Summer Project at

Indo Rama Synthetic (I) Ltd. Butibori Complex

Submitted to:

ACKNOWLEDGEMENT
It is my great opportunity as well as pleasure to carry out my summer project at Indorama. My training had been a great experience for me. I take this opportunity to express my gratitude to everyone has helped me during the course of my project and made my project a success. I am grateful to Mr. D.K. Vishnoi who has guided me in my project Operational Working Capital Cycle at IRSL and Recommendation for its Improvement and devoted much of his precious time to provide substantial insight in the field of financial statements. I have been privileged to interact with personalities of Indorama like Mr. Sanjeev Saxena, Mr. Chintamani Kabdal, Mr. Kailash C. Bhomia, Mr. Shrikant Kolwadkar, Mr. Rajesh Saxena and many more. I express my deep sense of gratitude for their help and kind cooperation, who took out time from their busy schedule and personally guide me in the course of my project.

Table of Contents 1. Introduction 2. Company Profile 3. Structure of the Company 4. Product Range 5. Sales Section 6. Raw Material Purchase Accounting 7. Banking Section 8. Stores and Spares 9. Balance Sheet 10. Conclusion 11. Recommendations 12. Bibliography

Introduction
One of the most important areas in the day to day management of the organisation deals with the management of working capital, which is defined as all the short term assets used in daily operations. The balances in these accounts can be highly volatile as they respond quickly to changes in organisations operating environment. The effective management of working capital requires both medium term planning and immediate reactions to changing forecasts and conditions. Working capital management is functional area of finance that covers all the currents accounts of the firm. It is concerned with the adequacy of current assets as well as level of risk posed by current liabilities. It is a disciple that seeks proper policies for managing current assets and liabilities and practical techniques for maximizing the benefits from managing working capital. Working capital management is concerned with the problems that arise in attempting to manage the current assets, current liabilities and the inter-relationship that exist between them. The current assets refers to those assets which in ordinary course of business can be or will be, turned 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, account receivables and inventory. Current liabilities are those liabilities which are intended at their inception to be paid in ordinary course of business, with in a year, out of current assets or earnings of the concern. The basic current liabilities are accounts payable, bills payable, bank over-draft and outstanding expenses. The goal of working capital management is to manage the firms current assets and current 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. Each of the current assets must be managed efficiently in order to maintain the liquidity of firm while not keeping too high a

level of any one of them. Each of the short term resources of financing must be continuously managed to ensure that they are obtained and used in the best possible way. The interaction between current assets and current liabilities is, therefore, the main theme of the theory of working capital management.

COMPANY PROFILE Indo Rama is Indias largest manufacturer of synthetics fibre and largest exporter of synthetics blended yarn. Having started in 1989 at Pithampur and in 1993 at Butibori and today is an over Rs. 20000 million corporation with sharp focus on quality, cost and delivery. The company has emerged as a lean, agile and supremely fit corporation in the faade of economic liberalization and globalization. Indo Rama today, is a part of the worlds tenth largest manufacturer of synthetic fiber with a strong presence in Indonesia, Lithuania, Egypt, Thailand, USA, Nepal, Sri Lanka, and India. Most importantly, Indo Ramas quality has found an overwhelming response in discerning markets worldwide. Indo Rama is now transforming itself into a customer-led enterprise; and positioning itself strongly to move up the value chain- where the challenge is to manage increasing customer expectations and market dynamic based on superior value and service. In India, its corporate office is in New Delhi and marketing offices in Mumbai, Surat, Coimbatore and New Delhi. The whole unit of Butibori, an integrated polyester plant, has divided into 3 strategic units, for the purpose of identifying different profit & loss making. They are SBU 1: Spinning SBU 2: Polyester SBU 3: DTY But now Indo Rama Butibori plant has been alienated into 2 companies, namely, Indo Rama Synthetic (I) limited Indo Rama Textile limited

Indo Rama Synthetics (I) Ltd. is an ISO 9001:2000 and ISO 14000 company certified by SGS Yarsley,UK, and employing 3500 persons and engaged in expanding production capacities by 300000 tpa. Indo Ramas world-class integrated polyester plant has an installed capacity to produce 300000 tpa of PSF/POY/FDY/DTY and fibre grade chips and set up in technical collaboration with DuPont of USA for Partially Oriented Yarn (POY), and Toyobo of Japan for Polyester Staple Fiber (PSF).

The company benchmarks itself against the best in the world and sets global standards for itself. Indo Rama is distinguished by its ability to work smart and as a place that empowers people and encourages them to take initiative. The future will see Indo Rama concentrate even more strongly on its core strengths- innovation, quality and just in time service. So that it continues to dominate its market segments and creates value for its stakeholders. We believe that: An abiding faith in self An extraordinary ability to focus on one goal An uncommon capacity to take risk A resolve to hold ones own against all odds A dogged determination to excel A position to seek greater, newer challenges consistently A vision to be first; and the best among the best Indo Rama has achieved the following Milestones: The SRTEPC Award from last 12 years
1st prize at IIMM- Ariba Sourcing Excellence

Highest Exports to Latin American Countries The NIRYAT SHREE Award from the Federation of Indian

 Excellance in IT Application in Textiles Export Organizations in Textiles CII- National Water Management Award-2004 CII- Leadership & Excellance award in Safety, Health & Environment-2004. MEDA- Energy Conservation Certificate-2004 Best Safe Practices Award from Vidharbha Industrial Safety Committee. International partnerships and pooling of global resources are vital determinants for success in the worlds new business landscape. Today, an enterprise is more likely to succeed, if it fuses local strengths with global competencies. Our global partners enhance our knowledge and skill base and have helped us bring the worlds latest, bleeding-edge technologies, products and services to the doorstep of our customers. We have inked a strategic partnership with ACCENTURE (formerly Andersen Consulting) for conceptualizing, building and sustaining an IT environment in tune with our business goals and processes. Accenture is assisting Indo Rama in the areas of application development, application management and facilities management. This relationship is aimed at providing us access to high quality IT expertise, skills and best practices and improving our service levels and efficiency. We have tied-up with ERNST & Young who are helping us implement management assurance global best practices. The future will see us broaden and strengthen these partnerships and actively seek new ones that meet our strategic objectives. At Indo Rama, we are in business of building good relationships with our customers. We are achieving this by keeping our customers the center of our concern, by listening to their voice, and by anticipating and satisfying their needs. And most importantly, by steadfastly maintaining the highest standards of quality and service.

In order to get closer to our customers and deliver speedier service, we have pioneered concept of direct sales in the industry. An initiative that has also helped us reigns in costs. We provide 95 percent On Time In Full (OTIF) logistic support to our customers. The orders are serviced in full truckloads within 24 hours of placement. Furthermore, e-connectivity enables our customers to place orders electronically and critical information about order acceptance, dispatch details and order status easily and quickly. Recently, we teamed up with Accenture to draw up a comprehensive Customers Relationship Management (CPM) Plan, which has given a cuttingedge to our marketing face.

The market for polyester blends is huge and growing at a fast clip. Indo Ramas PSF is emerging as the preferred option for cotton, rayon and acrylic blends. We have emerged as the countrys pre-eminent exporter of synthetic blended yarns with a significant market share. We export to more than 60 countries in EUROPE, SOUTH-EAST ASIA, AFRICA, THE MIDDLE EAST, THE MEDITERRANEAN and LATIN AMERICA. A testimony to the impeccable quality and consistency of our products. For us, exports will continue to be an important thrust area. We have drawn up an ambitious plan to ensure a sustained and accelerated export growth in the next five years. In this context, we are not only researching new blends, we are also exploring new markets in Latin America, Argentina, Brazil, Columbia, Venezuela, Africa and SAARC Countries Such As Sri Lanka, Nepal, Bangladesh and Maldives. In recognition of our contribution in the field of man made fibre exports, the Government of India has awarded Indo Rama the status of star Trading House. A Responsibility Beyond Business: As a responsible corporate citizen, Indo Rama has always underscored its business responsibilities by accepting its commitment by accepting its commitment to society at large. We have made sincere efforts to heal and enrich the communities in which we operate. We have tapped and brought together the internal and external resources of the company for the greater common good. Consequently, we have taken several initiatives in the fields of education, employment and environment.

In 1995, we set up the IRA INTERNATIONAL School (CBSE affiliated) in Butibori, near Nagpur. The school offers English medium education from nursery to class- XII. Indo Rama has also initiated an entrepreneurship Development Training programme in association with the Indian Institute of Youth Welfare for spouses of employees. The aim is to provide women with entrepreneurial skills, gainful employment and help them augment family incomes. Furthermore, under an employee volunteer scheme, Varksharopan Samaroh we have made a modest move in involving our employees to green the area of the staff colony and premises around the factories. Structure Of The Company

C.M.D Executive Director President Senior vice President Assistant Vice President General Manager Deputy General Manager Senior Manager Manager Deputy Manager

Assistant Manager Shift Incharge Supervisor Workmen

Product Range The company basically produces five different products: 1) Polyester Staple Fibre 2) Partially Oriented Yarns 3) Draw Texturised Yarn 4) Fully Drawn Yarn 5) Polyester Chips Polyester Staple Fibre Polyester staple fibre (PSF) has emerged as the fastest-growing fibre amongst all types of manufactured fibres. Polyesters are made by polymerisation of purified terephthalic acid (PTA) and monoethylene glycol (MEG). The polymer thus obtained is melt spun and the bundle of continuous filaments obtained by melt spinning is called tow. The tow is subjected to further processes like drawing, crimping, spin finish application and then cut into fixed lengths to get cut fibres almost equal in length to cotton fibres. These cut fibres are known as polyester staple fibres (PSF). The unique feature of PSF is that it can be blended with natural fibres (e.g., cotton and wool) and synthetic fibres (e.g., rayon) to produce polyester blended yarns on the conventional cotton spinning machines.

Fabrics made from polyester blended yarns, also known as blended spun yarn, combine the values of natural fibres with high tenacity and easy care properties of polyester fibres. Technology

Constant on-line checks maintain consistent quality. Superior spin-finish application ensures smoother working of fibre during spinning. Merge number remains consistent over longer periods. Standard bale weight is maintained.

Partially Oriented Yarn Polymer in the melted form from polycondensation section is cooled in polymer cooler, filtered and after pressure boosting it is distributed to the spinning manifolds and then to the spinning positions. The polyester melt from spinning position is extruded through spinnerets by variable speed driven spinning pumps. The extruded filaments are cooled by precisely controlled conditioned and filtered air in quench chamber. The filaments are then passed through the finish application system. The filaments are taken on take up winders and finally wound on bobbins. The yarn produced is extremely fine and the unit of fineness is denier. Technology

Yarns are produced by a continuous polymerisation process. Strict quality control of denier orientation and spread, along with computer-controlled draw force testing, ensures maximum consistency of yarn performance during and after texturising.

All critical yarn proprietary such as draw force, tenacity, elongation, uster and shrinkage are closely monitored and controlled.

A special proprietary spin finish protects the colour and lubricity of the yarn over long periods of storage.

Controlled interlace in filaments as well as the special finish enable the yarns to be texturised at speeds of 750 mpm and above.

Polyester yarns are produced exclusively from PTA (Pure Terephthalic Acid) to ensure a pure, uniform polymer of remarkable whiteness.

Fully Drawn Yarn Fully Drawn Yarn is produced by a process similiar to POY manufacturing except that the yarn is produced at higher spinning speeds coupled with intermediate drawing integrated in the process itself. This allows stabilisation through orientation and crystallisation

Yarns are produced by a continuous polymerisation process. All critical yarn properties such as tenacity, elongation, Uster variation and boiling water shrinkage are closely monitored and controlled.

Controlled interlace enables the yarns to be twisted or sized in subsequent operations.

Unique features of Indo Rama FDY

Intermingled FDY yarns are suitable for direct twisting, warping and weaving. Less waste and high efficiency in subsequent processes due to higher package weight (10 kg).

The fabric made from these yarns have a feel and drape similar to fabrics. produced from pure silk resulting in high realization of product quality.

These yarns eliminate draw-twisting and sizing process reducing the cost of products for light and medium range of fabrics.

There is high efficiency and low breakages in warping because of excellent package quality produced on craft winder.

Draw Texturised Yarn DTY is a fully drawn, fully oriented polyester multifilament yarn with soft crimp, high bulk and texture with cotton feel and very high durability and retention properties. This is manufactured by texturising partially oriented yarn using texturising machines. DTY is suitable for fabric end uses like outer/inner garments, skin-clinging garments, furnishings,

upholstery, etc. This is a replacementof cotton and cotton blend yarns with very low moisture content. Technology

DTY is produced on the latest high-speed draw texturising machines with identical capability.

Total quality checks are done with respect to dyeability. Bulk and elongation is closely monitored for consistency on captive weaving installations.

Electronic package-size measuring units ensure uniform texturised yarn package.

A consistent level of high quality anti-static lubricating oils, together with an option of incorporating adequate interlacement, is applied for purposes of warping without sizing. Polyester Chips The balancing stream of the polymer melt from polycondensation section is discharged through metering pumps to the casting head. The molten ribbons coming out of the casting head are taken on the cooling chambers of chips cutter where the molten ribbons are cooled by chilled DM water system. The solidified polymer ribbons are then cut in chips cutter and dried in the dryer. The dried chips are then passed through the classifier. The properly cut chips are stored in Chips silo. The chips are conveyed to the bagging silo for bagging. Technology

Produced in a continuous polyester polymerisation plant Uniform chemical and physical properties

USAGE OF POLYESTER Polyester is increasingly being used as an implant in orthopedic and cardiovascular applications, healthcare and hygiene products. Poly is an important input in making tamper proof packaging, microwaveable foot trays and bottles. Poly is an important element for making printed circuit boards, smart cards, video and audiotapes.

 Poly is used to manufacture x-ray films and holograms. Poly is a crucial raw material for making houses, power belts, ropes and threads. Poly is a key input in the manufacture of stealth bombers. Poly is being used in protective clothing for industrial workers and to make high performance sportswear. Poly is an ideal material for finishing nets, plant protection fabrics and sails. Poly is also used to manufacture floppy disk liners. Agriculture has greatly benefited from polyester sunscreens, windshields and packing material for crops. Proposed Methodology: The finance and accounts department of IndoRama comprises of various sub-sections which have responsibilities towards different aspects of business. A brief description about all these sections is given below: Sales AccountingSales are an integral part of working capital management. Credit policy is important to arrive at decisions in extending credit to its customer. The primary goal of credit policy is to avoid extending loans to unreliable customers. It also monitors the credit to suppliers. At IndoRama major part of sales is on credit. Majority of its sales are cash sales. Recovery of credit sales amount quickly is also important in operating cycle of business. There are four regional offices to manage sales all over India. They are situated in Delhi, Mumbai, Surat and Coimbatore. Apart from these the company has collection centres in different part of country. The marketing division provides information about customer requirements to sales department. Following are the steps in sales: Customer book contract with marketing department. Order is placed at Butibori. Marketing department advises to dispatch goods.

Pre dispatch list is prepared. If order is placed in bulk and requirement is on different dates then different invoice are maintained. Else loading of goods is done directly.

Deliverys detailed packing list is prepared. Invoice, MODVAT utilization and Lorry receipt are prepared. Simultaneously excise entry is passed. The sales accounting department enters accounting entry. If goods are accepted and payment is done within four days then cash discount of 2% is provided.

If payment is not on time then interest is charged on the amount receivable. If goods are rejected due to damage, truck lost or quality disparity then they are returned.

Sales returned entry is passed. Generation of sales order against goods returned. Billing documents are prepared. Contra entry is passed. New goods are sent. All accounts are maintained at SAP. Payment by customer is done through cash against delivery, telegraphic transfers or letter of credit.

Letter of credit (LC) A letter of credit is an important instrument at IndoRama. It is a financial instrument that is drawn on the book of borrower to the lender. But the transaction in this case is between the bank of borrower and lender. Since the company supplies to both the domestic and international market, they have different credit terms for both the markets. A LC drawn by a

domestic customer pays interest anywhere between 10-12% whereas the international LC does not pays interest. The various documents required for LC are: 1. Invoice 2. Delivery order/ Challan 3. Lorry receipt 4. Packing list Bill for Laden (in case of Exports) The company, state bank of India, discounts domestic LC at around 9%p.a. Thus the

company gain anywhere around 1.3% - 3.5% and also liquidates the instrument as and when it wants. Generally the company discounts the LC at the bank as soon as it arrives. The payment period is counted from the invoice date. International LC does not pay interest. It could be either CIF (cost in freight) or FOB (free on board). FOB is excluding freight and insurance. To recover the amount from overseas customers company has to appoint agents. The commission paid to agents are on the FOB amount. The company pays maximum of 3% to the agents. Almost 40% of export is through agents while rest is directly done by IndoRama. In export on cash 25% of the amount receivable is paid in advance and rest is paid when consignment is loaded on the ship. In export through agents company provides 10 interest free days to agents to recover the amount from due date. After this interest will be charged and deducted from agents account. In India also the company pays brokerage to brokers. A brokerage of 1 rupee/kg is paid on DTY. For PSF it is 60paisa/kg and for FDY it is 50paisa/kg. Scrap and waste is sold on cash only. Only after cash or Demand Draft is received then the goods are dispatched. In case of power trading the amount should be received within seven days of billing date. Power trading is through account to account transfer. It is possible that the goods consigned to the company or by the company may face delays due to transporters default. The company may face losses due to this as if the raw materials

do not reach on time the company may have to stop production. The company has a continuous flow of production and cost of restarting the production is very high. Thus the company has made a policy of charging the transporter with fine for each and every days delay. There can be two types of delays In Transit delay and Detention delay. There are three ways in which exports can be done: 1. Advance Licence 2. DEPB 3. Duty drawback The Indian Foreign trade act (1992) is for the development of the foreign trade and regulates the export import trade of the country. Under this act the Director General of Foreign Trade is appointed in the Exim policy. The Exim policy is conterminous with the 5yr plan. The current Exim policy is for the year 2008-2013. The basic objective of the Exim policy is: Quality product should be exported. Import raw materials for some finished goods and re-export them at global competitive price. Taxes should not be exported. The various schemes offered by the government are: Duty Exemption/ Remission Scheme (Ch 4 of policy) Export Promotion of Capital Goods (Ch 5 of policy)

Advance Licence: It is one the scheme announced in the Exim policy for export promotion. Under this scheme the importer is exempted from paying any customs duty on any import of inputs specified in SION (Standard Input Output). Advance license is issued for duty free imports which are physically incorporated in the export product. Thus such goods are exempted from payment of basic customs duty, surcharge, additional custom duty, dumping duty and safeguard duty.

Advance licence can be issued for: Physical Exports: when the firm directly exports the goods themselves, where the goods leaves the country. Intermediate supplies: when the firm supplies to an ultimate exporter who in turn holds an advance license for physical exports or deemed exports. Deemed Exports: when a firm directly exports to a 100% exporter, where the goods do not leave the country, however contribute to ultimate export.

License issued for each type: A type B type C type Acquire & supplies materials outside the Advance license for exports country Acquires & supplies materials within the Advance license for Intermediate exports country Acquires within but supplies materials Advance license for Deemed exports outside the country

The above license provides different schemes for different manufacturer. The basic objective is to make import of inputs available to the exporter freely. The overall worldwide quality and price competitiveness is thus maintained. The license is valid up to 18 months. Suppose we are not able to meet the production dead line then the license validity can be extended for six months at the rate of 2% interest and further extension for six months at the rate of 5% interest. DEPB (Duty Entitlement Pass Book Scheme):DEPB is an optional facility given for exporter not desiring to go through the licensing route of Advance license. The objective of the DEPB scheme is to neutralize the incidence of custom duty on the import content of the export product. The neutralization is provided in form of duty credit against the export product.

Under the DEPB scheme exporter applies for duty as a percentage of the FOB value of the exports realized. The credit is granted against such exports, at the rates fixed by DGFT. The credit can later be used to pay customs duty on import of raw materials or can be freely sold in the market. The validity of the DEPB credit is for 12 months from the date of issue and cannot be extended further. DEPB is a scheme where the exporter can take the benefits of exports in the form of grant in custom duty. In this scheme there is no obligatory restriction on import and export. DGFT has defined certain rates which are granted against exports of a particular product. This credit can be utilized to knock off the custom duty payable to the DGFT on import of any raw materials. The exporter can either utilize it for his own imports else sell it in the market. Duty Drawback:Drawback means the rebate of duty chargeable on any imported materials or excisable materials used in manufacture or processing of goods which are manufactured in India and exported. Export means taking out of India. Supply of stores for use in vessel or aircraft proceeding to foreign port is also covered, since it is treated as export as per section 89 of Customs Act. Duty Drawback is equal to (a) customs duty paid on imported inputs including SAD plus (b) excise duty paid on indigenous inputs. Duty paid on packing material is also eligible. However, if inputs are obtained without payment of customs/excise duty, no drawback will be paid. If customs/excise duty is paid on part of inputs or rebate/refund is obtained, only that part on which duty is paid and on which rebate/refund is not obtained will be eligible for drawback. No drawback is available on other taxes like sales tax and octroi. Duty drawback of SAD (Special Additional Duty) is allowable. MF (DR) circular No. 58/2002-Cus dated 12-9-2002. Processing also eligible for Drawback - Drawback is allowable if any manufacture, process or any operation is carried out in India [section 75(1) of Customs Act]. Thus, drawback is available not only on manufacture, but also on processing and job work, where goods may not change its identity and no manufacture has taken place.

All Industry Drawback rates are fixed by Directorate of Drawback, Dept. of Revenue, Ministry of Finance, Govt. of India, Jeevan Deep, Parliament Street, New Delhi - 110 001. The rates are periodically revised - normally on 1st June every year. Data from industry is collected for this purpose. The types of rates are as follows : All Industry Rate - This rate is fixed under rule 3 of Drawback Rules by considering average quantity and value of each class of inputs imported or manufactured in India. Average amount of duties paid is considered. These rates are fixed for broad categories of products. The rates include drawback on packing materials. Normally, the rates are revised every year from 1st June, i.e. after considering the impact of budget, which is presented in February every year. All Industry drawback rate is not fixed if the rate is less than 1% of FOB Value, unless the drawback claim per shipment exceeds Rs 500. The AIR (All Industry Rate) is usually fixed as % of FOB price of export products. However, in respect of many export products, duty drawback cap (ceiling) has been prescribed, so that even if an exporter gets high price, his duty drawback eligibility does not go above the ceiling prescribed. The table gives allocation of the drawback allowed fewer than two heads namely - Customs and Central Excise. The Customs portion covers basic customs duty, surcharge and SAD. Excise portion covers basic and special excise duty and CVD. Duty drawback of customs portion can be paid even if exporter has availed Cenvat credit, as Cenvat credit is only of excise duty and CVD. MF (DR) circular No. 83/2000-Cus dated 16-10-2000. The All Industry Rate (AIR) is fixed on the basis of weighted averages of consumption of imported / indigenous inputs of a representative cross section of exporters and average incidence of duties. Hence, individual exporter is not required to produce any evidence in respect of actual duties paid by him on inputs. MF(DR) circular No. 24/2001-Cus dated 20.4.2001. Brand Rate - It is possible to fix All Industry Rate only for some standard products. It cannot be fixed for special type of products. In such cases, brand rate is fixed under rule 6. The manufacturer has to submit application with all details to Commissioner, Central Excise. Such application must be made within 60 days of export. This period can be extended by Central Government by further 30 days. Further extension can be granted even upto one year

in if delay was due to abnormal situations as explained in MF(DR) circular No. 82/98-Cus dated 29-10-1998. Special Brand Rate - All Industry rate is fixed on average basis. Thus, a particular manufacturer may find that the actual duty paid on inputs is higher than All Industry Rate fixed for his product. In such case, he can apply under rule 7 of Drawback Rules for fixation of Special Brand Rate, within 30 days from export. The conditions of eligibility are (a) the all Industry rate fixed should be less than 80% of the duties paid by him (b) rate should not be less than 1% of FOB value of product except when amount of drawback per shipment is more than Rs. 500 (c) export value is not less than the value of imported material used in them - i.e. there should not be negative value addition. Forms and procedures have been prescribed for submitting details to jurisdictional Commissioner of Central Excise, who will fix the rate of duty drawback. [Earlier, it was done by Director of Drawback, New Delhi, up to 313-2003] Exporter shall endorse on the shipping bill the description, quantity and other details to decide whether goods are eligible for duty drawback. He should submit one extra copy of shipping bill for drawback purposes. Copy of Invoice should be submitted. Declaration by Exporter - A declaration should be made rule 12(1)(a)(ii) of Duty Drawback Rules, on shipping bill or bill of export that claim of drawback is being made and that duties of customs and excise have been paid on materials, containers and packing materials and that no separate claim for rebate of duty will be made. If the exporter or his authorised agent was unable to make such declaration due to reasons beyond his control, Commissioner of Customs can grant exemption from this provision of making declaration on shipping bill or bill of export. Further declarations are also required when brand rate or special brand rate has been fixed. These declarations have to be signed by exporter. Triplicate copy of shipping Bill is the drawback copy and should be marked as Drawback Claim Copy. It should be submitted with pre-receipt on reverse side with revenue stamp. Declaration for non-availment of Cenvat (a) If the manufacturer-exporter or supporting manufacturer of merchant exporter is registered with Central Excise, fact of non-availment of Cenvat credit can be verified from ARE-1 form furnished (b) If the manufacturer-exporter or

supporting manufacturer of merchant exporter is not registered with Central Excise, they have to submit self-declaration about non-availment of Cenvat in prescribed form. MF (DR) circular No. 8/2003-Cus dated 17-2-2003. The drawback rate consists of two components - customs portion (consisting of basic customs duty, surcharge and SAD) and excise portion (consisting of basic excise duty, special excise duty and CVD). The Cenvat credit is only in respect of central excise. Hence, it has been clarified that even if Cenvat credit has been availed, duty drawback in respect of customs portion will be available.

Raw Material Purchase Accounting Raw Materials: Raw materials can either be procured from local market or can be imported. Local procurement could be either duty paid or deemed supply. While import can be done in three ways which are advance license, DEPB and duty drawback. The following table shows the raw materials required by IndoRama along with their suppliers Raw Materials PTA MEG TR2 Suppliers MCPI, IOCL, Reliance, Import Import(SABIC, MITSUI) Import

MCPI provides 90 days credit period for PTA while IOCL provides 45 days credit period for the same. MODVAT on PTA is 4.21% while for MEG and TR2 is 8.24%. import prices are dependent on per day rate of dollar. Purchase: The function of the purchase department is to make available the requirements made by different departments of the company. The motto of this department is to get good quality

products at the lowest market price on time. Thus a list of approved vendors is prepared by this department and kept as a reference for future dealings. The purchase department in the company is intimated by the user department about the present demand of a commodity. The purchase department based on the approved vendor list ask for quotations for the specific requirements. Different supplier bids different prices along with their specifications. In the previous system the suppliers did not knew how many more quotations has the company received and what is the minimum price that the company has received. So regardless of the price, the vendor quotes his own price according to his own assumption. The supplier is not knowing the minimum price therefore when the company tries to negotiate the price, the supplier feels forsaken and looses interest in the company to supply goods. There is no transparency in the old system as no vendor knew about the lowest price with the company and was kept in dark. The purchase department handles the purchase of raw materials as well as stores and spares. Raw material procurement is handled by the Delhi purchase office only. The payments are made by the accounts department based on the priority given intimated by the purchase department. Purchase procedure: 1. Corporate materials (CM), New Delhi, is kept informed in writing by the plant about consumption pattern for every item of raw material and chemical from time to time and any significant change in consumption pattern would be intimated to corporate material immediately. 2. CM estimates requirements for size and shipment schedule for each item of import. This is recorded in the planning schedule. 3. CM obtains orders from the approved vendors mentioned in the approved vendor list. For new vendors orders are obtain along with technical specifications. 4. The offer is then checked whether it is from a new vendor by referring to approved vendor list. 5. If offer is from new vendor technical evolution from VP(Poly) is done. Approval is intimated to VP(CM). if required sample materials are also send.

6. VP(CM) evaluates the offer commercially and decides the party to whom the order has to be placed. Purchase order is then approved and forwarded to the party. 7. Suitable intimations are given to the banking department by the CM who also establishes LC accordingly. 8. CM arranges for customers clearance from the port through Mumbai office. 9. Respective offices at different locations then make necessary arrangements at their end for taking delivery of the materials from the port. 10. Mumbai office also arranges to get the materials dispatched to the user department at plant in trucks/tankers. 11. Records to be fitted are Record a. Planning Schedule b. Approved Vendor List c. Purchase Order Entries in the books at the time of purchase: 1 Inventory A/c To Provisional / GRIR a/c (at the time of receipt GR stage) 2 S & H E Cess a/c BED BTB a/c Education Cess a/c To MODVAT clearing a/c 3 Provision /GRIR a/c Excise Duty a/c File Planning File Vendor File Material Wise

To vendor a/c (at the time invoice verification at the accounts department) 4 Vendor a/c To Bank a/c To Discount Receivable a/c (at the time of payment made to the vendor on due date)

When the goods are received, the truck is unloaded and the goods are weighted for shortage and quality certificate is also prepared. The stores make an entry in SAP for GR. A provision account- GRIR a/c is created on the basis of P.O. The papers are forwarded to the accounts department where the discount as agreed by the party is incorporated in the suppliers account. Here the GRIR a/c is cancelled and vendors account is created. The supplier gives a credit note for the amount equivalent to the discount due with him. The rest of the amount is paid on the due date by the bank if the goods are on a bank LC or by cash. Packing: For packing 97% of the packaging material is purchased from local vendors and only 3% is imported. This is due to strict quality and inventory control adopted by IndoRama. Under quality control two types of measures are taken i.e. Burning strength and Compressing strength. Commodity imported is crop papers which are mainly used for covering the finished goods. The cost of these packaging materials is very competitive in nature so it helps the company in cost reduction. IndoRama has three continuing process plants at Butibori and almost 42 vendors for packaging material. Various raw materials used for packaging are as follows: 1. Adapters 2. Bailing Wire 3. Bale Cover 4. Bopp-Tape

5. Carbon Film 6. Corr. Boxes 7. Film 8. HDPE Bag 9. Jumbo Box 10. Kraft Paper 11. Label/Stickers 12. Miscellaneous 13. P.P. Strip Roll 14. Pallet 15. Paper Tube 16. Polyethylene- HMHD bags 17. Punch Plate

Entries in packing department: 1 Inventory A/c To Provisional / GRIR a/c (at the time of receipt GR stage) 2 GR a/c ED a/c VAT a/c To Vendor a/c (at the time of passing of bill)

Vendor a/c To Bank of India a/c (at the time of entry in Bank)

Indo Rama has following Continuing Process Plants: CP1 CP2-3 CP4 CP5 DTY Company has approximately50 vendors for packaging material.

SAP Integrated System All the requirements are feed in SAP periodically. The marketing department also estimates the forecasted requirements based on past performance. The responsibility is then segregated in SAP automatically and all the departments are intimated about their responsibility. The logistic department decide for the transporter and transportation of the goods. The insurance departments get the goods insured, while the excise departments arranges for getting the import formalities completed. The stores and raw material department are intimated to arrange for accommodation of the goods at a tentative date. The accounts department complete the payment formalities to the supplier while the freight department arranges for the payment to the transporter.
Costing Department

Corporate Stores

Administrati on SAP General Ledger

Excise & Customs Department

Accounts Department

Insurance Department

Freight Department

Logistics

SAP: An Integrated System HUNDI PROCESS It is the process basically used by the company in case of any funds shortage or for uses of funds in other important area. In this process, the payment to Vendor is delayed by a maximum of 90 days from the due date of payment and directing the Vendor to take the discounted payment from SIDBI by issuing Hundi to him. The steps involved in issuing a Hundi to final payment to bank are described in the following points: 1. Most of the packing materials are taken from the Vendor at the credit period of 30 days. After the completion of due date, company provides annexure of the bills of purchasing to the Vendor and offer them to claim Hundi. 2. Vendor after receiving the annexure, adjoin the cover letter with it and send it back to the company. Cover letter contains the Hundi number, date and period of payment. 3. After verification of the facts in cover letter and annexure, both are duly signed by the relevant authorities in the company and are returned back to the Vendor accompanied by issuing of PDC to the Vendor. 4. Vendor then submits original documents including PDC, covering letter, annexure and the Xerox of all the bill details of the invoices mentioned in the annexure in SIDBI. 5. Bank then after discounting the price pays rest of the amount to the Vendor. The discounting rate of the SIDBI is 11.5%

6. Accounting entries at the time of issuing of Hundi and advance entry of PDC is given as follows: 1. Vendor a/c To Hundi acceptance a/c 2. ( At the Time of issuing of Hundi) SIDBI a/c To BOI a/c

7. The company has arrangements with Vendors that packing section will share 50% of the discounting charges with the Vendor. So after receiving the deducted amount Vendor issues the debit note of 50% of the discounting charges at the name of Indo Rama and company books that debit note. Payment is done to the Vendor and following entry is made in accounting books.

1. 2.

Expenditure a/c To Vendor a/c Vendor a/c To BOI a/c

8. SIDBI intimates Indo Rama a month before the actual payment of the amount to it. The notification by the SIDBI is send to the banking section of the company where it is cross checked and then the relevant amount is credited to the BOI accounts from where the payment is done. Following are the important points in Hundi process: The company cannot issues Hundi before the due date. The same can be issued only when the due date of payment of Vendor is over. Hundi can be issued a maximum of 90 days after the due date and 120 days from the date of the invoice. Maximum amount of Hundi that can be issued at a particular time is 15 crore.

There are only few Vendors, whose credibility is checked both by company and the bank, which are entitled for Hundi.

Banking section The department has four main and essential jobs: 1. Banking section makes a fund plan known as cash budget. The main aim is: Estimate dispatch of finished goods for excise duty on daily basis. To estimate requirement for raw materials to get MODVAT/ CENVAT for final calculation of excise duty. Calculate payments like: a. Critical government payment like container co-operation of India, MSEB, TDS etc. b. Emergent payment like supplier payment, transporter payment, packing payment etc. c. Admission payments are also made like salary, community charges, travelling, ticketing etc. 2. Multi banking branch (MBB) is one of the advantages of this section; it has availed this facility and has minimized the risk of transfer of funds. Whenever fund is required, message is conveyed by the banking section to corporate office in delhi. Then cash is immediately transferred from the dealing branch of bank in delhi to bank here in Nagpur through MBB.

3. Negotiation of letter of credit is also done by this section. 4. Scrap payments: banking section collect the draft/pay order and deposit the same in the bank on same day. Banking section collects the receipt and payments are done through ButiBori branch. For payment purpose, funds are transferred by the delhi corporate office. Banking sector gets credit for certain period from the packing parties and if it pays the same before the said period it gets discount.

Cash budget It is a statement showing the estimated cash inflows and outflows and the resultant cash balance for daily monitoring. It serves as device for planning and controlling the sources and uses of cash to ensure the availability of cash when it is needed.

It helps IndoRama in following ways: Enables the management to determine the timings when there is likely to be a surplus/shortage of cash. Enables the management to determine the quantum of shortage/surplus of cash. It enables the management to prepare borrowing schedule and also the repayment schedule well in advance. It helps to plan for dividend payment. It helps to plan the financing the expansion/modernization of the existing plan. Helps the management to plan the financing of a new project. Enables the management to take advantage of cash discounts.

Cash budget is prepared daily. It is useful for short range planning.

At Indorama annual budget is prepared by each department and send to head office for approval. Daily budgets are then prepared by the respective department to get a better idea of cash flows month wise. Then the department, which needs cash, send a request to the cash foresting department. He then compiles the requests, cross checks it with the daily budget figures and then send it to corporate office at delhi. The corporate office then transfers the amount to the branch the next day.

Establishment accounting means accounting for employees remuneration and administrative payments. It is also known as pay roll accounting. The basic salary of an employee is decided at the time of recruitment. On the basic salary, HRA, commuting allowance and conveyance is calculation additional perks like LTA, credit card, vehicle policy, cellular phone charges, medical allowance, bonus, ex-grating, yearly attendance incentive etc are also given. There also are some monthly deduction like Provident Fund, Profession tax, TDS, loans and advances. In case of workers washing allowance, production incentive and attendance incentive is given in addition to basic wage. Administrative overheads include payments made towards establishment. These include telephone bill payments, electricity bill payment, official postage and couriers, printing and stationeries, security and canteen, welfare activities etc. The process for establishment and contract accounting is as follows: At first work order is prepared which contains details about the work needed to be assigned and to whom it should be assigned and at what rate. After the work is completed, service entry is prepared which is duly signed by relevant authorities. The contractor submits bills to the relevant department and that department cross checks it and prepare a brief information letter about the bill.

The bill is then submitted to time office where number of man days and completion of work is checked.

The company holds the PF amount and after deducting TDS, it pays to contractors. When the contractor shows the PF challan to company and receives the holdup PF amount.

The following are the accounting entries:

Expenditure A/c To GRIR a/c (at the time of service entry)

Service tax received a/c GRIR a/c To Vendor a/c To TDS a/c (at the time of invoice verification)

Vendor a/c To Bank a/c (at the time of payment made to the vendor on due date)

Stores and Spares

Stores are also an important field that is handled by butibori purchase department. All other requirements of the company are met by the purchase department. The company has around 500 creditors for stores and spares alone. A credit of 30 days is received on the purchase made for stores and spares, thereby aiding the working capital requirements of the company. The process of purchasing in stores and spares department is as follows: The user (relevant department) provides the purchase requisition to the purchase department. Purchase department then asks for quotations from vendors for the required materials. The quotations received from different vendors goes through comparative analysis and 2-3 vendors are shortlisted based on price, quality standard and reputation. Negotiations are done with shortlisted vendors and various purchase terms are decided with the selected vendor and purchase order is prepared. As per purchase order vendor delivers the material and gate entry is done with respect to the purchase order.

After this the goods is send to stores where store keeper checks for the quantity received and makes an informal entry of goods received.

Authorized person then checks the received goods for quality and then makes an entry in goods received account.

The accounting entry for this process is as follows: 1 Inventory A/c To GRIR a/c (at the time of receipt GR stage) 2 MODVAT a/c GRIR a/c VAT a/c To vendor a/c (at the time invoice verification at the accounts department) 4 Vendor a/c To Bank a/c (at the time of payment made to the vendor on due date)

Advance payment

Most of the materials are purchased on credit but some materials especially from OEM (original equipment manufacturer) is purchased on advance payment. The process for advance payment is as follows: First the order is placed by the user. Then PRA (payment release advice) is prepared and it is checked whether there is any past debt or not. If there is past debt then it is cleared first and then advance payment is done. In some cases when material is urgently required advance payment is done irrespective of past debts. After this bank voucher is prepared and sent to banking section. From banking section it is sent to respective vendor.

There is one more way of purchase that is CAD (cash against document), in this process PO is prepared and invoice is raised. Vendor sends material through courier and company have to pay to courier personnel while taking the delivery of the goods.

Conclusion
Thus we see that a firms system and cash management employs a combination of instruments, techniques and services with a goal of achieving an efficient use of corporate funds. Once the cash budget forecast has been prepared, the analyst can evaluate the firm s position. An important part of the evaluation deals with adequacy of cash in each quarter as the concerned firm does by preparing cash budget for coming four months. A safety level must be defined as the minimum amount of cash needed to conduct firms business. It is the amount of cash and equivalents that the firm has available to meet transactions, contingencies and opportunity needs. In comparing cash on hand with the safety level four conditions are possible namely surplus cash, optimum cash, shortage of cash and deficit or negative cash balance. In all the conditions the manager must use his discretion to the best so as to maximize the return on funds available. Although there is negative working capital which is considered to be good signs for manufacturing firm. But considerable no its current assets are stuck in non-liquidating stock like CENVAT receivable and various claims like insurance. Since this are non-liquidating assets company cannot utilize them and has to bear opportunity cost and also falling on profitability.

Recommendations
There should be effective monitoring of level of cash, receivables and inventory. Strategies should be developed to save as much as possible by decreasing cost of funds available should be other utilised to the optimum level. The various techniques relating to effective cash management namely reducing the cost of receivables, prompt payment by customers, decreasing operating cycle so as to increase cash turn over and decrease cash turn over should be adopted by the firm. Also methodologies relating to effective inventory management and stretching the time of accounts payable should be brought into practice. This will help in optimum utilisation of the much needed funds. Company needs to devise strategy to liquidate the stuck up assets.

Bibliography
1. Principles of Corporate Finance Brealy and Myers 2. Financial Management Prasanna Chandra 3. Annual Report of the company 2007-2008 4. www.indo-rama.net