TABLE OF CONTENTS

S.NO. 1 2 3 i ii iii iv v vi vii 4 5 6 7 8 9 10

PARTICULARS INTRODUCTION ORGANIZATIONAL PROFILE OF THE COMPANY FINANCIAL HIGHLIGHTS: DIFFERENT SECTIONS

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IN

THE

DEPARTMENT BILLS PAYABLE (INLAND) MATERIAL ACCOUNTS SECTION BUDGET SECTION TIME OFFICE SECTION PROVIDENT FUND SECTION CATEGORIES OF OPERATION RESEARCH METHODOLOGY SWOT ANALYSIS FINDINGS CONCLUSION SUGGESTIONS BIBLIOGRAPHY LIST OF ABBREVIATIONS

INTRODUCTION OF TOPIC
Working capital management is concerned with the problems that arise in attempting to manage the current assets, the current liabilities and the interrelationship that exists between them. The term current assets refer to those assets which in the ordinary course of business can be, or will be, converted into cash within one year without undergoing a diminution in value and without disrupting the operations of the firm. The major current assets are cash, marketable securities, accounts receivable and inventory. Current liabilities are those liabilities which are intended, at their inception, to be paid in the ordinary course of business, within a year, out of the current assets or earnings of the concern. The basic current liabilities are accounts payable, bill payable, bank overdraft, and outstanding expenses. The goal of working capital management is to manage the firms current assets and liabilities in such a way that a satisfactory level of working capital is maintained. This is so because if the firm cannot maintain a satisfactory level of working capital, it is likely to become insolvent and may even be forced into bankruptcy. The current assets should be large enough to cover its current liabilities in order to ensure a reasonable margin of safety. The interaction between current assets and current liabilities is, therefore, the main theme of the theory of working management.
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CONCEPTS OF WORKING CAPITAL

There are two concepts of working capital: 1. Gross working capital. 2. Net working capital.

Gross working capital refers to the firms investment in current assets. Current assets are the assets which can be converted into cash within an accounting year and include cash, short-term securities, debtors, (accounts receivable or book debts) bills receivable and stock (inventory).

Gross work capital = total current assets

Net working capital refers to the difference between current assets and current liabilities, Current liabilities are those claims of outsiders which are expected to mature for payment within an accounting year and include creditors (accounts payable), bills payable, and outstanding expenses. Net working capital can be positive or negative. A positive net working capital will arise when current assets exceed current liabilities are in excess of current assets.

Net working capital = current assets current liabilities

NEED FOR WORKING CAPITAL

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

overemphasized. Given the objective of financial decision making to maximize the shareholders wealth, it is necessary to generate sufficient profits. The extent to which profits can be earned will naturally depend, among other thins, upon the magnitude of the sales. A successful sales programmed is, in other words necessary for earning profits by any business enterprise. However, sales do not convert into cash instantly; there is invariably a time-lag between the sale of goods and the receipt of cash. There is, therefore, a need for working capital in the form of current assets to deal with the problem arising out of the lack of immediate realization of cash against goods sold. Therefore, sufficient working capital is necessary to sustain sales activity. Technically, this is referred to as the operating or cash cycle. The operating cycle can be said to be at the heart of the need for work capital. The continuing flow from cash to suppliers, to inventory, to accounts receivable and back into cash is what is called the operating cycle. In others words, the term cash cycle refers to the length of time necessary to complete the following cycle of events.
1. Conversion of cash into inventory; 2. Conversion of inventory into receivables; 3. Conversion of receivables into cash.

OPERATING CYCLE OR WORKING CAPITAL CYCLE

Operating cycle is the time duration required to covert sales after the conversion of recourses into inventories, into cash.

The operating cycle consists of three phases; PHASE:-1 Cash gets converted into inventory. This includes purchase of raw materials, conversion of raw materials into work-in-progress, finished goods and finally the transfer of goods to stock at the end of the manufacturing process. In the case of trading organizations, this phase is shorter as there would be no manufacturing activity and

cash is directly converted to inventory. The phase is, of course, totally absent in the case of service organizations. PHASE:-2 In this phase the inventory is converted into receivables as credit sales

are made to customers. Firms which do not sell on credit obviously not have phase II of the operating cycle. PHASE:-3 The last phase represents the stage when receivables are collected. This

phase completes the operating cycle. Thus, the firm has moved from cash to inventory, to receivables and to cash again. The above operating cycle is repeated again and again over the period depending upon the nature of the business and type of product etc. The duration of the operating cycle of a manufacturing firm is the sum of:i.

Inventory conversion period. (ICP)

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

The inventory conversion period is the total time needed for producing and selling the product. Typically, it includes: a. Raw material conversion period (RMCP). b. Work-in-process conversion period (WIPCP).
c. Finished goods conversion period (FGCP).

The debtors conversion period is the time required to collect the outstanding amount from the customers. The total of inventory conversion period and debtors conversion period is referred to as gross operating cycle (GOC). In practice, a firm may acquire resources (such as raw materials) on credit and temporarily postpone payment of certain expenses. Payables, which the firm can defer, are spontaneous sources of capital to finance investment in current assets. The creditors (payables) deferral period (CDP) is the length of time of the firm is able to defer payments on various resource purchases. The difference between (gross) operating cycle and payables deferral period is net operating cycle (NOC).

TYPES OF WORKING CAPITAL

PERNAMENT WORKING CAPITAL: Permanent of fixed working capital is the minimum amount which is required to ensure effective utilization of fixed facilities and
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for maintaining the circulation of current assets. There is always a minimum level of current assets, which is continuously required by the enterprise to carry cut its normal business operations. For example, every firm has to maintain a minimum level of raw materials, work-in-process, finished goods and cash balance. This minimum level of current assets is called permanent or fixed working capital as this part of capital is permanently blocked in current assets. As the business grows the requirements of permanent working capital also increase due to the increase in current assets.

The permanent working capital can further be classified as regular working capital and reserve working capital required ensuring circulation of current assets from cash to inventories, from inventories to receivables and from receivables to cash and so on.
i.

Regular working Capital: This is the amount of working capital required for the continuous operations of an enterprise. It refers to the excess of current assets over current liabilities. Any organization has to maintain a minimum stock of materials, finished goods and case to ensure its smooth work and to meet its immediate obligations.

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

the requirement for regular working capital which may be provided for contingencies that may arise at unstated period such as strikes, rise in prices, depression, etc.

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Temporary or Variable Working Capital: Temporary or variable working capital is the amount of working capital which is required to meet the seasonal demands and some special exigencies. Variable working capital can be further classified as seasonal working capital and special working capital.
i.

Seasonal Working Capital: Seasonal working capital is required to meet the seasonal needs of the enterprise such as a textile dealer would require large amount of funds a few months before Diwali.

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

which is required to meet special exigencies such as launching of extensive marketing campaigns for conducting research, etc. Temporary working capital differs from permanent working capital in the sense that it is required for short periods and cannot be permanently employed gainfully in the business. The following diagrams would show the difference between permanent and temporary working capital. Figure (1) present temporary working capital and figure (2) present permanent working capital.

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BALANCE WORKING CAPITAL POSITION

The firm should maintain a sound working capital position. It should have adequate working capital to run its business operations. Both excessive as well as inadequate working capital positions are dangerous from the firms point of view. Excessive working capital means holdings costs and idle funds which earn no profits for the firm. Paucity of working capital not only impairs the firms profitability but also results in production interruptions and inefficiencies and sales disruptions. The dangers of excessive working capital are as follows:

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It results in unnecessary accumulation of inventories. Thus, chances of inventory mishandling, waste, theft and losses increase

It is an indication of defective credit policy and slack collection period. Consequently, higher incidence of bad debts results, which adversely affects profits.

Excessive working capitals make management complacent which degenerates into managerial inefficiency.

Tendencies of accumulating inventories tend to make speculative profits grow. This may tend to make dividend policy liberal and difficult to cope with in future when the firm is unable to make speculative profits.

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

It stagnates growth. It becomes difficult for the firm to undertake profitable projects for non-availability of working capital funds.

It becomes difficult to implement operating plans and achieve the firms profit target.

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Operating inefficiencies creep in when it becomes difficult even to meet day-today commitments.

Fixed assets are not efficiently utilized for the lack of working capital funds. Thus the firms profitability would deteriorate.

Paucity of working capital funds render the firm unable to avail attractive credit opportunities etc.

The firm loses its reputation when it is not in a position to honour its short-term obligations. As a result, the firm faces tight credit terms. An enlightened management should therefore, maintain the right amount of

working capital on a continuous basis. Only then a proper functioning of business operations will be ensured. Sound financial and statistical techniques, supported by judgment, should be used to predict the quantum of working capital needed at different time periods.

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POLICIES FOR FINANCEING CURRENT ASSETS

A firm can adopt different policies vis--vis current assets. Three types of financing may be distinguished:
Long-term financing: The sources of long-term financing include ordinary share

capital, preference share capital, debenture, long-term borrowings from financial institutions and reserves and surplus (retained earnings).

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

than one year. It is arranged in advance from banks and other suppliers of short term finance in the money market. Short-term finance includes working capital funds from banks, public deposits, commercial paper, factoring of receivable etc.

Spontaneous financing: Spontaneous financing refers to the automatic sources

of short-term funds arising in the normal course of a business. Trade (suppliers) credit and outstanding expenses are examples of spontaneous financing. There is no explicit cost of spontaneous financing. A firm is expected to utilize these sources of finances to the fullest extent. The real choice of financing current assets, once the spontaneous sources of financing have been fully utilized, is between the long-term and short-term sources of finances.

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DETERMINING FINANCING MIX

Financing mix is the choice of source of financing of current assets. There are three basic approaches to determine an appropriate financing mix: (a) Hedging approach (b) Conservative approach (c) Aggressive approach

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

reducing investment strategy involving transactions of a simultaneous but opposing nature so that the effect of one is likely to counterbalance the effect of the other. With reference to an appropriate financing-mix, the term hedging can be said to refer to the process of matching maturities of debt with the maturities of financial needs. This approach to the financing decision to determine an appropriate financing-mix is, therefore, also called as matching approach.

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

approach in financing its current and fixed assets. The financing policy of the firm is said to be the conservative when it depends more on long-term funds

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for financing needs. Under a conservative plan, the firm finances its permanent assets and also a part of temporary current assets with long term

financing. In the periods when the firm has no need for temporary current assets, the idle long-term funds can be invested in the tradable securities to conserve liquidity. The conservative plan relies heavily on long-term financing and, therefore, the firm has less risk of facing the problem of shortage of funds.

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

aggressive policy is said to be followed by the firm when it uses more shortterm financing than warranted by the matching plan. Under an aggressive policy, the firm finances a part of its permanent current assets with shortterm financing. Some extremely aggressive firms may even finance a part of there fixed assets with short-term financing. The relatively more use of shortterm financing makes the firm more risky.

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COMPUTATION OF WORKING CAPITAL

The two components of working capital (WC) are current assets (CA) and current liabilities (CI). They have a bearing on the cash operating cycle. In order to calculate the working capital needs, what is required is the holding period of various types of inventories, the credit collection period and the credit payment period. Working capital also depends on the budgeted level of activity in terms of production/sales. The calculation of WC is based on the assumption that the production/sales is carried on evenly throughout the year and all costs, accrue similarly. The steps involved in estimating the different items of CA and CI are as follows. Estimation of Current Assets
1. Raw Materials Inventory: The investment in raw materials inventory is

estimated on the basis of:-

Budgeted Production (In units) x

cost of raw materials(s) per unit 12 months/365 days x

Average inventory holding period (Months/days)

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

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

conversion

costs

(Labour

and

manufacturing

overhead

cost

excluding

depreciation). In case, full unit of raw material is required in the beginning, the unit cost of work-in-process would be higher, that is cost of full unit + 50 per cent of conversion cost, compared to the raw material requirement throughout the production cycle: S/P is normally equivalent to 50 per cent of total cost of production. Symbolically:

Budgeted Production (In units) x

Estimated work -in-process cost per unit 12 months/365 days x

Average time span of work-in-progress (Months/days)

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

goods inventory is given by factors summed up:-

Budgeted Production x

cost of goods produced per unit (excluding x

finished goods holding period

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(In units)

depreciation) 12 months/365 days

(Months/days)

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

price (excluding depreciation) Symbolically:-

Budgeted Credit sales x (in units)

cost of sales per unit excluding depreciation 12 months/365 days x

average debt collection period

(months/days)

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

debtors, firms also procedure of determining such and amount. This would primarily be based on the motives for holding cash balances of the business firm, attitude of management toward risk, the access to the borrowing sources in times of need and past experience, and so on.

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Estimation of Current Liabilities:

1. Trade Creditors:

Budgeted yearly Production (in units) x

Raw material cost per unit 12 months/365 days

Credit period x allowed by creditors (months/days)

2. Direct Wages:

Budgeted yearly Production (in units) x

Direct labour cost per unit 12 months/365 days

Average time-lag in x payment of wages (months/days)

3. Overheads (Other Than Depreciation and Amortization). 24

Budgeted yearly Production (in units) x

Overhead cost per unit 12 months/365 days x

Average time-lag in payment of overheads (months/days)

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FORMATE:

Determination of Working Capital.

(i) Estimation of Current Asset: (a) Minimum desired cash and bank balances. (b) Inventories: Raw material Work-in-process Finished goods (c) Debtors Total Current Assets (ii) Estimation of Current Liabilities: (a) Creditors. (b) Wages. (c) Overheads Total Current Liabilities (iii) Net Working Capital(i-ii) Add: margin for contingency (iv) Net Working Capital Required

Amount

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CASH MANAGEMENT

Introduction
Cash is the important current assets for the operation of the business. Cash is the basic input needed to keep the business running on a continuous basis; it is also the ultimate output expected to de realized by selling the service or product manufactured by the firm. The firm should keep sufficient cash, neither more nor less. Cash shortage will disrupt the firms manufacturing operations while excessive cash will simply remain idle, without contributing anything towards the firms profitability. Thus, a major function of the financial manager is to maintain a sound cash position.

Facets of Cash Management

Cash management is concerned with the managing :

Cash planning: cash inflows and outflows should be planned to project cash surplus or deficit for each period of the planning period. Cash budget should be prepared for this purpose.

Managing the cash flows: the flow of cash should be properly managed. The cash inflows should be accelerated while, as far as possible, the cash outflows should be decelerated.

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

balances. The cost of excess cash and danger of cash deficiency should be matched to determine the optimum level of cash balances.
Investing surplus cash: the surplus cash balances should be properly invested

to earn profits. The firm should decide about the division of such cash balance between alternative short-term investment opportunity such as bank deposits, marketable securities, or inter-corporate lending.

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Cash Management Cycle

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MOTIVES FOR HOLDING CASH

The firms need to hold cash may be attributed to the following three motives: The transactions motive The precautionary motive The speculative motive Compensative motive

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

conduct its business in the ordinary course. The firm needs cash primarily to make payments for purchases, wages and salaries, other operating expenses, taxes, dividends etc. the need to hold cash would not arise if there were perfect synchronization between cash receipts and cash payments, i.e., enough cash is received when the payment has to be made. But cash receipts and payments are not perfectly synchronized. For those periods, when cash payment exceed cash receipts, the firm should maintain some cash balance to be able to make required payments. For transactions purpose, a firm may invest its cash in the marketable securities. Usually, the firm will purchase securities whose maturity corresponds with some anticipated payments, such as dividends, or taxes in the future. Notice that the transactions motive mainly refers to holding cash to meet anticipated payments whose timing is not perfectly matched with cash receipts.
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Precautionary motive: The precautionary motive is the need to hold cash to

meet contingencies in the future. It provides a cushion or buffer to withstand some unexpected emergency. The precautionary amount of the cash depends upon the predictability of the cash flows. If cash flows can be predicted with accuracy, less cash will be maintained for emergency. The amount of precautionary cash is also influenced by the firms ability to borrow at short notice when need arises. Stronger the ability of the firm to borrow at short notice, lesser will be the need for precautionary balance. The precautionary balance may be kept in cash marketable securities. Marketable securities play an important role here. The amount of cash set aside for precautionary reasons is not expected to earn anything; therefore, the firm should attempt to earn some profit in it. Such funds should be invested high-liquid and low-risk marketable securities. Precautionary balance should, thus, be hold more in marketable securities and relatively less in cash.

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

for investing in profit-making opportunities as and when they arise. The opportunity t make profit may arise when the security prices change. The firm will hold cash, when it is expected that interest rates will rise and security prices will fall. Securities can be purchased when the interest rate is expected to fall; the

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firm will benefit by the subsequent fall in interest rates and increase in security prices. The firm may also speculate on materials prices. If it is expected that

materials prices will fall, the firm can postpone materials purchasing and make purchases in the future when price actually falls. Some firms may hold cash for speculative purpose. By and large, business firms do not engage in speculations. Thus, the primary motives to hold cash and marketable securities are: the transactions and the precautionary motives.

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

compensate banks for providing certain services and loans. Banks provide a variety of services to business firms, such as clearance of cheque, supply of credit information, transfer of funds, and so on. While for some of these services banks charge a commission or fee, for others they seek indirect compensation. Usually clients are required to maintain a minimum balance of cash at the banks. Since the balance cannot be utilized by the firms for transaction purposes, the banks themselves can use the amount to earn a return. Such balances are compensating balances. Compensating balances are also required by some loan agreements between a bank and its customers. During periods when the supply of credit is restricted and interest rates are rising, banks require a borrower to maintain a minimum balance in his account as a condition precedent to the grant of loan. This is
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presumably to compensate the bank for a rise in the interest rate during the period when the loan will be pending.

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CASH MANAGEMENT MODEL

Two important cash management model which lead to determination of optimum balance of cash are:(1) (2) Optimum cash balance under certainty : Baumols Model Optimum cash balance under uncertainty : The Miller-Orr Model

Optimum cash balance under certainty : Baumols Model

The Baumols model of cash management provides a formal approach for determining a firms optimum cash balance under certainty. It considers cash management similar to an inventory management problem. As such, the firm attempts to minimize the sum of the cost of holding cash and the cost of converting marketable securities to cash. The Baumols model makes the following assumption:

The firm is able to forecast its cash needs with certainty. The firms cash payments occur uniformly over the period of time. The opportunity cost of holding cash is known and it does not change over time. The firm will incur the same transaction cost whenever it converts securities to cash.
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Let us assume that the firm sells securities and starts with a cash balance of C rupees. As the firm sped cash, its cash balance decreases steadily and reaches to zero. The firm replenishes its cash balance to C rupees by selling marketable

securities. This pattern continues over the time.

Since the cash balance

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

The firm incurs a holding cost for keeping the cash balance. It is an opportunity cost; that is, the return forgone on the marketable securities. If the opportunity cost is k, then the firms holding cost for maintaining an average cash balance is as follows:Holding cost = k(C/2)

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The firm incurs a transaction cost whenever it converts its marketable securities to cash. Total number of transactions during the year will be total funds requirement, T, divided by the cash balance, C, i.e. T/C. the per transaction cost

is assumed to be constant. If per transaction cost is c, then the total transaction cost will be:Transaction cost = c(T/C) The total annual cost of the demand for cash will be: Total cost = k(C/2) + c(T/C) The holding cost increases as demand for cash, C, increases. However, the transaction cost reduces because with increasing C the number of transaction will decline. Thus there is a trade-off between the holding cost and the transaction cost .

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The optimum cash balance, C*, is obtained when the total cost is minimum. The formula for optimum cash balance is as follows:-

C* = 2cT/k
Where, C*= optimum cash balance, c = cost per transaction, T = total cash needed during the year, and k = opportunity cost of holding cash balance.

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The optimum cash balance will increase with increase in the per transaction cost and total funds required and decrease with the opportunity cost.

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Optimum Cash Balance under Uncertainty: The Miller-Orr Model

Miller-Orr model is a model that provides for cost-efficient transactional balances and assumes uncertain cash flows and determines an upper limit and return point for cash balances. It assumes that net cash flows are normally distributed with a zero value mean and a standard deviation. As shown in following figure, the MO model provides for two control limitsthe upper control limit and the lower control as well as a return point. If the firms cash flows fluctuate randomly and hit the upper limit, then it buys sufficient marketable securities to come back to a normal level of cash balance (the return point). Similarly, when the firms cash flows wander and hit the lower limit, it sells sufficient marketable securities to bring the cash balance back to the normal level (the return point).

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The firm sets the lower control limit as per its requirement of maintaining minimum cash balance. The difference between the upper limit and the lower limit depends on the following factors:

The transaction cost (c) The interest rate, (i) The standard deviation ( of net cash flows.

The formula for determining the distance between upper and lower control limits (called Z) is as follows: (Upper limit Lower limit) = ( 3/4 * Transaction Cost * Cash Flow Variance/Interest per day)1/3 Z = (3/4*c2/ i )1/3
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We can notice from above equation that the upper and lower limits will be far off from each other (i.e. Z will be larger) if transaction cost is higher or cash flows show greater fluctuations. The limits will come closer as the interest increases. Z is inversely related to the interest rate. It is noticeable that the upper control limit is three times above the lower control limit and the return point lies between the upper and the lower limits. Thus, Upper limit = lower limit + 3Z Return point = lower limit + Z

The net effect is that the firms hold the average cash balance equal to: Average Cash Balance = Lower Limit + 4/3Z The MO model is more realistic since it allows variation in cash balance within lower and upper limits. The financial manager can set the lower limit according to the firms liquidity requirement. The past data of the cash flow behavior can be used to determine the standard deviation of net cash flows. Once the upper and lower limits are set, managerial attention is needed only if the cash balance deviation from the limits. The action under these situations are anticipated and planned in the beginning.

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MARKETABLE SECURITIES
Meaning and characteristics:
Once the optimum level of cash balance of a firm has been determined, the residual of its liquid assets is invested in marketable securities. Such securities are short-term investment instruments to obtain a return on temporarily idle funds. In other words, they are securities which can be converted into cash in a short period of time, typically a few days. The basic characteristics of marketable securities affect the degree of their marketability/liquidity. To be liquid, a security must have two basic characteristics: a ready market and safety of principal. Ready marketability minimizes the amount of time required to convert a security into cash. A ready market should have both breadth in the sense of a large number of participants scattered over a wide geographical area as well as depth as determined by its ability to absorb the purchase/sale of large amounts of securities. The second determinant of liquidity is that there should be little or no loss in the value of a marketable security over time. Only those securities that can be easily converted into cash without any reduction in the principal amount qualify for short-term investments. A firm would be better off leaving the balances in cash if the alternative were to risk a significant reduction in principal.

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MARKETABLE SECURITY ALTERNATIVES

Marketable security alternatives are more prominent marketable/near-cash securities available for investment. Our concern is with money market instruments.

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

The usual practice in India is to sell treasury bills at a discount and redeem them at par on maturity. The difference between the issue price and the redemption price, adjusted for the time value of money, is return on treasury bills. They have liquidity. Also, they do not have the default risk.

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

securities issued by the highly creditworthy large companies. They are issued with e maturity of three months to one year. CPs are marketable securities, and therefore, liquidity is not a problem.

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

by banks acknowledging fixed deposits for a specified period of time. CPs are negotiable instruments that make them marketable securities.

Bank deposits: A firm can deposit its temporary cash in a bank for fixed
period of time. The interest rate depends on the maturity period.

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For example, the current interest rate for a 30 to 45 days deposit is about 3 per cent and for 180 days to one year is about 6-7 per cent. The default risk of the bank deposits is quite low since the government owns most banks in India.

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

popular short-term investment alternative for companies in India. Generally a cash surplus company will deposit (lend) its funds in a sister or associate companies or with outside companies with high credit standing. In practice, companies can negotiate inter-corporate borrowing or lending for very short periods. The risk of default is high, but returns are quite attractive.

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

focus on short-term marketable securities such as TBs, CPs, CDs or call money. They have a minimum lock-in period of 30 days, and after this period, an investor can withdraw his or her money time at a short notice or even across the counter in some cases. They offer attractive yields; yields are usually 2 per cent above than on bank deposits of same maturity. MMMFs are of recent origin in India, and they have become quite popular with institutional investors and some companies.

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Repurchase agreements: These are legal contracts that involve the actual
sale of securities by borrower to the lender with a commitment on the part of the

former to repurchase the securities at the current price plus a stated interest charge. The securities involved are government securities and other money market instruments. The borrower is either a financial institution or a security dealer.

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

bills. Bills of exchange are drawn by seller (drawer) on the buyer (drawee) for the value of goods delivered to him. During the tendency of the bill, if the seller is in need of funds, he may get it discounted. On maturity, the should be presented to the drawee for payment.

Call market: It deals with funds borrowed/lent over night/one day (call) money
and notice money for periods up to 14 days. It enables corporate to utilize their float money gainfully. However, the returns (call rates) are highly volatile. The stipulations pertaining to the maintenance of cash reserve ratio (CRR) by banks in the major determinant of the demands in the funds and is responsible for volatility in the call rates.

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RECEIVABLE MANAGEMENT
INTRODUCTION
The term receivable is defined as debt owed to the firm by customers arising form sale of goods or services in the ordinary course of business. When a firm makes an ordinary sale of goods or services and does not receive payment, the firm grants trade credit and creates accounts receivable which could be collected in the future. Receivables management is also called trade credit management. Thus, accounts receivable represent an extension of credit to customers, allowing them a reasonable period of time in which to pay for the goods received.

Cost associated with the extension of credit:

The major categories of cost associated with the extension of the credit and account receivables are: 1. Collection cost 2. Capital cost 3. Delinquency cost, and
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4. Default cost. Collection cost: Collection costs are administrative costs incurred in collecting the receivables from the customers to whom credit sales have been made. Included in this category of costs are:

a) Additional expenses on the creation and maintenance of a credit department with staff, accounting records, stationary, postage and other related items;
b) Expenses involved in acquiring credit information either through outside

specialist agencies or by the staff of the firm itself. These expenses would not be incurred if the firm does not sell on credit. Capital cost: The increased level of accounts receivable is an investment in assets. They have to be financed thereby involving a cost. There is a time lag between the sale of goods to, and payment by, the customers. The firm should arrange for additional funds to meet its own obligations while waiting for payments from its customers. The cost on the use of additional capital to support credit sales, which alternatively could be profitably employed elsewhere, is, therefore, a part of the cost of extending credit or receivables. Delinquency cost: this cost arises out of the failure of the customers to meet their obligations when payments on credit sales become due after the expiry of the credit period. Such costs are called delinquency cost. The important components of this cost are:
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i. ii.

Blocking up of funds for an extended period, Cost associated with steps that have to be initiated to collect the over dues.

Default cost: the firm may not be able to recover the over dues because of the inability of the customers. Such debts are treated as bad debts and have to be written off as they cannot be realized. Such costs are known as default cost associated with credit sales and account receivables.

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CREDIT POLICY
The credit policy of a firm provides the frame work to determine: a) Whether or not to extend credit to a customer and b) How much credit to extend. The term credit policy is used to refer to the combination of three decision variables: 1. Credit standards, 2. Credit terms, and 3. Collection efforts

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

customers to whom goods could be sold on credit. If a firm has more slow paying customers, its investment in accounts receivable will increase. The firm will also be exposed to higher risk of default.

Credit terms: Credit terms specify duration of credit and terms of payment by
customers. Investment in accounts receivable will be high if customers are allowed extended time period for making payments. Credit terms have three components:

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i. Credit period, in terms of the duration of time for which trade credit is extended. During this period the over due amount must be paid by the customers. ii. Cash discount, if any, which the customer can take advantage of, that is, the over due amount will be reduced by this amount. iii. Cash discount period, which refers to the duration during which the discount can be availed of.

Collection efforts: Collection efforts determine the actual collection period.

The lower the collection period, the lower will be the investment in accounts receivable and vice versa. The effort should in the beginning be polite, but, with the passage of time it should gradually become strict. The steps usually taken are:
i.

Letters, including reminders, to expedite payments; Telephone calls, for personal contacts; Personal visit; Help of collection agencies; and finally, Legal action.

ii. iii. iv. v.

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INVENTORY MANAGEMENT
MEANING AND TYPE
Inventories are stock of the product a company is manufacturing for sale and components that make up the product. The various forms in which inventories exist in a manufacturing company are:

Raw materials: Raw materials are those basic inputs that are converted into finished product through the manufacturing process. Raw material inventories are those units which have been purchased and stored for future productions.

Work-in-progress: Work-in-progress inventories are semi manufactured products. They represent products that need more work before they become finished products for sale.

Finished Goods: Finished goods inventories are those completely manufactured products which are ready for sale. Stocks of raw material and work-in-progress facilitate production while stock of finished goods is required for smooth marketing operations.

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

54

55

NEED TO HOLD INVENTORIES

Maintaining inventories involves tying up of the companys funds and incurrence of storage and holding costs. If it is expensive to maintain inventories, why do companies hold inventories? There are three general motives for holding inventories:

Transaction Motive: Transaction motive emphasizes the need to maintain inventories to facilitate smooth production and sales operation.

Precautionary Motive: Precautionary motive necessitates holding of inventories to guard against the risk of unpredictable changes in demand and supply forces and other factors.

Speculative Motive: Speculative motive influences the decision to increase or reduce inventory levels to take advantage of price fluctuations.

COST OF HOLDING INVENTORIES

The cost associated with the inventory fall into two basic categories:i. Ordering or Acquisition or Set-up costs, and ii. Carrying costs.

56

Ordering costs: This category of costs is associated with the acquisition or ordering of inventory. Firms have to place orders with suppliers to replenish inventory of raw materials. The expenses involved are referred to as ordering costs. They include costs incurred in the following activities: requisitioning, purchase ordering, transporting, receiving, inspection and storing. Ordering costs increases in proportion to the number of order placed. Carrying costs: Cost incurred for maintaining a given level of inventory are called carrying costs. They include storage, insurance, taxes, deterioration and obsolescence. Carrying costs vary with inventory size. This behavior is contrary to that of ordering costs which decline with increase in inventory size. The economic size of inventory would thus depend on trade-off between carrying costs and ordering costs.

OBJECTIVE OF INVENTORY MANAGEMENT

In the context of inventory management, the firm is faced with the problem of meeting two conflicting needs:

To maintain a large size of inventories of raw material and work-inprogress for efficient and smooth production and of finished goods for uninterrupted sales operations.

To maintain a minimum investment in inventories to maximize profitability.

57

Both excessive and inadequate inventories are not desirable. These are two danger points within which the firm should avoid. The objective of inventory management should be to determine and maintain optimum level of inventory investment. The major dangers of over investment in inventories are: a. Unnecessary tie-up of the firms funds and loss of profit, b. Excessive carrying costs, and c. Risk of liquidity. The excessive level of inventories consumes funds of the firm, which can not be used for any other purpose, and thus, it involves an opportunity cost. Maintaining an inadequate level of inventories is also dangerous. The consequences of under investment in inventories are: a. Production hold-ups and b. Failure to meet delivery commitments. The aim of inventory management, thus, should be to avoid excessive and inadequate levels of inventories and to maintain sufficient inventory for the smooth production and sales operation. An effective inventory management should:

58

Ensure a continuous supply of raw materials to facilitate uninterrupted production.

Maintain sufficient stocks of raw materials in periods of short supply and

anticipate price changes. Maintain sufficient finished goods inventory for smooth sales operation, and efficient customer service. Minimize the carrying cost and time, and Control investment in inventories and keep it at an optimum level.

DETERMINATION OF STOCK LEVELS

Various stock levels are discussed as such:
1. Minimum level (safety stock): This represents the quantity of stock that

should be held at the time, stock level is normally not allowed facing below this level. This level of stock is a buffer stock for use during emergencies. Fall in stock level below minimum level will indicate potential danger to the business.

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

figure then fresh order is sent to get material again. The order is sent before the materials reach minimum stock level. The rate of ordering level

59

is fixed between minimum level and maximum level. Reordering level is fixed with the following formula:

Reordering level = Maximum consumption maximum reorder period

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

not exceed its stock. If the quantity exceeds maximum level then it will be over stocking. Over stocking will means blocking of more working capital, more space of storing the materials, more wastage of material and more chances of losses from obsolescence. The following formula may be used for calculating maximum stock level: Maximum stock level = re-ordering level + reordering quantity (minimum consumption minimum reorder period )

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

case. If the danger level arises then immediate step should be taken to replenish the stock even if more cost is incurred in arranging the materials. If materials are not arranged immediately there is a possibility of stoppage of work. Danger level is determined with the following formula:

Danger level = average consumption maximum reordering period for emergency purchase

60

61

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

Average stock level = minimum stock level + of reordering quantity

INVENTORY MANAGEMENT TECHNIQUES

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

inventory management technique that divides

inventory into three

categories of descending importance based on the rupee investment in each on the basis of the cost involved, the various inventory items are, according to the system categorized into three classes - A, B and C. The high value items are classified as A item and would be under the tightest control. C items represents relatively least value and would be under simple control. B items fall in between these two categories and require reasonable attention of management.

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

system in the word. In the JIT system material or the manufactured components and parts arrive to the manufacturing sites or stores just few hours before they are put to use. The delivery of material is synchronized with the manufacturing cycle and speed; this eliminates the necessity of carrying large inventories, thus, saves carrying and other manufacturing costs.

62

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

the parts of components in house, but now companies are adopting the practice of out sourcing. It is a system of buying parts and components from out side rather than manufacturing internally for example Tata Motors developed number of units around its manufacturing sites that supply parts and components to its manufacturing units.

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

adopted by every firm, large or small for controlling inventories. This system enables a company to easily track large items of inventories. It is an automatic system of counting inventories, recording withdrawals and revising the balance. There is an inbuilt system of placing order as the computer notices that the re-order point has been reached.

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

management technique for determining optimum order quantity which is the one that minimize the total of its order and carrying cost. It balances fixed ordering cost against variable ordering cost. EOQ can be calculated with the following formulaEOQ = 2 quantity required ordering cost Carrying costs
63

64

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

In the above figure, it can be seen that the ordering cost of an item is decreasing and carrying cost is increasing as the size of the order is increases. The trade-off of these two costs is attained at a level at which total cost is least. This level is designated as economic order quantity.

65

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 viceversa.

66

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 condition.

67

ORGANIZATIONAL PROFILE OF THE COMPANY

68

Indias first Public Sector Unit (PSU) - ITI Ltd was established in 1948. Ever since, as a pioneering venture in the field of telecommunications, it has contributed to 50% of the present national telecom network. With state-of-the-art manufacturing facilities spread across six locations and a countrywide network of marketing/service outlets, the company offers a complete range of telecom products and total solutions covering the whole spectrum of Switching, Transmission, Access and Subscriber Premises equipment. ITI joined the league of world class vendors of Global System for Mobile (GSM) technology with the inauguration of mobile equipment manufacturing facilities at its Mankapur and Rae Bareli Plants in 2005-06. This ushered in a new era of indigenous mobile equipment production in the country. These two facilities supply more than nine million lines per annum to both domestic as well as export markets. The company is consolidating its diversification into Information and Communication Technology (ICT) to hone its competitive edge in the convergence market by deploying its rich telecom expertise and vast infrastructure. Network

69

Management Systems, Encryption and Networking Solutions for Internet Connectivity are some of the major initiatives taken by the company. Secure communications is the company's forte with a proven record of engineering strategic communication networks for India's Defense forces. Extensive in-house R&D work is devoted towards specialized areas of Encryption, NMS, IT and Access products to provide complete customized solutions to various customers.

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Shri K.L.Dhingra Chairman and Shri K.L. Dhingra joined ITI as Chairman and Managing Director on Managing Director April 8, 2010. He has an illustrious career spanning over 30 years in the fields of Banking, Financial Services, Lending, Corporate Governance
and Business Leadership. Shri Dhingra is a Master in Commerce (M.Com), Bachelor in Law, Master in Business Administration (MBA Finance) from Faculty of Management Studies (FMS), Delhi University . He has acquired additional Banking qualifications from India (CAIIB) and UK (ACIB, London ). He holds the distinction of being the only employee of an Indian Financial Institution who passed A.C.I.B. ( London ) examination globally in July 1997. He holds the rare distinction of being the Fellow of The Institute of Banking and Finance, Mumbai, the Fellow of The Chartered Institute of Bankers in Scotland , Fellow of The Financial Services Institute of Australasia (Finsia) and also an Associate Member of Chartered Institute of Bankers, UK , now renamed as IFS School of Finance , UK . Shri Dhingra is also the Vice Chairman of Standing Conference of Public Enterprises (SCOPE) for more than two years from April 1, 2009. He is the Chairman of Finance Committee, SCOPE. Shri Dhingra, before that, was member of SCOPE Board for two terms of two years each from April 2005 to March 2009 and has been associated with the Western Indian Regional Council of SCOPE and also its Finance Committee. Shri Dhingra has participated in number of training programmes in India and abroad. He had extensive training exposures in Singapore , Germany , Austria , Australia and China . Many leading organizations have conferred on him awards for `Corporate Excellence, `Industrial Excellence, `Performance Excellence and `Management Excellence. He has been a member of the prestigious Experimental Reimbursable Seeding Operation (ERSO) Trust Fund of UN-Habitat, as a financial expert representing Asian countries. Out of total of 37 years of experience, Shri Dhingra has been Board level Executive for more than ten years including 3 years as the Chairman and Managing Director. Prior to his joining ITI Ltd., he was Chairman and Managing Director of Housing and Urban Development
71

Corporation Ltd. (HUDCO) for more than 2 years. He has also been Director (Finance) in Mumbai Railway Vikas Corporation Limited (MRVC), a PSU under the Ministry of Railways and also in Indian Rare Earths Limited (IREL), a PSU under the Department of Atomic Energy for a period totaling to about seven years.

Shri R K Agarwal Director (Marketing) Shri R K Agarwal took over as Director (Marketing) of ITI Ltd from

March 9, 2010. Prior to this, he was General Manager (Corporate Marketing). An industrial engineering graduate, Shri Agarwal joined ITI Ltd in 1976 as an assistant executive engineer in the Companys Bangalore Plant. Shri Agarwals 33 year experience spans areas such as manufacturing, quality control and marketing.

Shri K.K. Gupta Director(Production) Shri K.K. Gupta took over as Director (Production) of ITI Limited on

May 1, 2010. Prior to this, he was General Manager, Corporate HR and GSM (South Zone). An Electronics and Telecommunication Engineer, Shri Gupta joined ITI in 1977 as an Assistant Executive Engineer at the Companys Naini Plant. Shri Guptas 33 years of experience covers the diverse fields of manufacturing - telephones and transmission, GSM projects and human resources.

Shri Ravi Shri Ravi Khandelwal has taken over as Director (Finance) of ITI Ltd Khandelwal to this, he was Executive Director of Director (Finance) from March 5, 2011. PriorIndia Ltd., (CONCOR), a PSU under the Container Corporation of
Ministry of Railways. Mr. Khandelwal is Cost Accountant and has done MBA (Finance) and a Commercial Public Enterprises Management Course from University of Bradford , U.K. He has extensive overseas training exposures in Holland , Belgium and Portugal on various subjects including Financial Planning. Mr. Khandelwal brings along with him from CONCOR the competence and capability to achieve outcome from compelling situations owing to his `Out of the box thinking. During his tenure in CONCOR, he was instrumental in bringing various JV Companies where he was CONCORs nominee Director to start making profits within a short time of their inception. Over all, Mr. Khandelwal has 28 years of rich professional experience. He is recipient of prestigious national individual excellence awards from the Union Minister of State for Railways.

Shri N.K. Srivastava Director

72

Company Secretary

Smt.Rachana Company Secretary

Independent Directors

Choudhary

Prof.M. Balakrishnan Independent Director Dr. S.K. Chaudhury Independent Director

Shri T.S. Independent Director

Narayanasamy

73

74

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INFRASTRUCTURE In house Research & Development Network System Unit capable of undertaking turnkey jobs Self contained component evaluation centre Fully automated assembly lines In circuit tester (ICT) Modern Chemical, Metallurgical Labs Mechanical fabrication/Machine shops with modern CNC machines Molding & Die casting Full fledged state of the art tool rooms SMT (Surface mount technology) Environmental testing Component approval center approved by BSNL

FACILITIES
PCB manufacturing facilities Mechanical Fabrication / Machine Shop with modern CNC machines and Finishing shop Card assembly and Testing including In circuit tester SMT Line Plastic Injection Technology Through-Hole Component Assembly
76

Manufacturing facilities for Mechanical items Fabrication of Towers and Shelters for GSM.

77

78

BTS

Base Trans-Receiver Station (BTS) BTS A9100, is radio frequency mobile communication product based on GSM technology. It is a set of equipments that facilitates wireless communication between user equipment (UE) and a network. A BTS in general consists of Trans-receiver module, Antenna Network Combiner, Controller (SUMA) & Alarm Extension System (XIBM). It is a self contained unit for transmitting / receiving signal for mobile communication. Types of 1. Indoor 2. Outdoor 3. Dual Band 4. Twin TRX BTS BTS: BTS BTS BTS

BTS SHELTER

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

79

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

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

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

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

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TRANSCEIVER

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

CDMA (Code Division Multiple Access)

CDMA (Code Division Multiple Access) is a digital wireless technology to provide mobile communication. CDMA works by converting speech into digital information, which is then transmitted as a radio signal over a wireless network. CDMA uses a unique code to distinguish each different call. The receiving device is instructed to decipher only the data corresponding to a particular code to reconstruct the signal. This enables many subscribers to share the same frequency band and, at the same time, without any cross talk or interference. CDMA WLL technology provides option of limited as well as full mobility to the customers. This helps to provide faster last
82

mile connectivity, where laying of cables is difficult.

83

Financial Highlights: ANNUAL REPORT 2010-2011

84

85

86

BALANCE SHEET

87

PROFIT AND LOSS

88

SOURCES AND APPLICATION OF FUNDS

89

FINANCE AND ACCOUNTS DEPTT. SYSTEMS MANUAL

INTRODUCTION
The finance and Accounts department occupies a very important position in any organization as it has a role to play in almost the activities right from conceptualization of a project till its successful implementation for smooth running and thereafter. A System manual of a department proves to be an effective tool and guide not only in the hands of the personnel responsible for proper discharge of their duties and responsibilities but also a helpful tool for other departments personnel foe their reference and understanding the functions to progress their issues concerning Accounts and Finance. It is the department having large customers in-house as well as outside the organization. This Manual has been prepared giving activities of each section in the department in brief. Details, forms and formats used in the working have not been incorporated here and the same can be obtained from the Accounts Department.

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FUNCTIONS AND RESPONSIBILITIES

The department is entrusted with the following functions and responsibilities: (a) To ensure financial discipline as per guideline of the company. (b) To advise management for all matters having financial implications including financial co-ordination before commitments are made. (c) Regulations of payments for supply and services including salaries, wages and other payments required for furthering legitimate objectives of the company. (d) Compilations of Accounts and getting the same audited by statutory and Govt. Auditors. (e) Compilation and co-ordination of fixed price quotation for sale of companys product and services as per the norms of the company.
(f) Collecting dues on beI.T.I.f of the company from the customers as well as

other agencies. (g) Financial Appraisal of the company. (h) To prepare budgets and to exercise budgetary control for the utilization of available resources in the best possible manner. (i) Inter-action with various operating levels in the division.

91

(j) Co-ordination and inter-action with the managing director and corporate office.

(k) To have an effective M.I.S. for prompt reporting to the higher management for decision making. In order to fulfill these responsibilities the finance and Accounts Department has been divided into different sections as per convenience and for smooth flow of activities in discharging the above responsibilities.

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DIFFERENT SECTIONS IN THE DEPARTMENT

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

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BILLS PAYABLE (INLAND)

FUNCTIONS
The following functions are the functions of Bills Payable (inland) section: (i) Payment of Advance to suppliers as stipulated in the purchase order. (ii) Payment of Final Bills. (iii) Bank dealings with relation to suppliers e.g. Opening of letter of credit, Bank Guarantee and the payment to bank on the due dates. (iv) Accounting and Pricing of R.D.R. (Receiving cum discrepancy report). (v) Maintenance of Commitment Register for Budgetary Purpose. (vi) Payment of Misc. Advance/imp rest approved by the competent authority.

FLOW OF WORK
(i) All the P.O. received are first entered in the P.O. Register before putting the same in a separate file. (ii) If the P.O. stipulates for payment of Advance to vendor, an Advance payment is given.

94

(iii) After receipt of the goods, suppliers invoice duly linked with relevant R.D.R are received from the Purchase Department which are scrutinized with reference to relevant Purchase Order and then passed for payment after

making adjustments for Advance Payments already made. Remittance vouchers are prepared based on the passed invoices and are forwarded to cash section for issuance of cheque.
(iv) In respect of P.O. where payment is stipulated as through bank the BPI

section, after intimation from the Bank through Purchase Department, makes entry in the Register and after checking the documents with the P.O. passes the invoice and sends the remittance Voucher to the cash section to arrange payment and collection of Documents from the Bank by the Purchase Department (v) In respect of local purchases made on cheque against Delivery basis the proforma invoice is linked with the relevant Purchase Order and the payment is authorized and Remittance voucher is sent to the cash section for making payment. (vi) Pending the receipt of R.D.R from transit in the respect of material received but not taken on charge due to delay in inspection/commissioning/rejections the payments made to suppliers as Advance on receipt of goods through Bank. (vii) Documents/Cheque against delivery basis are put in G.I.T. i.e. goods in Transit Account at the year end.
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(viii)

In respect of those P.O. where material has been received but the payment has not been released, the appropriate liability is provided for at the year-end so as to account for all expenses.

(ix) Follow up with I.M.M. Department for release of R.D.R in respect of those P.Os where advance payment has been made so as to clear Advances. (x) In respect of rejected materials, follow-up is to be made with I.M.M. Deptt. to get those rejected materials replaced from the vendor so as to clear G.I.T.

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BILLS PAYABLE (FOREIGN)

FUNCTIONS
(i) Payment and accounting of: Advance to suppliers as per the terms and conditions of Purchase Order. License fees, Royalty etc as per the license agreement with the foreign collaborator. Customs duty, freight bills. Final bills. (ii) Opening of letters of credit on the advice of I.M.M Deptt and Liaisoning with Banks for foreign Exchange release and payments on maturity date. (iii) Maintenance of commitment registers for budgetary purposes. (iv) Maintenance of deferred liabilities accounts. (v) Pricing of R.D.R (Receiving-cum-discrepancy Report) with P.O. rates and loading of customs duty, freight and insurance charges.

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(vi) Priced R.D.R are sent to materials Accounts Section/E.D.P for punching in Batch mode for the processing of materials ledger.

FLOW OF WORK
(i) All purchase orders, contracts received are entered in the registers before opening of separate file for each P.O.

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

orders are entered in register to record the particulars about their extension, revalidation and utilization. On maturity of the L.C. the Bank Adjustment voucher is prepared on the basis of bank advice and sent to cash section for adjustment. Particulars of payments are also noted in the relevant P.O.

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99

BILLS PAYABLE -- SERVICES

FUNCTIONS
Payment and accounting of advances. Payment and accounting of running bills to contractors. Payment and accounting of final bills. Adjustment and recovery of advances. Accounting and adjustment of earnest money and security deposits. Capitalization of buildings. Payment of all service bills e.g. telephone, electricity, water, canteen, transportation and sanitation etc. Payments to all consultants e.g. architects, advocates, part time doctors etc. Payment of misc. advances/ imp rest approved by the competent financial authority and their adjustments. Payment to all casual employees.

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

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

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account payment bills in suitable percentage in relation to the progress of work so as to recover all sums advanced by the time 80% of the contract is completed.

(ii) Material advances to the extent of 75% of the value of materials brought by contractors and lying at the site are given on certification of the engineer-incharge and are recovered from running/ final bills.
(iii) In respect of running bills the works accounts section links the bill, submitted by

contractors

duly

certified

by

Engineers-in-charge,

with

the

contract/acceptance letter/work order etc., and arranges payment after deducting income tax, balance security deposits and other advances if any and retaining the prescribed percentage of the bill towards the retention money. However, where the contractor has given bank guarantee toward retention money no deduction is to be made on this account.
(iv)Similarly the final bill submitted by the contractor is checked with the

Measurement book and the gross amount payable is determined. The amount settled against running bills, advances if any, penalty for delay in completion of work, recovery towards consumption of material, T.D.S. etc is deduced from the gross amount payable. One I.T.I.f of the security deposit refundable to the contractor is retained as defect liability deposit.

101

(v) Capitalization of the buildings and other capital works is done on receipt of the completion certificate and final bills and the classification of the building is done in accordance with the rules in force. (vi) Payment of bills for services e.g. electricity, telephone, water etc, received from plant Maintenance Deptt/concerned user duly verified by them and approved by the competent authority are made.

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FINANCE SECTION
OBJECTIVES
To ensure that the financial description is maintained in the Division. To ensure that all expenditure is incurred with due regard to principles of financial propriety. To ensure that the final proposals are routed to the competent authority as per delegation/sub-delegation of powers so as to ensure compliance of the provisions of the companies act, the Memorandum and Articles of association of the company and the relevant rules and regulations of the company and the guidelines issued by the company. To ensure that the funds are available in the approved Capital and performance budget so as to cover the relevant proposals. To submit MIS reports to Corporate Office monthly.

FUNCTIONS
To scrutinize and give financial concurrence as per delegation of power for each proposal involving: (i) Capital expenditure

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(ii) (iii) (iv) (v) (vi) (vii) (viii)

Revenue expenditure Purchase of materials/stores/tools and other services Manpower requirements Waiver of dues/write off of losses Cases involving relaxation of rules etc as per delegation of powers Sale, lease, alienation or disposal of companys assets Award of contract in respect of civil/electrical works/other works/plant orders

(ix)

Project Reports

Certification for availability of funds with reference to capital and performance budget and appropriation of funds.

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105

PAYROLL SECTION
OBJECTIVES
To regulate salaries and wages of all employees as per terms of employment. To regulate payment of welfare facilities extended bi the management e.g. L.T.C., Medical, Interest subsidy, School fee etc. Payment and recovery of various nature of advances such as Travel advance, LTC advance, conveyance advance and timely adjustment thereof. To ensure timely remittance of amounts recovered from employees to various agencies like LIC, UPICA, and HDFC etc. To ensure all statutory deductions e.g. TDS, PF etc are made from the salaries of the employees and deposited timely with the appropriate authority. To ensure proper accounting is done as per the requirement of statue and corporate office guidelines. To adhere the provisions laid down in the Personnel Manual relevant to the above functions.

FUNCTIONS

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

(2) The master data in regard to all officers/employees is sent to computer Deptt. In respect of basic pay, DA, HRA, CCA etc. and this data is updated every month depending upon the changes.
(3) The deductions to be made are fed to the Computer Deptt by means of

deduction statement. Computer Deptt. in turn prints out the deduction statement in the form of the check lists by 25th of the every month. Payroll section corrects the same with reference to the various documents and recovery registers and send it back to Computer Deptt. for final adoption by 26th/27th of the month. (4) The computer deptt prints the payroll in duplicate in which one copy is maintained in the payroll section for record purpose and the original copy is distributed to the employees concerned. (5) Disbursement of salary and wages Payment of salary to officers is made through Bank based on the payroll received from the computer Deptt. In case of non-supervisory personnel the payment is made by cash by various groups except few cases where the payment is made through P.N.B, I.T.I. branch. Cash is drawn two days in advance i.e. last day of month and filled in the envelopes and these envelopes are kept in safe custody in cash office for disbursement on list of next month.
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(6) Remittance of Recoveries Various recoveries made from employees in respect of LIC premium, HDFC loan, Income tax etc are remitted to the various agencies within the stipulated date by means of cheque.

(7) Payment of advances and adjustment thereof and reimbursement of expenses Various types of advances such as car/scooter advance, contingency advance, TA/DA etc are paid and adjusted/recovered as per the rules of the company. Also reimbursement of expenses like medical school fee, conveyance etc is made as per the rules of the company. (8) Accounting procedures Monthly payroll journal entry is made both for supervisory and non-supervisory personnel and sent to book keeping sections for adoption. For payment made to persons from other divisions, proper accounting is done to ensure that necessary advice is raised to the concerned division. (9) To make payments to Ex-employees towards final settlement of their dues. (10) To monitor the controllable expenditures e.g. medical exp., conveyance exp. Etc on monthly basis and to ensure it does not exceed the budget provided for it.

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109

BILLS RECEIVABLE SECTION

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

rendered are recovered timely as per Ministry in accordance with the Govt. letter issued by Ministry of Defense dated 24th Aug, 1995. To ensure that invoices in respect of Advances, stage payments, final deliveries are raised timely in order to have smooth cash flow position. To ensure that proper accounting is done as per the requirement and accounting instruction laid down by the corporate office. To ensure that all statutory payments e.g. sales tax, excise duty, custom duty is recovered from the customer and is deposited timely with the appropriate authority.

FUNCTIONS
The following are the functions of bills receivable section:

Preparation and rendering of Invoices to I.A.F. in respect of the following

activities in accordance with the guidelines laid down in the Govt. letter dated 30th Sept, 1997: a) Manufacturing activity
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b) Repair and Overhaul c) Supply of spares against R.M.S. order d) Deferred Revenue Expenditure

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

b) Subsequent stages final payments are claimed on the basis of milestones achieved, dispatch advices, acknowledgement received from Air Force in form Q423, inspection note certified by the C.R.I. about the progress of work done. c) In respect of repair and overhaul work the payment is strictly regulated based on the nature of work carried out e.g. functional test, defect investigation, and zero hours servicing, repaired, overhauled. To prepare and render invoices to non AIF customers in respect of following activities: i. ii. iii. Development sales for customer financed projects, Supplies and services rendered to civil customers, Supplies against R.M.S. orders from Army, Navy.

To claim payments from AO(DAD) on the basis of fitment details received from the user Division.
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 To submit invoice for reimbursement of Royalty from Air Force and setup sales for these claims and create claims receivable.

To follow up with AO(DAD) and other customers for collecting the payment against the invoices raised. To provide details to budget section for compilation of sales budget on the basis of sales orders, firm/forecast task, I.D.T.O. for budget estimates, revised estimates, F.C. To collect sales tax from the customers and deposit the same. To compile sales tax returns and submit the same to IMN Deptt. and to sales tax authority for assessment.

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COST ACCOUNTING SECTION

OBJECTIVES
To establish a costing system in line with the activities and the product range of the division. To determine the price realizable from the customer for the products manufactured/ repaired/ overhauled/ serviced/ supplied by the division.

FUNCTIONS
To determine the rate of absorption/recovery of labour and other overheads for recovering labour cost on the different jobs undertaken i.e. man-hour rate computation. To accumulate the labour and overheads content of each activity based on evaluated L.T.B. generated by E.D.P. from work orders/ time dockets. To keep track of different jobs completed and job lying incomplete in different stages over a reasonable period of time and to co-ordinate with concerned production controllers for justification for jobs lying unfinished beyond a reasonable period of time and to ensure their early disposition. To review work orders on which no material/ labour cost has been recorded and finding out the reasons for the same.

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

components, sub-assembly W.I.P., assembly W.I.P. for physical verification by the concerned production shops. To ensure that the valuation of W.I.P. has been done correctly keeping in view the percentage of completion of the job. To keep track of S.I.T. transaction with different division. To keep record of all I.D.T.O. received and issued. To send debit advices to other division for items dispatched against I.D.T.O. received from them. To accept the debit raised by other divisions for items received by the division in respect of requirements raised by or through I.D.T.O. To evaluate P.C. Memo for S.I.T. issues, Russian consumption for overhaul and amortization of D.R.E. To work on the cost of sales and to reconcile the same with the designation of various customers financed projects. To work out the royalty payable to different licensors as per the license agreement. To liaise with AO(DAD) for verification of claims in respect of labour booking on production and D.R.E. items and other issues like wage arrears, idle hours etc.
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 To prepare fixed price quotation/ price catalogue for the different items

manufactured/ repaired/ overhauled/ serviced/ supplied by the division and to get the same approved by the AHQ.

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MATERIAL ACCOUNTS SECTION

OBLECTIVES
To ensure that all the receipts and issues of materials from stores are recorded and accounted for properly. To ensure that all non-moving/slow moving materials are identified as surplus by I.M.M. and a suitable redundancy provision is made against them and is disposed off. To ensure that bin card balances are reconciled with the Material Ledger balances in co-ordination with I.M.M. and the balances of material ledgers tallies with the General Ledger.

FUNCTIONS
To send the priced R.D.R. received from Bills Payable section to E.D.P. for opening in the Batch Mode and thus all the Receipts are recorded and control is exercised over all the Purchases Value-wire. To generate exception list for missing R.D.R. and getting it resolved with Bills Payable Sections. All the materials drawn excess when returned are credited to stores through Stores Return Voucher.
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 The E.D.P. after processing of all M.R./Issue Vouchers prints the Material Issue Analysis Statements monthly indicating:-

The cost of materials drawn against various job orders, Expense accounts;

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

On the basis of list of materials/transfers reclassification indicating the material code no./Quantity and value, necessary Journal entries are passed debit/credit to relevant inventory accounts. On the basis of stock verification sheets indicating stock verification note no., material code no., shortages/overages, necessary Journal entries are passed after obtaining clarification from stores department by debit/credit to stock adjustment account and credit/debit to relevant inventory accounts after taking approval of C.F.A. wherever required for adjustments/write-off of stores. A list of materials not moved for over 5 yrs is given by E.D.P. which is reviewed by stores/concerned for programming deptt. Materials not required for production or for other purposes are identified and suitable action is taken by I.M.M. for finding their usage in other divisions or is auctioned. Redundancy provision is made in the books of accounts at the rate of 100% for Non Moving inventory and for closed Projects as special Provision on the basis
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of list given by E.D.P. further a normal provision at 1.5% is made on the balance inventory.

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BOOK KEEPING SECTION

OBJECTIVES
1. To compile the accounts of the company are prepared as per the requirement of the statute/corporate office guidelines. 2. To assess the performance of the company in financial terms such as sales debtors, profit, value of production, value added etc. 3. To furnish data/information in respect of Income Tax Assessment done at corporate office. 4. To get the accounts or the company audited by the Internal Statutory & Government auditors as prescribed by law.

FUNCTIONS:
1. Journal entries originated by the various sections of Finance and Accounts Deptt. are sent, to book keeping section. Those entries are serially numbered and punched in to the computer and thereby posted to the General Ledger.
2. Preparation of Trial Balance, Profit & loss A/C and Balance Sheet Accounts are

computerized and are drawn for every quarter as on 30th June, 30th Sept, 31st December and final accounts as on 31st March of each Financial year. 3. Maintenance of Fixed Asset Register and depreciation schedule.

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

like wise details of assets like buildings etc. capitalized are also furnished by civil works section to the book keeping section. The maintenance of Asset ledger is computerized in which the details like date of purchase, nature of item, P.O. No. location of asset etc. are recorded. (ii) Depreciation on capital assets is calculated as per the policy of the company and is reckoned accordingly as an operating expense of the division.
4. Inter Division transactions are accounted through control account adjustment

advices which are reconciled twice in a year at the clearing house. 5. Physical verification of fixed assets is done as per the guidelines of corporate office. 6. To provide support to other Sections of accounts in their reconciliation and control functions.

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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 the overall control over expenditures it is necessary that all expenditures (except that of contingent nature) is authorized through the budget approval.

FUNCTION:
1. The period of budget is the financial year from April to March and covers a period of three years as under: Current year Budget year (Next year) Forecast year (Next to Budget year)
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Revised estimates i.e. R.E. Budget estimates i.e. B.E.

Forecast estimates i.e. F.C.

Thus budget in the sole authority to authorize expenditure.

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

2. To insure that capital facility is made available in time to meet the production requirement. The proposals are classified under three categories i.e. plant & machinery, civil works & others. 3. Presenting estimates and expenditures in terms of function, programmes activities and project with their financial and physical aspects closely interwoven.

4. The targets set the critically reviewed from the point of view of availability of resources and their optimal utilization and to achieve cost reduction.

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5. Analysis of variances and to find out the reasons of such variances and take suitable remedial measures. 6. All important budgets like production, sales, profit & loss, working capital etc. after approval of the Board are broken into monthly budgets to ensure uniform production from month to month.

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TIME OFFICE SECTION

OBJECTIVES:
Maintenance of leave records and feeding of attendance records to Computer Deptt. Maintenance of attendance records of Casual dallies, Project Engineers and Contract Diploma Technicians. To provide data for the vacation leave provision to be made in the books of accounts.

FUNCTIONS:
To issue leave cards for the calendar year to all the employees/officers of the division. To maintain leave ledgers PB No wise for all the personnel. Credit is given to each account according to his entitlement as per the guidelines laid down by the Corporate office and the posing is done simultaneously from the attendance reports received from the concerned deptt. To verify the applications of V.L. encashment and advice accordingly to payroll section. To make calculations for payment of attendance bonus to Group A to Group D employees.
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To make calculations for provision of vacation leave to be accounted for the final accounts.

To verify the applications for advanced vacation leave approved through P/A Deptt. and making adjustment thereof in subsequent time period.

To maintain night duty roaster of officers deputed on night duty and to ensure that time off claimed in lieu of such duty is not availed beyond 90 days.

To verify the time off claimed in lieu of extra work done/Sunday duty, sports duty/Scouts duty etc.

To provide data to payroll section for payment of single wages in lieu of work done on general holidays and double wages in lieu of work done on National Holidays.

To provide data for gratuity payment in case of final settlement. To provide data to payroll section for deduction of time loss on the basis of late arrival report received from security deptt.

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128

PROVIDENT FUND SECTION

OBJECTIVES:
To ensure timely collection of provident fund money recovered from members every month by the employer. To invest the provident fund accumulations in approved securities as stipulated by statute. To make payment of loans to members as per the rules/guidelines/Bye-laws. To prepare Income and Expenditure Account and Balance sheet of the fund and getting the same duly audited and approved by the Trustees. To file the returns of provident fund to RPFC.

FUNCTIONS:

The PE subscription of members if deducted monthly from salary. The amount so deducted (which is 10% of basic pay and DA) along with Companys contribution is collected from the payroll section before 10th of each month and credited to funds account.

Payment of loans (Refundable and Non-Refundable) to members as per the rules of the company, subject to availability of funds.

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The investments of provident fund money is made in the approved securities and details of investment is approved by the Board of Trustees.

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

Interest is credited to the account of each member at such rate as may be determined by the Board of Trustees, taking into account the income of the Trust during each Financial year.

To maintain family pension account of each member and remittance RPFC at the stipulated cites and file monthly and yearly returns.

To remit the amount of PE deduction for contractual/casual workers by cheque to RPFC and file the the return in respect of the same.

To distribute the annual statement of PE to all the members in the format prescribed by RPFC.

To make final payment of PE due to a member on his retirement/resignation or to the nominee in the case of death of a member as per rules.

To maintain accounts of provident fund transactions and get audited by the statutory auditors of the company and approved by the board of trustees.

To fine the monthly returns in the prescribed formats and submit to RPFC by 25th of each month in respect of provident fund and family pension fund.

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

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

1.

MAINUFACTURING AND ASSEMBLING OPERATIONS: a.

Of aircrafts, aero-engines avionics ground radars, accessories and instruments. b. Of spares required for overhaul of aircrafts, engines, etc. and DRDL for supply to IAF against RMS order, navy, army, etc. c. Of other equipments like foreign and costing.

2.

REPAIRS AND OVERHAUL ACTIVITIES:

a. b. Aircraft, engines, avionics ground radars, accessories and instruments. Other equipments.

3.

DESIGN AND DEVELOPMENT ACTIVITIES :

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Of aircrafts, aero-engines, avionics, ground radars, accessories and instruments. Though I.T.I. manufactured do not come in the range of products under cost audit and cost. Accounting Records rules formed by the Government of India, a full fledged cost accounting system is essential for effective cost monitoring and cost control.

Participation of Lucknow Division in Totality

(Rs. in Lakhs)

Sr.No. Name of the Project 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Chetak GSE Rigs HPT-32 Jaguar Kiran MIG SU-30 ALH Dornier

Material consumed

Labour Consumed

Other Overheads

Total Cost

Profit % of Cost

Selling Price

190 112 101 137 234 58 411 1958 18 142

169 99 90 122 208 51 366 1740 16 126

63 37 34 45 78 19 137 652 6 47

422 248 225 304 520 128 914 4350 40 315

10% 71/2% 10% 10% 10% 71/2% 10% 10% 10% 10%

464 266 247 334 572 137 1005 4785 44 346

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Participation of Lucknow Division in Totality

6000 5000 4000 3000 2000 1000 0
PT -3 Ja 2 gu ar Ki ra n M IG SU -3 0 ak G SE ig s H he t AL or n R ie r

Material consumed Labour Consumed Other Overheads Total Cost Profit % of Cost Selling Price

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Research Methodology
Research Problem: In every step of life resources are always scarce. In the same
way, Business organizations are also facing such type of problems. In this respect every organization wishes to use available resources in an optimum manner. This study refers to the all aspects of current assets, namely cash, marketable securities, debtors and stock and current liabilities.

Research Objective: To study the process of Working Capital Management with

main emphasis on the technique which is used in I.T.I, Raibareilly.

Research Design: Descriptive Research

Type of Research: Analytical

Data Collection Methods: Secondary

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SWOT ANALYSIS
STRENGTH :
1) I.T.I. is headed by an excellent and extra ordinary chairman, who is most

capable of managing the organization by getting the work load from Indian Air Force, Navy, Army and Coast Guard for its financial growth and management.
2) The technological know how are very confidential and have the best suited for

making and overhauling the Defense Aircraft that is incomparable with any technologies.
3) I.T.I. is a very good pay-master to its employees as it is very much financially

healthy due to its existence under Ministry of Defense. 4) The monitoring of the Finance and the manufacturing and delivery of Aircraft to the customers timely for the best use of the same.
5) The reputation of I.T.I. being the Defense organization has its importance and

technically and financially renowned among PSUs (Public Sector undertakings) as Navratna and carries ISO: 14001 company .Quality in the world/Internal Business Organization.

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WEAKNESSES:
1) IAF is fully satisfied with the performance of I.T.I. so far as the following of

licences Technical know how are concerned, but due to recent Air crashes of MIG Aircraft and few other Aircrafts there are few problems which are minor.]
2) Sometimes the foreign vendors on whom I.T.I. depends for procuring raw

materials for projects are not in a position to deliver the same in time this causes financial loses to I.T.I. by paying liquidated damages to IAF / Customers.
3) Sometimes I.T.I. use to make payment to suppliers as advance for procurement

of raw-material because there are some parties who can not supply without advance payment due to their financial problems.
4) Sometimes I.T.I. does not get the approval from IAF against the items appeared

in FPQ (Fixed Price Quotation) at the rate prevalent in the International market with then approved suppliers. Escalation percentage in respect of the items where it is much more than permissible limit can put to loss to the extent it is more.
5) Machineries required from Foreign vendor take abnormal time leading to-delay in

the normal manufacturing function, hence now I.T.I. wants get similar type of machineries if approved by the customers.

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OPPORTUNITIES:
1) I.T.I. is the only manufacturer of the Defense Aircrafts; hence the job

opportunities as well as profit earning opportunities are more to day and in the forthcoming years. 2) Promotion opportunities are in-vogue to all the professionals including technical and non-technical areas Departments.
3) As I.T.I. has monopoly in the manufacturing and overhauling of aircraft, so it can

explore all the advantages related to this field.

4) As I.T.I. has developed its own R & D centers so now it would not have to

depend on Russia for Technical know how.

THREATS:
1) I.T.I. has fear to terrorist as it is a defense organization producing fighter

aircrafts.
2) Though I.T.I. is manufacturing fighter Aircrafts in confidence and getting the

same inspected by the authorized officials of Air force. There is a fear that during testing there should not be any unwanted happening / rejections of Aircrafts which may cause the losses.
3) During war, I.T.I. has its fear of attack by enemy countries as I.T.I. is very

famous for a very good supporting organization with arms / fighter aircraft. 4) Threatening is given by many agencies / users that the materials modules / parts / equipment are not be touched by any countrys 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.
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138

FINDINGS
1. In case of Customer financed Projects, funds are provided by the parties other

than IAF. For e.g. Navy, Coast guard or Border Security Forces. I.T.I. has to work for them.
2. The term loan or other Government loan which is provided to I.T.I. by IAF is at very

minimum rate of interest i.e. 2-3%. 3. Only 40% of Internal Resources are available for funding capital expenditure and Rest 60% is used in provisions & Reserves.
4. Pricing policy which is adopted by I.T.I. is based on FPQ. 10% profit is taken on

total cost, which is fixed price of the company.

5. I.T.I. invests 60% in the form of securities. 6. The share of I.T.I. is 45%. The share of Government is 51% and the rest 4% share

are taken by Tata Steel.

7. While purchasing any machines I.T.I. adopt pay back period in order to know the

period in which total cost of the machines can be recovered. 8. Replacement cost involves cost of machine and the processing charges which include labour overhead and installation charges.
9. I.T.I. has no big competitor in the whole market i.e. means I.T.I. has monopoly in

the field of aircraft industry.

10. I.T.I. is listed amongst the top ten public sector units in the country. 11. Main customer of I.T.I. is IAF; ADA is one other customer of I.T.I.. Ratio between

IAF and other customers is 87:13 approx.

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12. All standards related to production more or less depend upon direct workers. 13. Efficiency of direct workers is calculated 66%. Earlier it is used to be 75%. It is decreased by 9%. It is one of the causes of increasing of MHR.

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CONCLUSION
The topic undertaken for study was too wide to be studied in detail & in all aspects. Duration of the summer training was limited and the sample size was restricted to accessories division Raibareli only. The data so collected to write this report is the result of direct personal accounts department. This study not only makes me familiar with big organization like I.T.I., but also provided me the practical view that how the financial functions and theories are applicable in an organization. I.T.I. is listed among top ten public sector units which are running in profit. Its main customer is IAF; its other customers are ADA and other civil customers, Navy, Air Force and Coast Guard etc. All sections of Finance & Accounts department functioning separately but in a coordinated manner. Their functioning depends on each other. One section provides data as an input to other section, the section processes it and gets output in this manner these sections are interdependent. Budget and budgetary control system is a wide area to cover. The method of budgeting is differs from industry to industry on the basis of requirements. In I.T.I. budgeting system, the period considered for budgeting is the financial year from April to March. It lays a comprehensive plan of action expressed plan of action expressed in financial and physical terms. It acts as a tool in the hands of management to establish

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goals, objects and target of the company. It ensures the overall control over the expenditure as all the expenditures are sanctioned in the budget. It is ensured that working capital facility is made available in time to suit production requirement. Estimates and expenditures are presented physical and financial aspects. Approval of Board is required to break the budget into monthly budget to ensure uniform production from month to month. In the context of I.T.I., budgeting system that is prevailing can be said to be an effective one of the organization.

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SUGGESTIONS
1) Before preparation of cash Budget, the records documents available in the locations

of Current Assets physically present should be checked to compare with that of items physically available. 2) The source of supply with the details of Purchase Orders and dealers. If any available in India alternatively should be computerized and maintained. 3) Lead time for receiving raw materials from suppliers is more, it should be reduced. 4) No. of years which the total value of the capital items to be depreciated, should be indicated against each item on the basic of type of the capital items. 5) If existing machineries / plants are in need of frequent repairs / maintenance, then history book should be maintained with the details of date of breakdown, repair / maintenance cost. 6) Two Registers i.e. one for purchase of plant / machineries from foreign vendors and other for Indigenous source should be maintained to know the feasibility of procuring similar type of capital items within or below the procuring time with economical condition. 7) A team consisting of concerned user department for this there is need of the capital items. Finance, commercial should be proposed for incorporating the capital item in the Budget. 8) Budgeting should include every pie of amount so that there is no embarrassing situation during procurement; so far the funds are concerned to pay.

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9) While preparing capital budget Present Value of money should be taken. 10)Intranet facility should be frequently used so as to save money and time. 11)The system of company should be elastic and capable of adopting changes. 12)Year wise records showing the value of the items with the gross value and written down value should be maintained. 13)The exchange rate applied in case of anticipated foreign sources for procurement should have the authentic record for cross- check. 14)Similar kind of working conditions should be provided to employees of same level. 15)The company should try to set orders from other customers other than permanent customers so that company could get economy of scale and reduce cost of production to maximize its profit.

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BIBLIOGRAPHY

I.M. Pandey: Financial Management, 4th edition Tata McGraw-Hill Publishing

Company Limited, New Delhi (2004).

V.K. BI.T.I.l: Working Capital Management, 5th edition Anmol Publication New

Delhi (2003).

Prasanna Chandra: Financial Management Theory and Practice, 6th edition Tata

McGraw-Hill Publishing Company Limited, New Delhi (2004).

Khan and Jain: Financial management, 4th edition Tata McGraw-Hill Publishing

Company Limited, New Delhi (2004).

Annual Report of I.T.I. Raibareli.

Financial websites : www.I.T.I.-india.com

www.hindubusiness.com www.mag-india.com
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www.domail-b.com

LIST OF ABBREVIATIONS
Abbreviation P.O. R.D.R G.I.T S.I.T B/E L/C M.I.S. F.P.Q. P.C. I.D.T.O. I.F.D. D.R.E. R.M.S.O. L.T.B. W.I.P. A.H.Q. M.R. C.F.A. B.E. R.E. F.C. AO(DAD) Description PURCHASE ORDER RECEIVING-CUM-DISCREPANCY REPORT GOODS IN TRANSIT STOCKS IN TRADE BILL OF ENTRY LETTER OF CREDIT MANAGEMENT INFORMATION SYSTEM FIXED PRICE QUOTATION PRICE CATALOGUE INTER DIVISIONAL TRANSFER ORDER INTER FACTORY DEMAND DEFERRED REVENUE EXPENDITURS REPAIRS MAINTENANCE SUPPLY ORDER LABOUR TIME BOOKING WORK IN PROGRESS AIR HEAD QUARTERS MATERIAL REQUISITION COMPETENT FINANCIAL AUTHORITY BUDGET ESTIMATES REVISED ESTIMATES FORECAST ACCOUNTS OFFICER (DEFENCE ACCOUNTS DEPARTMENT)

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