approved
securities. Employee provident fund came into existence in year 1952. Provident fund
trust deals all the functioning of this department. Trust holds its rules and regulations
for the proper functioning.
OBJECTIVES :-
1. To ensure timely collection of Provident Fund money recovered from members
every month by the employer.
2. To invest the Provident Fund accumulations in approved securities as stipulated
by statute.
3. To make payment of loans to members as per the rules/ guidelines/ Bye-laws.
4. To prepare Income and Expenditure Account and Balance Sheet of the Fund and
getting the same duly audited and approved by the Trustees.
5. To file the Returns of Provident Fund to RPFC.
FUNCTIONS :-
1. The PF subscription of members is 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 10th of each month and
credited to Fund’s Account.
2. Payment of loans (Refundable and Non-Refundable) to members as per the rules
of the company, subject to availability of funds.
3. The investments of Provident Fund money is made in the approved securities
and details of investment are approved by the Provident Fund Board of
Trustees.
4. To watch timely recovery of interest and keep watch on securities.
5. 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.
6. To maintain Family Pension Account of each member and remittance to RPFC
at the stipulated dates and file monthly and yearly returns.
7. To remit the account of Provident Fund deduction for contractual / casual
workers by cheque to RPFC and file the return in respect of the same.
8. To distribute the Annual Statement of Provident Fund to all the members in the
format prescribed by RPFC.
9. To make final payment of Provident Fund due to a member on his retirement /
resignation or to the nominee in the case of death of a member as per rules.
10. To maintain accounts of Provident Fund Transactions and get audited by the
Statutory Auditors of the company and approved by the Board of Trustees.
11. To file the monthly returns in the prescribed formats and submit to RPFC by
25th of each month in respect of Provident Fund and Family Pension Fund.
12. To forward Insurance Claims to LIC Bangalore in respect of decreased
members.
Board of Trustees:-
Subject to the provision here after contained the fund shall vest in and be administered
by a “Board of Trustee” consisting the TEN Members. These members are called
“Board Members”. Five Representatives of the member of fund are elected by
recognized union and rest five representatives are elected by management itself, in
these five members one shall be Chairman, one shall be Secretary, acting jointly on
behalf of the board of trusty operate on account of the fund with bank and discharge,
receive or otherwise dispose of, as may be necessary government promissory notes,
interest, warrant etc. relating to fund and shall on behalf of the board reassign to
members in accordance with the rules. Timely meeting are held which the member of
fund deal. This trust deals all the functioning of this department.
Contribution:-
Employers Share:
12% of the Pay (Basic pay + D.A. + Family Planning Increment + Non Practicing
Allowances + Service Weightage Pay, as the case may be) 8.33% out of the employer
share of the contribution to the P.F. Account (the pay for this purpose being limited to
Rs. 6500/- P.M.) is paid into the employees pension fund for the purpose of
employees pension scheme.
Employee’s share:
Employees share of contribution is equal to the contribution payable by the employer
(12%). An employee however can contribute at any rate higher than the statutory rate,
at his option.
Interest:
Interest shall be credited to the account of each member at the rate decided by the
concerned PF trust.
Loans and Advances:
Loans and advances (Refundable as well as Non Refundable) can be taken from the
P.F. Account for specified purposes.
Recovery period for refundable loans is maximum 48 months, along with interest,
which includes 1.5% service charges.
The employee’s pension scheme 1995, introduced by the government of India for
provident fund subscribers is in operation in the company. 8.33% of the employer’s
share of contribution to the PF account (pay for this purpose being limited
to Rs 6500/- p.m.) is diverted to the pension scheme. There is no separate contribution
from the employees.
Legal reports are passed to the regional provident fund commission because of certain
legal bindings. Trust record audit is been done by R.P.F.C. and by C.A.’s time
to time. Timely report send to the department of R.P.F.C. and the timely visit of
inspectors is held by R.P.F.C. by checking the proper functioning of the department.
Under pension scheme 1995 approximate Rs. 542/- month is send to R.P.F.C. In cases
like retirement, ceases are referred to R.P.F.C. evaluates the cases and decides the
amount to be paid to the employees as pension.
These funds that are collected by the department are invited in government securities
(RBI and state government securities) and government bonds (IDBI, ICICI etc.).
Interest that is gained by this process is equally distributed amongst the employees of
HAL.
TIME OFFICE SECTION
The time office department is primarily concerned with recording of each worker’s
time ‘IN’ and ‘OUT’ of the factory, maintaining leaves records and feeding of
attendance record to computer department. It maintains the receipts of approved leave
applications and also provides data for the vacation leave provision to be maid in the
books of accounts.
OBJECTIVES :-
1. Maintenance of leave records and feeding of attendance records to Computer
Department.
2. Maintenance of attendance records of Casual Mali’s, Project Engineers and
Contract Diploma Technicians.
3. Receipt of approved leave applications.
4. To provide data for the Vacation leave provisions to be made in the Books of
Accounts.
FUNCTIONS:-
1. To issue leave cards for the calendar year to the employees/ officers of the
division.
2. To maintain leave ledger P.B. No. (Permanent Batch Number) 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 posting is done
simultaneously from the attendance report received from the concerned
department.
3. To verify the application of vacation leave (V.L.) encashment and advice
accordingly to payroll section.
4. To make calculation for payment of attendance bones to group-A to group-D
employees.
5. To make calculations for provisions for vacation leave to be accounted for in the
final accounts.
6. To verify the applications for advance vacation leave approved through
concerned department and making adjustment thereof in subsequent time
period.
7. 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.
8. To verify the time offs claims in lieu of extra work done/ Sunday duty/ sports
duty scouts duty etc.
9. To advice the payroll section for payment of ex-gratia in accident cases.
10. 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.
11. To provide data for gratuity payment in case of final settlement.
12. To provide data to payroll section for deduction of time loss on the basis of late
arrival report received from security department.
LEAVE:-
Vacation Leave: Employees who are born on the regular rolls of the company are
eligible for vacation leave at the rate of 2.5 days for every 30 days of service.
Vacation leave can be accumulated up to 300 days for executives and up to 240 days
for non-supervisory staff. There is a provision of encashment of vacation leave. The
minimum encashment vacation leave is ten days.
The maximum number of days of cashable vacation leave will be one half of the
vacation leave at credit of the employees on the date of encashment. Leave
encashment will be allowed only once during a calendar year. The encashment will be
at the rate of basic pay (including service Weightage pay in respect of workman and
special pay and personal pay, if any, which are counted as pay for all purpose) +
dearness allowance drawn at the time of encashment.
Rate of Encashment = Basic Pay (Monthly) + D.A.
(Per Day) 26 Days
Casual leave: Employees who are born on regular rolls of the company are eligible
for 12 days of casual leaves in a calendar year. Casual leaves can be availed up to a
maximum of 8 working days at a stretch, subject to the same being sanctioned. Casual
leave can be availed for half a day also.
Rate of Encashment = Basic Pay (Monthly) + D.A.
(Per Day) 30 Days
Maternity leave: It would be available to regular married female employees for 12
weeks inclusive Sunday and Holiday.
Sick Leave: Entitlement of this leave is 15 days in a calendar year.
Prolonged Leave: It is an ex- gratia payment. It is been provided to employees for
long illness for ex. – T.B., Cancer, like diseases. During first 6 months of leave
employee is paid 50% of his monthly Basic Salary. For next 6 months employee is not
been paid any amount. Total duration of the prolonged leave is one year.
Other Provisions Also Exist Like:-
1. Vacation leave in advance.
2. Leave salary/ salary advance.
3. Extension of leave.
4. Encashment of vacation leave on termination of service.
5. Leave without pay.
6. Increment postponement.
7. Special leave/ compensation for employment injury.
8. Cary forward of leave by management trainees/ executive trainees/ technical
trainees.
MANAGEMENT INFORMATION SYSTEM
Management information system implies a type of task performed here by budget
section to provide information to the concerned department with respective need for
future performance. By it, the future contingency can be controlled too a great extent.
It is a very handy system so a great responsibility is handed over to qualified
personnel. This system holds a very important position in the organization and its
responsibility is handed over to budget section. For it according to organization’s
guidelines, section has to frame some important statements for providing information
to responsible executives in concerned department. Some of these statements are:-
Sales Analysis:-
It is prepared after information supplied by B/R section and customer service
department after mutual co-ordination. It is based on the analysis regarding
Manufacture sales, Spares, Repair & Overhaul task, Development sales,
miscellaneous sales, IDTO sales, Export sales, etc. So altogether it consists of all
information regarding ordered contracts. It consists of all details with terms and
conditions, specifications, price, etc.
Capital & Deferred revenue expenditure for new Projects:-
It specifically shows capital as well as DRE. In addition to above specification it
contains information regarding cumulative in case of commitments and expenditure.
Cash Flow:-
Cash flow statement’s information is provided by cash section. It contains information
regarding total receipts and their different sources as well as total expenditures under
main heads. In addition to it, it serves as a cash budget. Also it states probable receipts
ad expenditures in future succeeding three months. Income sources may be receipts
from IAF, Non-IAF and expenditure contains both capital expenditure as well as
revenue expenditures.
Revenue Expenses:-
A statement separately for all revenue expenses which are minutely bifurcated is
prepared containing information as actual and estimated expenditure under
cumulative heads.
Status of Foreign Commitments & Expenditure:-
It is shown to inform in respect of foreign commitments and expenditures made
accordingly. As delay in this expenditure and eagerness to pay both may affect the
organization in drastic manner because foreign exchange so its regulation must be
done in an effective manner. It contains both Western and Russian commitments
regarding capital and revenue items.
Sundry Debtor’s Position:-
It is also clarified by way of previous dues, current month’s dues, period of dues, and
reason for pending which may be due to wait of Government Orders, due to audit,
pending with other divisions, pending for want of RMS & Q 423. It contains
information with balance, additions, realized & balance accordingly. It helps to judge
our debtor’s position and accordingly measures can be taken in future projects and
this one.
Financial Highlights:-
Financial highlights with respect to sales, value of production, profit, values added in
terms of different heads are shown to make at a glance evaluation of major
responsible, productive components of organization.
An Inventory Report:-
It is also submitted according to Goods in Transit, Stores, Work in Progress, Stock in
Trade with remarks from commercial and store department by inspection.
COST ACCOUNT SECTION
OBJECTIVE :-
1. To establish a costing system.
2. To determine the price realizable from the customers for the products
manufactured or supplied by division.
FUNCTIONS :-
1. 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.
2. To accumulate the Labour & Overheads content5 of each activity Project-wise
based on evaluated L.T.B. generated by E.D.P. from Work orders / Time Dockets.
3. To keep track of different Jobs completed and Jobs 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.
4. To review Work orders on which no material / labour cost has been recorded and
finding out the reasons for the same.
5. 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.
6. To ensure that the valuation of W.I.P. has been done correctly keeping in view the
percentage of completion of the Job.
7. To keep track of S.I.T. transactions with different Divisions.
8. To keep record of all I.D.T.O. received and issued.
9. To send debit advices to other Divisions for items dispatched against I.D.T.O
received from them.
10. To accept the debit raised by other Divisions for items received by the Division in
respect of requirements raised by us through I.D.T.O.
11. To evaluate P.C. Memo for S.I.T. Issues, Russian consumption for overhaul and
Amortization of D.R.E.
12. To work out the cost of sales and to reconcile the same with the Design
Department for various customer Financed Projects.
13. To work out the Royalty payable to different Licensors as per the License
Agreement.
14. 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.
15. 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 AOQ.
16. To submit quotations in respect of enquiries received from Non-I.A.F. and Civil
customers.
Registers Maintained or Verified:
Preparation of cost sheet.
Bills of material.
Maintenance of price Catalogue.
Computation of M.H.R.
Calculation of L.T.B.
Preparation Of Cost Sheet
It is a document which provides for the assembly of details cost of centre or a cost
unit. The Cost Sheet is a periodical document of cost designed to show the total cost
and cost per unit of product.
FORMAT OF COST SHEET
Particulars Cost/ unit Total Cost
Direct Material
Direct Wages
Direct Expenditure
Prime Cost
Factory Overhead
Cost of Production
Selling and Distribution Expenses
Total Cost
Profit
Sales
DEFINITION OF COST
Labor Cost:
The labor cost in HAL is further broadly classified into these under mentioned four heads-i) Production overhead cost- POH
ii) Production overhead cost (others) – POH others.
iii) Non production overheads- NPOH.
iv) Inter service rendered/ received on work orders.
Production overhead Cost (POH) – Cost of Conversion:
The cost of conversion of inventories include cost directly attributed to units of
production such as direct labor and also include a rational allocation of fixed and
variable production overheads that are incurred in converting materials into finished
goods. Fixed production overheads are those indirect cost of production that remain
relatively constant regardless of the volume of production such as depreciation,
maintenance of factory building and the cost of factory management and
administration, variable production overheads are those indirect cost of production
that vary directly or nearly directive with the volume of production.
Production overhead cost; others – (POH others):
In context of HAL there are some items of expenditure which are production
overhead in nature but not considered for Man Hour Rate (MHR) valuation of
inventories. These items are like exchange rate variance (deferred liability), license
fees, R & D expenses, selling agent commission, idle time, wage revision, arrears etc.,
which are initially accounted under relevant account head. These items of expenditure
are treated as POH while accounting in cost books.
Non production overheads (NPOH):
non production overhead items are essentially those items of expenses which are
treated as period cost in the year of incurrence and those which are not reckoned for
the purpose of calculation of work in progress (WIP), interest, expenditure, common
service received from corporate office, common service received from complex
office. Marketing and selling expenses are treated as NPOH expenses.
Inter service rendered/ received on work orders:
The transaction accounted under this head of account relate mainly to Bangalore
complex. Divisions, which do not have facilities for executing a particular job often,
get it done at other divisions on their own orders. In these case cost incurred (Direct
labor overhead multiplied with man hour rate of the division executing the job) is
recorded in the WIP of the division which has sent the item for doing the job. The cost
so recorded is treated as inter service rendered on work order in the books of division,
which is executing the work and as inter service received on work orders in the
division in which this expenditure is recorded.
Material Cost:
This represents the value of material drawn on work orders for carrying out
production including those relating of sales and tooling. The material are drawn from
the holding stores against a material requisition voucher indicating the work order
number against which the material are drawn, where common materials are drawn on
a single work order, the same should be apportioned to production work orders on a
rational basis.
Differed Revenue Expenditure
Differed Revenue Expenditure is treated as one of the elements of cost of HAL. DRE
expenditure will include the expenses related to following items:-
1) Specialists Salaries and expenses.
2) Foreign technician fees.
3) License Fees.
4) Foreign Training charges.
5) Documentation.
6) Blue Printing.
7) Collaboration Charges.
8) Pre- production Expenses.
9) Royalty.
10) Static/ long term expenses.
11) Project Management expenses.
Expenditure not forming part of Cost Books:
There are certain items of income and expenditure, which are partly financial in
nature and are accounted for only in cost books of accounts. Being purely financial
expenses these do not form part of the costing expenses, income for absorption
purpose are to be reckoned only for the purpose of reconciling the costing and
financial profits.
Illustrative lists of such income/ expenses, which are purely of financial
nature, are listed below:-
Charges received on IFD sales ScheduleProfit on sales of fixed assets (Schedule 17)Provision on longer required (Schedule 17)Expenses on VRS (Schedule 20)All write Offs including write off of tooling, fixed assets, stores, bad & doubtful debts, surplus stores, storage & rejection and other write offs.
(Schedule 21)
Liquidated damage, penalties (Schedule 21)Charges paid to IFD jobs (Schedule 21A)Provision for replacement and future charges (Schedule 22)Provision for bad debts (Schedule 22)Provision for claims (Schedule 22)Provision for WIP & SIT (Schedule 22)
COMPUTATION OF COST
Direct Material + Direct labor + Direct Expenses = Prime Cost
Ind Mat + Ind Labor + Other Ind Cost Overheads = Works Overheads
Prime Cost + Work Overheads = Factory Cost
Factory Cost + Office & administrative Overhead = Office Cost
Office Cost + Selling & Distribution Overhead = Total Cost
COMPUTATION OF NET AVAILABLE HOURS
S. No.
Particulars Unit Submitted for 06-07
Submitted for 07-08
1 Direct Labor Strength1.1 Strength as on 1st Apr. No. _______ _______1.2 Strength as on 1st Mar. No. _______ _______
_______ _______
1.3 Average Strength No. _______ _______1.4 Less: Direct labor sent to other
divisionNo. _______ _______
1.5 Add: Direct labor sent from other division
No. _______ _______
Net Average strength No.
2 Total average available hours Hrs. _______ _______3 Hours spent on indirect works/ Lost _______ _______3.1 Indirect Department Hrs. _______ _______3.2 Short shift Hrs. _______ _______3.3 Absenteeism Hrs. _______ _______3.4 Standing Order _______ _______a) Avoidable Hrs. _______ _______b) Unavoidable Hrs. _______ _______c) Working Standing orders
D & D othersHrs. _______ _______
Total
3.5 Training & welfare Hrs. _______ _______4 Non available Hours Hrs. _______ _______5 Add: Extra Hours From others
DivisionsHrs. _______ _______
Total available hours Hrs.
6 Breakup of total available hours _______ _______6.1 Manufacture Hrs. _______ _______6.2 R & D Hrs. _______ _______6.3 Outstanding Jobs Hrs. _______ _______6.4 Idle Hours Hrs. _______ _______
Total Hrs.
COSTING AND ITS METHODS
Costing is the technique and process of ascertaining the cost of activities, processes,
products or services. The technique consists of a body of principles and rules, which
govern the procedure of ascertaining costs.
Methods of Costing:-
The principle in every type of costing is same but the methods of analyzing and
presenting the costs differ with the nature of business. There are two basic methods of
costing. There are-
(A) Specific order costing
(B) Operation costing
A) Specific order costing:-
Under this method each contract, job or batch is identified as a cost unit and
the formal mechanism to ascertain the cost of the cost unit is suitably designed.
1. Job Costing:
In this method each job being quite different from the other is treated as an
independent cost unit. A specific number is given to each job to distinguish it from the
other and costs are ascertained in respect of each job represented as a job order,
production order or work order.
2. Batch Costing:
Where orders or jobs are arranged in different batches after taking into account
the convenience of producing articles, batch costing is employed thus in this method,
the cost of a group of products is ascertained. The unit of cost is a batch or group of
identical product instead of a single job order or contract.
3. Contract Costing:
Contract Costing does not in principle differs from job costing. A contract is a
big job while a job is a small contract. The term is usually applied where at different
sites large-scale contracts are carried out.
(B) Operation costing:-
Operation costing includes costing methods of varying complexities such as output
costing, process costing, by-product costing, joint product costing, and service
costing.
1. Process Costing:
If a product passes through different stages, each distinct and well defined, it is
desired to know the cost of production at each stage. In order to ascertain the same,
process costing is employed under which separate account is opened for each process.
2. Output Costing:
The method of costing is used by concerns producing a single article or a few articles
which are identical and capable of being expressed in simple quantitative units. The
cost unit chosen depends upon the unit of measurement. The cost per unit is arrived at
by dividing the total cost during a given period by the total number of units produced.
3. Service Costing:
Service costing is that form of operation costing which applies where standardized
services are provided either by an undertaking or by a service cost center within an
undertaking. The method is applicable to undertakings, which provide service rather
than manufacture goods.
4. Composite Costing:
The costs of different sections of production are combined after finding out the cost of
each and every part manufactured. The system of ascertaining costs in this way is
applicable where a product comprises con many is applicable where a product
comprises of many assembled parts.
There are other methods of costing which are Absorption Costing, Uniform costing,
marginal, Output Costing, and Direct Costing, Departmental costing, Component etc.
JOB COSTING IN HAL
HAL follows this system of costing in accounting. For every work in production shop
job order is issued whether it is work of manufacturing a component for repairs and
overhauls or for assembling or testing the equipments, separate job order is issued or
each and every task.
HAL specify the code no. for each job that mentioned which project or task
performed under which job order.
Following are the schemes for job order costing:
1 2 3 4 5 6 7 8 9 10 11
I digit comprises with following:
1) Production
2) Tooling
3) Stock Order
4) Plant order
5) Resource and Overheads
6) Design and Development
7) Miscellaneous (G.R.E.)
8) Second line tooling
II and III digit contains project code like:
DUNLOP (01), DOWTY (02), MIG 21 (08) etc.
IV, V, VI digit comprises with assembly code under each project code; assemblies
being produced have been assigned 3 digit code.
VII digit comprises with following:
1. S/F Component
2. Sub Assembly
3. Assembly
0,4,5,6,7,8,9 although not allotted by MSD (Management services department), now
being considered as S/F component.
VIII digit includes batch numbers.
IX & X, XI contains programming registration no...
Main Functions of costing in respect of Job Costing
1. Estimating of issue job order.
2. Closure of job order.
3. Maintenance of job cost sheet.
Pricing Policy in HAL
From the beginning HAL has used different types of pricing methods in unlike
periods like upto 1981, Cost plus pricing policy, In 1982-88 Fixed Cost Quotation, In
1988-94, Fixed piece or cost whichever is less is used and in 1998 & onwards Fixed
Price Quotation (FPQ) is used as pricing policy of HAL.
Currently, pricing policy of HAL is based on Fixed Price Quotation (FPQ) system.
FORMAT OF PRICING CATALOGUE:-
HAL LUCKNOW DIVISION
PRICE CATALOGUE OF AIRCRAFT SPARES OF 2007-08
Part no.
NamesMtr. Cost (B)
Mtr. Cost (M)
Total Mtr. Cost
Actual hours
Labour Cost Rs.410.75
Break up cost
Total break up profit NPOH/ POH 5.5% / 10%
Total cost
Unit price
1) Material Cost= Quantity from bills of material * escalation rate
2) Total Material Cost= Material Cost (import) + Material Cost (Manufactured)
3) Actual hours= Work done / efficiency (the efficiency of workers is to be
determined as 66 %)
4) Labour Cost=SMH * MHR / efficiency
(Here, labour cost is computed by taking proportionate of escalation cost of
previous year and current year i.e. 35:65, in this, labour cost is calculated by multiply
hours with Rs. 410.75.)
5) Break up cost= Material cost + Labour cost – NPOH
6) Total cost= Total material cost + Labour cost
7) Total break up profit= 5.5% in NPOH + 10% on material cost
8) Unit cost= Total profit + Total cost & productive hours
9) Total profit= Total break up profit
Maintenance of Price Catalogue
The price system of HAL is based on FPQ...P.C. of HAL comprises with part no.,
nomenclature, material cost of import and indigenous goods, total material cost, hours
@ 6% of efficiency, Labour Cost i.e. proportionate of escalation rate of previous year
and current year, break up cost included material cost and labour cost and excluded
non productive hours and then we find out total break up profit which is 5.5% on non
productive hours and 10% of break up cost and at last we calculate total profit and
unit cost.
Unit Cost= Total Profit + Total Cost
Computation of M.H.R.
It is computed by taking into account the total budgeted expenses and budgeted
production. It is calculated by dividing the total expenses of division by total direct
labour hours of all direct departments.
Calculation of M.H.R.
SI. No. Particulars Actual Revised Estimates
Budgeted Estimate
Forecast
I Divisional Expenses1 Salaries and Wages2 Other Expenses
Total expenses3 Less: Expenses relating to D.R.E.3.1 Training3.1.1 Foreign Technical Fees3.1.2 Others
Sub Total(3.1+3.1.1+3.1.2)3.2 Exchange Rate Variation3.3 Ground Risk Insurance3.4 Others
Sub Total (3.1-3.4)3.5 Net Other Expenses (1+2-3)4 Depreciation5 Provision for contingencies increase
redundancies6 Interdivisional expenses6.1 Debit6.2 Less:- Credit for transfers
Sub Total (6.1+6.2)7 Gross divisional expenses(3.5+4+5+6)8 Less:- Misc. Income9 Other Income
Net divisional expenses(7.8)II MD’s Office ExpensesIII Corporate Office expensesIV Net conversion cost(I+II+III)V Net available hoursVI M.H.R. (IV / V)VII Interest on Fixed CapitalVIII Interest on W.C.IX Net conversion costX M.H.R. (IX / V)
Calculation for Labour Time Booking:
It is computed by multiplication of M.H.R. with total hours.
HAL Lucknow DivisionExpenses of design project
P.C. Description Sanction RDR Mtr.
Issue Mtr.
IDTO Mtr.
Total Mtr.
Feb. Hours
March Hours
Total hours
LTB A/T Total
Computation of D.R.E.
It is differed revenue expenditure. Expenses it includes all expenses in respect of
Fixtures, non Standard equipments, Training equipments, Project management
expenses etc.
The costing section of HAL kept all records in regarding to DRE. The balance of
revenue items should be closed in that year but some balances are not closed. It
should be opening balance of next year i.e. DRE.
Bills of Material:
Format of BOMHAL LUCKNOW DIVISION
SI No.
Part details
Categories of product
No. of material purchased order no.
RDR nos.
Last procurement rate esc. Rate
Total value
COMPUTATION OF NET AVAILABLE HOURS
S. No. Particulars Unit Submitted
for 06-07
Submitte
d for 07-
08
1) Direct Labor Strength
1.1 Strength as on 1st Apr. No. _______ _______
1.2 Strength as on 1st Mar. No. _______ _______
_______ _______
1.3 Average Strength No. _______ _______
1.4 Less: Direct labor sent to other division No. _______ _______
1.5 Add: Direct labor sent from other
division
No. _______ _______
Net Average strength No.
2) Total average available hours Hrs. _______ _______
3) Hours spent on indirect works/ Lost
time hours
_______ _______
3.1 Indirect Department Hrs. _______ _______
3.2 Short shift Hrs. _______ _______
3.3 Absenteeism Hrs. _______ _______
3.4 Standing Order _______ _______
a) Avoidable Hrs. _______ _______
b) Unavoidable Hrs. _______ _______
c) Working Standing orders
D & D others
Hrs. _______ _______
Total
3.5 Training & welfare Hrs. _______ _______
4) Non available Hours Hrs. _______ _______
5) Add: Extra Hours From others
Divisions
Hrs. _______ _______
Total available hours Hrs.
6) Breakup of total available hours _______ _______
6.1 Manufacture Hrs. _______ _______
6.2 R & D Hrs. _______ _______
6.3 Outstanding Jobs Hrs. _______ _______
6.4 Idle Hours Hrs. _______ _______
Total Hrs.
BUDGETARY CONTROL
As there is wide difference between budgeting and budgetary control. But it is often
used interchangeably as a system of managerial control. But budgetary control has
this phenomenon as it implies the use of a comprehensive system of budgeting to aid
management in carrying out its functions like planning, co-ordination and control. It is
a system which uses budgets for planning and controlling different activities of
business. The same concept applies to this organization as its main concentration on
budget and its approach, emphasizes management to derive useful information and
used accordingly. But this phenomenon there is needed to check the activities time to
time by way of “variance analysis” by accepting it as standard figure. In this way,
budget section serves its purpose by fulfilling these objectives:-
Helping in forming plans.
Helping in communicating plans to concerned personnel.
Co-coordinating all activities of the organization so as to facilitate its working and
its success.
Motivating employees to actively participate in decision making process and
achieving goals by fulfillment of duty.
Controlling mainly by thorough discussions, passing on reports, reviewing
budgets, taking into consideration different types of contingencies, etc.
Helps to define the results to be expected.
In addition, it is a type of budget follow up, which performs to watch as it has, has
been used properly and accordingly improvement is done. In this way by this type of
system it provides base for future budgets lying.
This function serving well in this manner in HAL and organization is giving emphasis
by actively participation of corporate executives. Their review, discussions and report
collections serving the purpose well.
Flow chart of purchasing, receiving, recording and paying materials
VendorReturnsAcknowledgementCopyShips materialSend invoices
Accounting dept. useInvoice P.O., R.D.R. payment approved
Cash office for payment.
Material ledger clerk ports quantity and amount value.
Receiving dept.Issue receiving report to purchase dept. own file balance
Inspection dept. Makes distribution to own files according dept. material.
Material dept. Storekeeper stores material in proper location.
Purchase departmentIssue of P.O. to vendorAccounting Dept.Receiving Dept. material ledger account.File copy
Purchase
Requisition
Budget
System
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.
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 that overall control over expenditure, it is necessary that all
expenditures (except that of contingent nature) is authorized through the budget
approval.
For its effective operation, management must know what are its resources, where it
wants to go, what it wants to achieve, whether operations are going on according to
the plan set & such other things which are to be considered. So for this purpose it is
also required that plans are laid down into verifiable terms i.e. quantitative terms and
for that necessary guidelines with target period for achievement are set. It is called a
type of budget. In this manner Budget can be defined as:
“It is a financial statement of plans laid down prior to the period of
its implementation during which it has to follow based on management’s
policy and prepared for specified objective.”
In this way, a budget serves as the guiding path for the prosperity of an organization.
The movement must be accordingly done so that it gives optimum result with less
effort.
The following guidelines are there of budget section :-
The period of budget is April to March. The budget is divided in three part:
1. Current year - Revised estimates i.e.
R.E.
2. Budget year - Budget estimates i.e.
B.E.
(Next year)
3. Forecast year - Forecast estimates i.e.
F.C.
(Next to Budget year)
To ensure that capital facility is made available in time to suit the production
requirement. The proposal under each subhead is classified under three- P& M,
Civil works and others.
All important budgets after approval of the board are broken into monthly
budgets.
To ensure 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.
Presenting estimates and expenditures in terms of function, programmes activities
and project with their financial and physical aspects closely interwoven.
The targets set are critically reviewed from the point of view of availability of
resources and their optimal utilization and to achieve cost reduction.
Analysis of variances and to find out the reasons of such variances and take
suitable remedial measures.
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.
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 & Rationalisation 3. Sales budget
4. Replacement 4. Purchase budget
5. Welfare budget 5. Foreign Exchange
6. Design & Development 6. Manpower budget
7. Information & Technology. 7. Training budget
8. Profit & loss budget
9. Welfare budget
10. Overhead budget
11. Ways & means budget
12. Projected Balance Sheet
CAPITAL BUDGET:-
It is the most important budget which is heavily loaded with funds as due to high &
long term investment. This budget is related to the capital item i.e. items which are to
be used for long period to the betterment of the organization for many task’s
accomplishment. Such as investments in plant and machinery, building, Roads,
vehicles etc.
So in this way it is a long term budget. In this type of budget, management’s duty also
increases as it is a base for all activities. It involves huge capital outlays projects and
long term commitments. It affects decisions over a period of year. It involves large
risks and uncertainties. So in this budget, its preparation is handed over to senior and
experienced executives. It serves following purposes:-
1. Helps to evaluate capital expenditures proposals.
2. Helps to formulate other organizational budget.
3. Helps to consider the best proposals according to which first priority be granted.
4. Helps to control capital expenditure I.e. utilization in effective manner.
5. Helps a systematic procedure for appraising profitability performance of the
company.
Generally top executives of the Corporate and operational level take initiation of
proposals of capital expenditure as per requirements. It is generally concerned
department and project in charge that feel its need. Here in capital budget is laid down
under following heads :
New projects
Existing project
Improvement & Rationalisation
Replacement
Welfare budget
Design & Development
Information & Technology
PERFORMANCE BUDGET:-
This budget is also termed as Revenue budget but due to misconceptions, which might
be taken by others it is names as performance budget. This budget can be recognized
as the type of budget related to different fields which directly and indirectly affect
profitability. But try to serve its purpose basically by incurring small expenditure and
benefits are realized generally at short period of time but some exceptional cases are
there. This type of budget contains different types of budgets which are explained
below:-
Order Status:-
This budget is related to the order pending to order. There are some items which are
too needed later on and earlier not included in budget approval but due to its later
need, sections are obtained and order is raised through P.O. & gets verified by
different department. So these orders status is recognized under this budget.
Generally there is also relaxation where in financial approval is not needed to taken
which is for capital item upto Rs.20,000/- and revenue item up to Rs. 50,000/-. The
rest of order’s value is judged by commercial and verified by finance.
Purchase Budget:-
This budget is prepared to calculate expected purchases to be made and also payments
pending regarding. These types of budgets are prepared after the information data
submitted by bills payable, purchase department & also finance department. Its value
is generally calculated after the FPQ given be costing section.
Sales Budget:-
This budget is prepared after the information supplied by customer service department
and bills receivable section which is ultimately responsible for dispatching the sales
order to words order and bill realization respectively. So in this way expected sale is
prepared. Actually these both budgets i.e. purchase and sales are inter-related as one
affects automatically other’s need. Generally it is calculated be sales order.
Production Budget:-
As we can understand what this budget stands for. It takes into consideration the
production to be done in the budget period. For its preparation mainly production
department on the basis of work order received, gives its information to the budget
section. It is also concerned with keeping sufficient inventory requirement. Production
budget is generally calculated as
Budget sales + Desired closing inventory – Opening inventory
So in this way, it is totally based on sales budget and desired inventory
levels. It also shows unit wise cost. By keeping balance between sales budget and
production budget, idle capacity can be avoided. It is a basis for preparation of
material, labor and factory overhead budget. It also takes into consideration the
cost of carrying out production plans and programs. Here in scientific
management has also to play a significant role.
Manpower Budget:-
This budget is prepared out of the requirement for direct and indirect work force, to
carry out budget plan. Human Resource Department with the help of other department
judges mainly its equipments and sections mainly machine shop. It takes into
consideration the new appointments, their forecasted grade/scale, and retirement.
Payroll has to play an important role here in for calculating dues to be paid. It also
takes into consideration the provident fund and other consideration. As contingency
exists too much under this budget due to deaths, accidents and sudden resignation so
every time there is exceed in expenditure from the budgeted figure. So in these cases
adjustments are made from time to time. It also calculates recruitment and selection
expenditure.
Foreign Exchange Budget:-
Basically it is a part of purchase budget but it specifically takes into consideration the
foreign purchases i.e. imports. In this way, it has to calculate according to the foreign
currency payment. As its rate is not fixed so in this way, every time there is plus-
minus. Mainly two types of imports are mentioned i.e. Russian and Western (UK,
France etc.)
Training Budget:-
As we all can understand that such an organization always need to be get aware with
new technologies, its implementation and operation so that its position can be
maintained. As for this, different types of seminars, group discussions, tests are held.
For this, personnel are also sent to abroad for better learning.
This information according to need is collected from different department and
consolidated in well framed manner and submitted to budget section.
Welfare Budget:-
There are various facilities which are provided to employees of HAL as well as to
their families such as medical, canteen, transport, education, maintenance of clubs and
grounds, etc. So in this way, there are two items under it:
a) Capital item which is dealt in Capital budget;
b) Revenue item which is dealt in this budget.
There are some facilities that are availed by only employees so accordingly
classification is done.
Ways & Means Budget:-
This budget defines the ways to spend money and means to gather money. It means
where from the finance can be generated and where there is need to spend that
collected fund. It is generally defined in broad heads as public debts, loans,
Government grants, payments from customer mainly IAF and others. In this way, it is
to be taken into consideration that wherein we have to spend basically. It is mainly in
capital items, revenue expenditure, communication facility, etc. In this way, it studies
deeply into the matter.
DRE Budget:-
Deferred Revenue Expenditure is those which are not fully realized as per their
expenditure in that year itself but a certain proportion are written off every year and as
per charged to the subject matter. Under its head there are various types of
expenditures such as royalties, technical fee, training expenditure, foreign tours
regarding seminars, licensing, documentation charges, etc. different department’s
requirement and corporate office’s judgment plays an important role in it.
Projected Balance Sheet:-
On the basis of all these budgets about income & expenditure, when they are
consolidated it takes the form of balance sheet which shows the whole thing at glance
and its result as per the Profit & Loss. In this way, we can conclude and reach to a
decision easily. However as per this basis there are chances of much more
contingencies that can totally distract organization from its path and this type of
Balance sheet’s effectiveness becomes negligible.
SIGNIFICANCE FOR ORGANIZATION
It is a tool in the hands of management to establish goals, objectives and targets of the
organization and to measure performance against the above targets. It sets out a path
to walk over to achieve goals accordingly by taking care against probable hurdles. As
this section is related to almost organization so its responsibility increases as for
performing policies.
PERFORMANCE EVALUATION
After the budget layout, it is communicated to all concerned section and department
regarding their action to move accordingly. It as necessary to know what is the result
which prove budget to be efficient and effective. For it, performance report is
obtained time to time from different department of their progress. It is generally
performed quarterly. Monthly review is done in an informal manner which provides
time to time linking with the department and corporate office. It shows whether the
target achieved, not achieved or exceeded. It gives an insight into the operational
inefficiencies.
Generally here in production and sales report plays a major role and main
emphasis is given on it. It decides basically following things:-
Productivity
Growth
Profitability
As there are major aspects which helps to know about an organization’s position.
Here invariance analysis is also made to know that how much distraction has occurred
and whether it is controllable or not. As this is the major function which is to be
performed by budget section. Generally 5 % contingency is taken into consideration
so that significant performance can’t be outshined.
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. Capital Budgeting is a
technique which helps in solving the same aspects of such phenomenon. This study is
basically emphasizing on the Capital Budgeting of H.A.L. Lucknow and tries to find
out ways of optimum utilization of financial resources with the help of Capital
Budgeting technique.
Research Objective :
To study the process of Capital Budgeting with main emphasis on the technique
which is used in H.A.L.
Research Plan :-
Research Design : Descriptive Research
Type of Research : Analytical
Data Collection Methods : Secondary
1. Interviewing the officers related to the concerned department i.e. Chief Manager
of Finance Department, Manager of Budgeting section.
2. Examination of records : Manual related to capital Budgeting, Fixed Price
Quotation Register.
Techno- Economic Justification Report.
COST BENEFIT ANALYSIS OF DIFFERENT PROJECT
Cost Benefit Analysis depend on
Cost Incurred
Benefit Achieved
It is made to find out the benefits achieved in term of profit (money) by selling the
products and making comparison with that of cost incurred to make the product. For
this purpose, element wise cost is computed in respect of
(1) Material consumed
(2) Labour spent / consumed
(3) Other overheads.
The organization of management is always eager to identify the element of profit over
and above the expenditure is made towards the making the product by making Cost –
Benefit Analysis.
When we arrived at Cost – Benefit Analysis. We are interested to know whether we
have gained the profit or sustained loss by comparing the price of the product or
services and the sale proceeds. If there is excess sale proceeds as compare to the price
of that product then there is profit gained by us and when there is sale proceeds less
than the price, then there is loss.
Following are some examples given for cost incurred for a particular product and
benefit achieved against the sale of the product.
Participation of Lucknow Division in Totality
(Rs. in Lakhs)
Sr.No.
Name
of the
Project
Material
consumed
Labour
Consumed
Other
Overheads
Total
Cost
Profit
% of
Cost
Selling
Price
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
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
Participation of Lucknow Division in Totality
0
1000
2000
3000
4000
5000
6000
Material consumed
Labour Consumed
Other Overheads
Total Cost
Profit % of Cost
Selling Price
Generation of Internal Resources
The position of generation of internal resources and its utilisation is as under:
(Rs. in Lakh)InternalResource
Actual05-06
RE06-07
BE07-08
Profit 5817.97 6051.16 6197.05
Depreciation 398.67 403.5 450
Sub Total (A) 6216.64 6454.66 6647.05
B) Utilisation
Replacement of GOILoan, Term/other Loans
874.8 684.8 915.51
Income Tax 1970.31 2036.82 2085.93
Transfer to R&D 769.53 802.87 822.22
Sub Total (B) 3614.65 3524.49 3823.66
Net Available (A-B) 2601.99 2930.17 2823.39
40% of net 1040.8 1172.07 1129.36
Funding of Capital Expenditure
(Rs. In Lakh)HAL Financed RE
06-07BE07-08
FC07-08
Internal Resources 1040.8 1172.07 328.4
Term Loan 2346.57 1319.41
Sub-Total 3387.37 2491.48 328.4
Customer Financed 111.13 285 762.34
Total 3498.5 2776.48 1090.74
Appropriation Fund in Capital Budget
S.No. Descrition SanctionValue
Commitment Value
Deficit Description Sanction Value
Commitment Value
Surplus
1 DistortionMeter
0.60 2.10 1.50 Frequency Meter 0.60 0.26 0.34
2 LCRBridge
1.00 1.07 0.07 DVA Meter 1.00 0.68 0.32
3 Multi Meter4 digit 1.00 1.46
0.46 Light Meter 1.20 0.88 0.32
4 Power Meter 5.00 6.92 1.95 Insulation Resistance Tester
2.00 0.94 1.06
5 Inverterfor AC Supply
6.00 7.70 1.70 Digital Multimeter 3.00 2.82 0.18
6 AC forclean room
7.00 9.20 2.20 Digital CRO 6.004.92 4.08
7 Chokecleaning M/C
2.50 2.770.27
Gauge Calibration M/C 6.00 1.57 4.43
8
DigitalpressureIndicator
3.50 9.21
0.71Automatic power factor 7.00 5.76 4.24
9 Electronic 5.00 5.20 0.20 Stabilizer for 100 5.50 4.87 0.63
Height Gauge KVA-3 Phase
10 Misc.Measuring Inst.
5.00 5.34 0.34
Total 36.60 45.97 9.37 Total 32.30 22.70 9.60
Lucknow Division Capital Budget Year RE 06-07
BE 07-08Justification in respect of Items for which fresh sanctions sought (Rs. In Lakhs)in 06-07 for commitment in BE 07-08
S.No. Details Amount (Rs)(in Lakhs)
Justification
1Machine Accessories 7
These machines are more than 25 yrs. Old. By processingnew Accessories the life of existing machine tolls shall be prolonged.
2 Cabin Fin 0.9 It is required for providing fresh air in cabins & conference hall.
3 Ceiling Fan 5.4 It is required for providing fresh air in cabins & conference hall.
4Exhaust fan 18 Inch 0.9 It is required for provided in new area of SU 30 project.
FINDINGS
1. The beginning of H.A.L. can be traced to the year 1940 when the Late S.W.
Hirachand set up a campany called Hindustan Aircraft Limited, Bangalore.
2. Today, H.A.L. has 14-production division/ unit. Seven at Bangalore and one
each at Nasik, Koraput, Kanpur, Lucknow, Korwa, Hyderabad and Barrackpore.
3. These centers are engaged in the design & development of Combat Aircraft,
Helicopters, Aero engines, Test Beds, Aircraft Communication & Navigation
system and Accessories of Mechanical & fuel system & instruments.
4. the financial highlights of 2006-07 is as follows:
Sales 7783 Crores
Profit before Tax 1744 Crores
Profit after Tax 1149 Crores
Gross after Tax 2081 Crores
5. Steps involved in Capital Budgeting are:
a) Idea generation
b) Cash Flow estimation
c) Cost- Benefit Analysis
d) Authorization & Further Security
e) Control & Review Procedure
6. In case of Customer financed Projects, funds are provided by the parties other
than IAF. For eg, Navy, Coast guard or Border Security Forces. H.A.L. has to work
for them.
7. The term loan or other Government loan which is provided to H.A.L. by IAF is
at very minimum rate of interest i.e. 2-3%.
8. Only 40% of Internal Resources are available for funding capital expenditure
and Rest 60% is used in provisions & Reserves.
9. H.A.L. invests 60% in the form of securities.
10. The share of H.A.L. is 45%. The share of Government is 51% and the rest 4%
share are taken by Tata Steel.
11. While purchasing any machines H.AL. adopt pay back period in order to know
the period in which total cost of the machines can be recovered.
12. Replacement cost involves cost of machine and the processing charges which
include labour overhead and installation charges.
13. HAL has no big competitor in the whole market. i.e. means H.A.L. has
monopoly in the field of aircraft industry.
14. HAL is listed amongst the top ten public sector units in the country.
15. Main customer of HAL is IAF; ADA is one other customer of HAL. Ratio
between IAF and other customers is 87:13 approx.
16. All standards related to production more or less depend upon direct workers.
17. Pricing policy which is adopted by HAL is based on FPQ. 10% profit is taken
on total cost, which is fixed price of the company.
18. Production depends upon the direct and indirect workers.
19. 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.
20. Establishing of rapport direct and indirect workers is very well.
21. Company is performing its responsibilities by providing employment to 4000
people in their division itself.
22. Tight security is made to avoid any kind of distortion. Without entry pass no
outsider can enter into the premises of factory.
SWOT ANALYSIS
STRENGTH
1) H.A.L. 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 Defence Aircraft that is incomparable with any
technologies.
3) H.A.L. is a very good pay-master to its employees as it is very much financially
healthy due to its existence under Ministry of Defence.
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 HAL being the Defence 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.
WEAKNESSES
1) IAF is fully satisfied with the performance of HAL 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 HAL depends for procuring raw
materials for projects are not in a position to deliver the same in time this causes
financial loses to H.A.L. by paying liquidated damages to IAF / Customers.
3) Sometimes HAL 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 H.A.L. 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 H.A.L. wants get similar type of
machineries if approved by the customers.
OPPORTUNITIES
1) H.A.L. is the only manufacturer of the Defence 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 H.A.L. has monopoly in the manufacturing and overhauling of aircraft, so it
can explore all the advantages related to this field.
4) As H.A.L. has developed its own R & D centers so now it would not have to
depend on Russia for Technical know how.
THREATS
1) HAL has fear to terrorist as it is a defence organisation producing fighter aircrafts.
2) Though H.A.L. is manufacturing fighter Aircrafts in confidence and getting the
same inspected by the authorized officials of Airforce. 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, H.A.L. has its fear of attack by enemy – countries as H.A.L. is very
famous for a very good supporting organisation 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.
SUGGESTIONS
1) Before preparation of capital Budget, the records documents available in the
locations of Capital Assets physically present should be checked to compare with
that of items physically available.
2) Year wise records showing the value of the capital items with the gross value and
written down value should be maintained.
3) The source of supply with the details of Purchase Orders and dealers. If any
available in India alternatively should be computerized and maintained.
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.
9) The exchange rate applied in case of anticipated foreign sources for procurement
should have the authentic record for cross- check.
10) Lead time for receiving raw materials from suppliers is more, it should be
reduced.
11) Many employees are very qualified and well endorsed with valuable ideas; their
ideas should be taken into consideration.
12) Intranet facility should be frequently used so as to save money and time.
13) The system of company should be elastic and capable of adopting changes.
14) While preparing capital budget Present Value of money should be taken.
15) Similar kind of working conditions should be provided to employees of same
level.
16) Promotion criteria should not only be based on seniority basis. It should be based
on criteria performance standards.
17) 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.
RECOMMENDATION
1) A representative should be nominated by H O D of the location (s) of the available
capital item for Quarterly checking / verifying the physical conditions and
subsequently to put up to HOD for perusal.
2) The year wise written down-value of cash item should be cross checked with that
of Depreciation registers to reconfirm the Net-Block of Assets and also will be
helpful for submitting the proposal for incorporation in Budgeting without any
negative hope for approval by competent Authority.
3) The details available from Departments (users) will be very helpful for avoiding
double- tendering and submission of Quotation by O E M (Original Equipment
Manufacture) and maintain the procedural commercial as well as financial
parallence.
4) The information of the element of depreciation year wise will encourage the
dealing officials to have the data in hand at any point of time to bring to the
knowledge of management for the necessity of the capital item and the escalation
value there of.
5) The historical data of break-down and the expenditure incurred against the same
will have to be monitored by a single headed person to have better control of
recording and of the desired item in the Budgeting.
6) One person (officer) should handle both the registers i.e. the foreign and
indigenous so that actual conversion of foreign currency into rupees will be more
authentic in estimated value. So far as the indigenous sources (dealers) are
concerned there will be control mechanism for tendering and avoiding double
tenders relating to one O E M (i.e. one directly by OEM & other by Dealer).
7) A checklist should be maintained and held with one officer dealing with Capital
budgeting where each element of estimated cost is monitored after approval. The
same are – Basic Price, Customs duty Excise Duty, Charge (Octroi) Trade Tax,
Sales Tax (Center), Service Tax, Transportation, Packing and forwarding charges,
Bank charges, Installation and Commissioning Charges, Warranty Charges,
Insurance Charges, Late Delivery Charges, Profit inclusion if any.
8) The team should ensure that there is coverage of Exchange Rate variation to arrive
at the reasonable and actual value of the Assets. This should be monitored by
commercial Department Head to have the better estimated value of the capital
items in future with particular reference to supply by Foreign Vendors.
9) Previous purchase order’s list should be always available with the In-charge who
is involved in submitting the proposals and including the items in Capital
Budgeting. The Concerned Officer who described the item in the Budgeting, held
responsible for wrong purchase or purchase with high value which is avoidable.
The purchase order’s list should be utilized like bible for Commercial and
Financial activities in Capital Budgeting.
10) The financial cost should be recovered from the customer – financed project fully
by following the Current method of Interest computation for the period within
which the funds made available by the customers specifically. This control should
be done by user and finance officer dealing with Capital Budgeting.
CONCLUSION
As H.A.L. has number of projects, which need huge investment so it also used
appraisal method like pay-back period method for evaluating the capital expenditure
proposals. But as pay-back period method does not consider the time value of money
so it must adopt discounted cash flow techniques which consider the time value of
money. Pay – back period method does not able to tell post pay-back profitability.
These factors can only be judged by net-present value method or internal rate of
return method.
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 Lucknow 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 HAL, but also provided me the practical view that how the
financial functions and theories are applicable in an organization.
HAL 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.
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 HAL
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
goals, objects and target of the company. It ensures the overall control over the
expenditure as all the expenditures are sanctioned in the budget.
The budget is classified into 2 categories for convenience Capital and Performance. It
is ensured that 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 HAL, budgeting system
that is prevailing can be said to be an effective one of the organization.
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.
LIST OF ABBREVIATION
P.O. Purchase OrderR.D.R. Receiving Cum Discrepancy ReportG.I.T. Goods In TransitS.I.T. Stock In TradeB/E Bill Of EntryL/C Letter Of CreditM.I.S. Management Information SystemF.P.Q. Fixed Price QuotationP.C. Price CatalogueI.D.T.O. Inter Divisional Transfer OrderI.F.D. Inter Factory DemandD.R.E Deferred Revenue ExpenditureR.M.S.O. Repairs Maintenance Supply OrderL.T.B. Labor Time BookingW.I.P. Work In ProgressA.H.Q. Air Head QuartersM.R. Material RequisitionC.F.A. Competent Financial AuthorityB.E. Budget EstimatesR.E. Revised EstimatesF.C. ForecastAO (D.A.D) Accounts Officer(Defense Accounts Department)E.D.P. Electronic Data ProcessingM.S.D. Management Service DepartmentB.O.M. Bills Of Material
I.M.M. Integrated Material ManagementS.M.H. Standard Minimum HoursL.O.H. Labor OverheadsP.O.H Production OverheadsN.P.OH. Non Productive OverheadsI.A.F. Indian Air ForceA.D.A. Aeronautical Development Agency
BIBLIOGRAPHY
1) Annual Report of H.A.L. Lucknow.
2) Introduction of Accountancy by S.N. Maheshwari.
3) Financial Management by S.N. Maheshwari.
4) Financial Management by Khan & Jain.
5) Financial Management by I.M.Pandey.
6) Journals and Magazines etc.
7) Financial websites
www.hal-india.com
www.hindubusiness.com
www.mag-india.com
www.domail-b.com
