Comparative Study On Working Capital Management.pdf

A PROJECT REPORT ON

A COMPARATIVE STUDY ON WORKING CAPITAL MANAGEMENT BETWEEN BHILAI STEEL PLANT & TISCO

SAIL June

In July, 2005

In Partial Fulfillment of the Requirements For The Financial Management Course Of

Master of Business Administration University of Pune By

Anil Kumar Siingh Under the Guidance of Mr. S.A. Ranade

VISHWAKARMA INSTITUTE OF MANAGEMENT, PUNE-411048

ACKNOWLEDGEMENT

We want to express our sincere gratitude to our Institute, which has provided us with an excellent opportunity to achieve the most cherished goal in our life, that is a Comparative Study On Working Capital Management Between Bhilai Steel Plant & Tisco under the able guidance of Shri Narendra Singh General Manager (Finance), Bhilai Steel Plant.

We acknowledge our gratitude to Shri A.S. Bhaskar Rao Manager (Cash), Shri C.K. Agarwal Sr. Manager (Sales), Shri R.C. Bhoi Manager(Sales), Shri Lalit Khanna Dy. Manager (Sales), Shri Prakash Kolkandi Dy. Manager (Excise), Shri Abin Sarkar Manager (Sales Tax) Shri C.Raghu Dy. Manager (Raw Materials), Shri A.R. Sahu Manager (Operations), Shri Rajesh Nair Manager(Inventory), Shri G.Rajesh Dy. Manager (Stores), Shri Sudhanshu Kumar Shrivastava Manager (Central Accounts), Shri Radhakrishnan Section Officer (Central Accounts), who gave their support, encouragement at the times when we needed.

We express our sincere thanks to Shri Rajiv Mahendru Manager (Finance) BSP for continuous guidance the project period in the huge organization without their precious direction, valuable guidance and critical scrutiny this report could have not been completed.

DECLARATION

Anil Kumar Singh here by declare that this report is a result of our intensive study during a period of 7 weeks at Bhilai Steel Plant, Bhilai. This work is an original one and has not been submitted earlier either to this university or to any other institution for fulfillment of the requirement of a course of study to the best of our knowledge.

Under the Guidance of Kumar Singh

Shri Rajiv Mahendru Manager (Finance) Bhilai Steel Plant Date :23rd July, 2005 Place : Bhilai

Anil

CERTIFICATE This is to certify that Mr. Anil Kumar Singh, the students of MBA in Finance Course has worked under my guidance on the topic A Comparative Study of Working Capital Management between Bhilai Steel Plant (SAIL) & TISCO in the partial fulfillment of the requirements for the Financial Management Course, 2005

This is also to certify that his work is original to the best of my knowledge.

Date : 23rd July 2005 Place : Bhilai

Signature Shri Rajiv Mahendru Manager (Finance) Bhilai Steel Plant

ORGANISATION STRUCTURE OF SAIL

CHAIRMAN DIRECTIOR (TECH) DIRECTIOR (PERSONNEL)

MANAGING DIRECTOR, BSP

MANAGING DIRECTOR, BSL

DIRECTIOR (FINANCE) MANAGING DIRECTOR, RSP CHIEF VIGILANCE OFFICER EXE. DIR (OPRNS)

MANAGING DIRECTOR, DSP

EXE. DIR (IA)

EXE. DIRECTOR, VISL

ED (TECH & LEGAL SERVICES

EXE. DIRECTOR, SSP

EXE.DIR. (PROJECTS)

EXE.DIR. (CMMG)

EXE.DIR. (CP)

EXE. DIRECTOR, ASP

EXE.DIR. (CIG)

ORGANISATION STRUCTURE OF BHILAI STEEL PLANT MANAGING DIRECTOR

GM (F&A)

GM (IT)

GM (M & SP)

ED (PROJECTS)

ED (WORKS)

GM (PROJECTS)

GM (TS)

GM (PP&E & BEDB)

GM (PERS)

GM I/C (SERVICES) GM (IA)

GM (Refr) GM I/C (M & U)

DIR (M & HS)

GM I/C (MILLS-LP) GM (P MILL)

ACVO

GM (CO & CCD) GM (SP & OHP)

COC

GM (HRD)

GM (SAFETY) GM (IRON)

GM I/C (MINES)

ED (P&A)

GM I/C (PE & En) GM (QUALITY)

GM (MS)

DGM (L&A)

Ed (MM)

GM (MM)

GM I/C (STEEL) GM (CCS)

SMS -II

INTRODUCTION Business activity is dynamic in character and subject to wide fluctuations. The movement from working capital to income and profits and back to working capital is one of the most important characteristics of business administration. This operation is concerned with the deployment of funds with the hope that they will generate returns, rendering an additional amount called profit. If the operations of an enterprise are to run smoothly, a proper relationship between fixed capital and current capital must be maintained. Its main aim is to use business funds in which a manner that earnings are maximized. Financial Management provides a frame work for selecting a proper course of action & deciding a viable commercial strategy. This objective can be achieved bya) Profit maximization b) Wealth maximization Funds are needed for short term as well long term purposed. In short term we say current operation of the business. For a manufacturing unit, payment for raw materials and wages and for meeting routine expenses. All the goods which are manufactured in a given time may not be sold in that

period. Naturally funds are blocked in inventory. It is also the fact that all goods may not be sold on credit basis. The credit sales also involve the blocking of funds till the cash received. The term working capital is closely related to the term funds and has two meaning. It is used to mean current assets minus current liabilities. In simple words it is the investment needed for carrying out day-to-day operations of the business smoothly. Working capital management thus throws a challenge and should be a welcome opportunity for a financial manager who is ready to play an important role in his organization.

CHAPTER

1

CONCEPTUAL OVER VIEW

1.1 WORKING CAPITAL MANAGEMENT One of the most important areas in day-to-day management of the firm deals with the management of working capital, which is defined as all the short-term assets used in daily operations. These consist primarily of cash, marketable, securities, account receivable and inventories. Some of the decisions taken in working capital management are: An adequate supply of raw materials. Cash to meet the operation payments. The ability to grant credit to customers. The capacity to wait for market for its finished products. Investment in various current assets. Appropriate sources of fund to finance current assets.

Proportion of long term and short term funds to finance current assets. It may be clear that the objective of working capital management is to maintain a satisfactory level to working capital. In other words, the current assets should not only be sufficient enough o cover the current liabilities but at the same time should also ensure the reasonable amount of safety margin. This is possible only when the different components of working capital are properly balanced.

1.2 WORKING CAPITAL CONCEPTS There are two concepts of working capital. (i)

Gross concepts

(ii)

Net concepts

Gross working capital concept Simply called as working capital refers to the firms investment in current assets are the assets which can be converted into cash within an accounting year and include cash short term securities, debtors, bill receivables and stock.

Net working capital concept Net working capital refers to the differences between current assets and current liabilities. Current liabilities are those claims of outsiders which are expected to mature for payment with in an accounting year. Networking capital can be positive or negative. A negative working capital means a negative

liquidity and may prove to be harmful for the company. It occurs when current liabilities are in excess if current assets. It may be due to mismanagement of current assets. In summary it may be emphasized that gross and net concepts of working capital are two important facts of working capital management. The data and problems of each firm is different, so it should be analyzed to determine the amount of working capital and timely action should be taken by management to improve the liquidity position of the firm.

1.3 OBJECTIVE OFWORKING CAPITAL MANAGEMENT (i)

To minimize the amount of capital employed in financing the current assets. This will also lead to an improvement in Return on Capital Employed .

(ii)

To manage the current in such a way that the marginal return on investment in these assets is not less than the cost of capital acquired to finance them. This will ensure the maximization of the value of business unit.

(iii)

To maintain a proper balance between the amount of current assets & the current liabilities in such a way that a firm is always able to meet its financial obligations whenever due. This will ensure smooth working of the unit without any production held ups due to paucity of funds. Thus, the objective is to ensure the maintenance of satisfactory level of working capital in such a way that it is neither inadequate nor excessive. In should not only be sufficient to cover the current liabilities but should ensure a reasonable margin of safety also.

1.4 DETERMINANTS OF WORKING CAPITAL To determine the amount of working capital needed by a firm, the number of factors may be included in analysis.

Nature and size of Business Trading and financial firms require a large sum of money to be invested in working capital. Some manufacturing business like tobacco manufacturing and construction firms also have very limited need for working capital. In contract public utilities have a very limited need for working capital. Their working capital requirements are nominal because they have cash sales only. Size of business also has an important impact on its working capital. A firm with longer scale of operation will need more working capital than a small operation firm.

Availability of Credit Availability of credit from bank also influences the working capital needs of the firm. A firm, which can get bank credit easily on favorable conditions, will operate with less working capital than a firm such a facility.

Attitude Toward Risk

The greater the amount of capital, lower the risk of liquidity problems. If firm don t want liquidity deficiency, may keep extra cash.

Operating Efficiency Batter operating efficiency, lower need of working capital. Most firms seek to maintain sufficient working capital to meet their needs for liquidity.

Manufacturing Cycle Longer the manufacturing cycle larger will be the firm s working capital requirements. Manufacturing cycle stands with the purchase and use of raw materials and completes with the production of finished goods. In order to minimize their investment in working capital, some firms, like manufacturing industrial products, have a policy of asking for advances payment from their customers. Above all the amount of working capital that a firm would need is affected not only by the factors associated with the firm itself but is also affected by economic, monetary and general business environment.

CASE STUDY 2.1 BHILAI STEEL PLANT Bhilai steel plant a symbol of indo- soviet techno-economic collaboration, is the one of first three integrated steel plants se up by Government of India to built up a sound base for industrial growth of the country. The agreement for setting up the plant with a capacity of 1 MT of

ingot steel was assigned between the Government of the USSR and India on 2nd February 1955. Today the plant has already been expended to the capacity of 4.0 million tone of crude steel & is producing 3.925 million tones of crude steel & 3.153 million tones of saleable steel. The plant was the 1st to produce wide (3600mm) & heavy plates. A major exporter of steel products, Bhilai specializes in shaped products such as heavy rails, heavy structural merchant products of wore rods. Its coke making & chemicals, hot metal & pig from, entire making facility & Blooming and billet mill and all the finishing mills are armed with ISO-9002 certification. Plate mill of Bhilai Steel Plant has received the ISO-14001 certification for its Environment Management System. Among various SAIL steel plant B.S.P, is only plant, which has been earnings profits continuously. More so when there has been a total loss to the tune of 1707 crore. BSP has individually earned a profit in crore Rs. for the year march 2003 - 732.20 BSP being BSP being one of the plant where modernization has not been fully effected & still B.S.P. is able to isolate itself, by earning profit, is a matter of great pride for the employee at Bhilai Steel Plant. Bhilai steel plant won the Prime Minister Trophy for the Best Integrated Steel Plant in the country five times out of eight times since the inception of the award.

2.2 STEEL AUTHORITY OF INDIA LIMITED

Steel Authority if India Ltd. (SAIL) is India s largest and one of the world s leading steel producers with a turnover of Rs. 19702.10 crores during 2002-03, which was 24% higher than previous year s turnover. Vision of SAIL To be a respected world class corporation and the leader in Indian Steel Business in quality, Productivity, profitability and customer satisfaction. SAIL has four integrated steel plants at Bhilai, Durgapur, Rourkela and Bokaro having a total capacity of producing over 11 million tonnes of crude steel. Three plants at salem, Durgapur and Bhadravati produce stainless and alloy steels. A subsidiary at Burnpur produce heavy structural and another at Chandrapur is a bulk producer of Ferro-alloys. SAIL s vast Portfolio of long, flat and tabular products is marketed within and outside India by its central Marketing Organisation (CMO) and the International Trade Division (ITD) respectively steel plants. SAIL s Raw Material Division, head quartered at kolkatta manages India s second largest mines network. To develop new technologies for the steel industry and achieve world standards in steel, SAIL has a well equipped research &Development centre for iron and steel (RDCIS). Besides it has its own in house centre for engineering & Technology (CET), Management Training Institute (MTI) and SAIL safely organization (SSO) at ranchi. SAIL consultancy Division (SAILCON) at New Delhi provides consultancy services garnered over four decades of experience in steel making, to clients word wide.

SAIL s product mix has been reoriented to keep pace with market demand. Higher availability of special grade products like API grade HR Coils/Plates/Pipes, HR Coil for cold Reducing segment etc. It has enabled SAIL to maintain & achieve larger market in value added segment, with a market driven pricing system, key customers are provided special customer services and there is increased product focus and constant review of distribution channels. One of the leading steel producers in the world and the largest steel maker in the country, SAIL occupies a primes places in the industrial scenario of India. Quality steel products from SAIL have craved a niche for themselves in the globle steel market. The company aims at thinking its globle presence felt through export joint ventures and strategic alliances with internationally reputed steel markets. SAIL is in the midst of organizational restructuring to bring greater focus on its core business of making carbon steel. Making employees aware of market requirements insuring greater involvement of plants in marketing initiatives, achieving cost leadership through rigorous cost cutting drives and rationalizing man power to bring down the total no. of employees to competitive levels are some other facets of the strategy to insure sustained profitability and growth. SAIL s ability to continuously grow in different market conditions reflects the inherent strengths of the company to manage its operations under the varying and fast changing business environment over a long span of time. In the new millennium there is a strong focus on SAIL s

business

activities for customer satisfaction, adopting an approach for increased

synergy between production capabilities and market needs and ensuring supply of customized products with shorter lead times.

The product mix is being continuously oriented to specific needs of different markets segments. SAIL has been progressively investing in technological up gradation of its facilities to supporting cost reduction, improving products quality and yields and for environment protection. In the new millennium, the accent in SAIL is to accelerate the process of change, adopt to emerging competitive business environment and excel as a business organization both within and out side India. 2.3 MAJOR UNITS OF SAIL Steel Plan. a.

Bhilai Steel Palnt (BSP) in C.G.

b.

Durgapur Steel Plant (DSP) in West Bengal.

c.

Rourkela Steel Plant (RSP) in Orissa.

d.

Bokaro Steel Palnt (BSP) in Jharkhand.

Special Steel Plants a.

Alloys Steel Plant (ASP) in West Bengal.

b.

Salem Steel Plants (SSP) in Tamilnadu.

c.

Vivesvaraya Iron & Steel Plants (VISP) in Karnataka.

Subsidiaries. a.

Indian Iron & Steel Co. Ltd. (IISCO) in West Bengal.

b.

Maharastra Elektrosmelt Ltd. (MEL) in Maharastra.

Other Units. a.

Raw Material Division (RMD) at Kotkata.

b.

Central Marketing Organisation (CMO) at Kolkata.

c.

SAIL Consultancy Division (SAIL CON) at New Delhi.

d.

Research and Development Centre for Iron and Steel (RDCIS) at Ranchi.

e.

Centre for Engineering and Technology (CET) at Ranchi.

f.

Management Training Institute (MTI) at Ranchi.

g.

Central Power Training Institute (CPTI) at Rourkela, Orissa.

h.

SAIL Safety Organisation (SSO) at Ranchi.

i.

Environment Management Division (EMD) at Kolkata.

j.

Growth Division (G.D.) a Kolkata.

k.

Central Coal Supply Organisation (CCSO) at Dhanbad.

ORGANISATION STRUCTURE OF FINANCE & ACCOUNTS DEPARTMENT

G.M. (F&A)

D.G.M.(F&A)

CASH, WAGES-1, WAGES-III A, INCENTIVE CELL, STORES, FIN. ESTABLISHMENT, ADMINISTRATION & COORDINATION

D.G.M.(F&A)

CFM

MINES, ZONAL WAGES, WAGES COORDINATION

CENTRAL A/Cs, MANAGEMENT A/Cs, ASSETS A/Cs, OPERATION BUDGET, COST A/Cs, ENERGY CELL OPERATION A/Cs, PC, CC.

CFM

CFM

CFM

PROJECT FINANCE, CAPITAL BUDGET. WORKS FINANCE ZONAL A/Cs & WORKS COMPLATION

RAW MATERIALS A/Cs, FREIGHT & CLAIMS STOCK VERIFICATION, TOWNSHIP SERVICES, HOSPIAL A/Cs

SALES EXCISE, SALES TAX, FRT. OUTWARD

STORE ACCOUNTS FUNCTIONS: A. STORE AND MATERIAL FUNCTIONS I. To account purchase, issue and inventory of following items:1) Stores and spares 2) Minor raw materials, where A/T is placed and store is the custodian of materials. 3) LSHS, where A/T is placed and Energy Management is the custodian. II. Transfer of capital items to Expansion accounts section. III. Transfer of Stores and Spares consumed in mines section for booking in Cost of the raw material. IV. To account for materials issued to Local Fabricators for conversion. V. To adjust consumption based on the inventory available at shops VI. To account for consumption of gases, internally produced. VI. To account for consumption of steel, internally produced. ACCOUNTING PROCEDURES

1) Store accounts books the receipt transactions after the Generation of Receipt Certificate by stores, after inspection by inspection deptt. and transferred to suppliers ledger. 2) Issue transactions are booked cost centre wise, at the time of issue by stores. 3) All the transactions are booked online in the MMIS system, for preparation of monthly accounts. 4) Statement of shop floor inventory is received periodically from shops and consumption is adjusted for the stock after physical verification. 5) Provision, as decided by the management, is being made for nonmoving items where the items is not issued for more than 5 years from the date of receipt. 6) Provision, as decided by the management, is being made for surplus items, declared out of non-moving items, which is no longer usable by shops AGENCIES INVOLVED 1) Stores, for preparations of RCs, Issue notes & inventory keeping in the bin card. 2) Purchase, for placement of Purchase order. 3) Inspection, for clearance of RCs. 4) MPD, for screening purchase Indents. 5) Planning cell of all shops, for getting custody stock statements. 6) MMIS, for maintenance & development of Material Management Database. 7) EDP, for maintenance & development of Accounting Database. 8) CMMS, for maintenance & development of Shop floor inventory system. 9) INCOS, for maintenance of Plate Mill Dispatch Advice system. FINANCE SECTIONS INVOLVED 1) Stock ledger, for materials consumed internally out of own production.

2) Store bill accounting, for transfer of RC liability to Supplier Ledger. 3) Expansion finance section, for transfer of capital items. B. DISPOSAL STORES SALES SYSTEM FUNCTIONS 1) To account for sale of store/steel items through Disposal Store Tender / Auction System. 2) Maintenance of Customer Ledger. ACCOUNTING PROCEDURES 1) Income is recognized at the time of invoice preparation and Sales & Tax portion is being transferred to sales & sales tax section respectively. 2) Customer ledger is prepared after taking into account sales, refunds & other adjustments. 3) Preparation of receipts, refund and other adjustment vouchers, based on DDs received from CMM (stores) along with Sales, Delivery orders.

AGENCIES INVOLVED 1) DISPOSAL STORES 2) CMM (STORES) FINANCE SECTIONS INVOLVED 1) Sales Tax 2) Sales 3) Store Bills, for recovery & adjustment.

CASH MANAGEMENT

INTRODUCTION Cash section is an important section of Finance & Accounts Deptt. It deals with the employees, contractors & suppliers for their payments. FUNCTIONS The main functional areas of the Cash Section is as follows :Liaison with Bankers Fund Management Daily Fund Monitoring and reporting

Vouchers checking & control Preparation & signing of cheques Bank Reconciliation Coordination with EDP Preparation of Cash Book Control of Physical Cash Bank Guarantees control Coordination with other sections and deptts.

Liaison with Bankers:This section is required to closely interact with the bankers at times even on minute-to-minute basis to ensure smooth functioning.

Fund Management:Fund allocation are made by SAIL corporate office on time-to-time basis whereas the payments are required to be made evenly through out the month. This is done through rationing, prioritizing and constant monitoring so that all the obligations are met and at the same time all the payments are duly honored. Daily Fund Monitoring and reporting This involves constant monitoring the fund availability, project the requirements to the higher authorities based on discussions with the payment section, report the management about the availability & utilization of funds on time to time basis.

Vouchers checking & control Voucher received in the cash section are as follows :Cash payment vouchers Cash Receipt vouchers Bank payment vouchers Bank receipt vouchers Adjustment vouchers

Vouchers with the required supporting documents are sent to the cash section for making payments and receiving deposits. These vouchers are scrutinized before processing for payment / deposits.

Preparation & signing of cheques For every bank payment voucher, the output is cheque. Normally around 200-250 cheques are prepared on average per day. These cheques are to be authenticated before issue by 2 officers. Bank Reconciliation Bank reconciliation is a very important aspect of finance & accounts function. Through this process the cheques issued & instruments deposited

are compared with the payments made and credits given by the bank. Differences if any are sorted out by passing necessary accounting entries. Coordination with EDP The acceptance and processing of vouchers, cheques printing, organization of Central Bill Clearance System (CBCS) all such activities are computerized. Necessary hardware & software is supported by our EDP deptt.

Preparation of Cash Book After all the payments & receipt of cash & cheques are reconciled, a consolidate cash book comprising cash and bank data is prepared. Control of Physical Cash This involves dealing with the receipt and payment in terms of hard cash, its custody. Cash deposits into and withdrawals from the bank. Custody of cash and any other specified documents. Operation of a currency chest and a petty cash chest. Bank Guarantees control Custodial function of Bank Guarantees sent by various sections. Coordination with other sections and deptts Interaction and coordination with related agencies such as CISF, Garage, various branches of the banks.

OPERATION ACCOUNTS OBJECTIVES: Various work orders / contracts are awarded by contract cell operation for smooth running, maintenance, repair, revamping, transportation & handling, capital work etc. of the plant. This section deals with payments of all such contractors.

Apart from this, section also deals with various types of payments, such as CISF (postage, telephone bills, printing & stationery, library books, advertisement, law charges etc.), canteen, BWCCS, advance out of contingencies, training fees, BMTC/BTI expenses, telephone bills, imprest, NMR,RDCIS,CET,PRO etc various miscellaneous receipts like EMD, ISD, vendor registration charges, refund of unspent advances etc. FUNCTIONS:To make payments to various contractors working in works / non-works area strictly as per contract / W.O. conditions, miscellaneous payments as per DOP / budget etc. Accounting of miscellaneous payments as well as receipts and proper maintenance of ledger and other records thereof. PAYMENTS:Works bills :The type of job got done through contractual agencies inside the plant are mainly : 1. Regular maintenance, repair, revamping to keep smooth running condition.

the plant in

2. Contract awarded for handling of Raw materials, pig iron, processing of scrap etc. 3. Civil Engineering Deptt. Undertakes some jobs like additions / alterations, which are normally revenue in nature. 4. Some job capital in nature are also undertaken by Civil Engg. Deptt. / other Deptt s, based on the scope of capital scheme. Expenditures against such type of jobs is capitalized and added to fixed assets. Running bills duly filled in/recorded and signed MB and relevant documents are sent to this section for making payments. After verifications,

payments are released strictly as per contracts terms. Before payments, deductions like SD, IT,WCT etc. are also made. Final payments / SD refund are made only after completion of contract and on fulfillment of contractual obligation. Capital exp. Amt. is tfd to Expansion a/c sec. Miscellaneous payments :This section also deals with the payments of entertainment bills, audit expenses, workers education expenses, A/C maintanence, attendant fees engaged at the residence of sr. executive, re-imbursement of cost of brief case and calculator, CET, RDCIS payments, payments of interest/principal against SAIL bonds, payment from PM trophy fund and accounting and payment of CPD bills,NSVA payments, printing payments, administrative deptt. Payments etc. Bank guarantees:It is submitted by the contractor as SD and/or performance guarantee. These BG s are submitted to operating authority who in turn sends to contract cell. The section receives the BG s from the contract cell. The same are sent to cash section for safe custody. The operating deptt./ contract cell are intimated status of bank guarantee well in advance to take care of the expiry. On request the BG s are returned to contract cell after verifying the fulfillment of contractual obligations.

HSCL Payments:As per the budget allocations, work orders are issued by RVC with approval competent authority. The same taken to the database of CMS. On execution of work, the final bills with the MB s submitted and checked in finance and payments are released / adjustments are made if advances are already released.

RECEIPTS:Earnest money deposit:This amount is taken in the form of DD at the time of opening of tender. Money is refunded back to the parties who are not successful. The EMD of the contractor who bags the order is converted into SD. Security Deposit:The successful tenderer has to deposit an amount of 2.5% of the total value of the work before the work is actually awarded to him after setting off the EMD. This amount along with EMD is accounted for as SD. The SD is refunded after getting clearance from IR section on successful completion of guarantee period. Accounting :The accounting of contractors payment is made through CMS system. This system is on line & the status of contracts can be taken at any time. All the vouchers when passed are accounted for immediately against Bank Payment Voucher entry. The accounting for advances is done through advance management system developed by EDP. The accounting for miscellaneous transaction are done through directly in VMS system. TDS when recovered is deposit to the treasury in the following month by 7th of each month.

Journal entries ;1. Adjustments for temporary advances. 2. Clearance of inter sectional transfers. 3. Acceptance of IUCA transactions. 4. Preparation of quarterly/half yearly/annual accounts. 5. Passing of rectification journal entries

CENTRAL ACCOUNTS AND ASSETS A.

CENTRAL ACCOUNTS:This section is engaged in the following jobs:1.

Monthly Closing of Accounts:

Every month the accounts are closed taking into account all the J.E. s passed by all the sections of the Finance Deptt. for thatparticular month. Central Accounts Section takes special care that all the entries pertaining to any particular month are passed by the sections and are accepted by the Central Accounts Section. For performing this job it takes care that cash book is closed in tme taking into account Resident Office transactions. This job is done every month by the third week of the month following the month for which the account is being closed. After the account is closed by running the program prepared by EDP following outputs are taken from EDP:

Five digit all division comparative This output gives the account code wise & in account code section-wise cumulative balances of current year & also the comparative cumulative balances of the previous year. This is available at central accounts section & is very useful for review of balances & checking whether proper booking has been done by all the sections by comparing the balances with that of previous year balances. This output is also useful for audit purpose.

Five digit all division

this output gives the account code wise & in

account code section wise balances. This output is available at central accounts section & is used for review of balances & is also used by the auditors. Five digit division-wise

this output gives the balances division

& in division account code wise & section

wise

wise.this output is available

at central account section for review of division

wise balances and

checking whether the booking has to be done in proper division. Seven digit balances :- This output gives the seven digit balances that is with by-codes of all the sections. It is useful to analyse the balance by-code wise. By-codes are given to identify the various nature of transactions in any particular account code. Accounts grouping :- This output gives the group account code total division

wise totals with

wise in the manner in which the balances

are carried into B/S & P&L a/c. Thus, the total of any group can be traced & checked with the balance in B/S & P&L a/c depending upon the nature of Account Code & Group Code. It is also used for Audit purpose. Summarised Grouping :- This output gives the group-wise totals without account codes in the manner in which the balances are carried into the B/S & P&L a/c. It is also used by the auditors. Cumulative Balances:- This output is in the sequence of section codes & it gives the cumulative balances division

wise & in division account

code wise. This output is distributed to all the sections of Finance Deptt.

& is used by the sections for the review of balances at any particular month. One copy is kept at central accounts for reference. Account Sequence:- This output gives account code wise & in account code section-wise and in division-wise transactions details for any particular month. This output contains the details of all the vouchers passed by the section in one particular month. This is useful for tracing the particulars of any transaction. This output is available at Central Accounts Section.

Section Sequence:- This output gives section code-wise and in section account code-wise & in division-wise transactions details for any particular month. This output contains the details of all the vouchers passed by the section in one particular month. This is useful for tracing the particulars of any transaction. This output is available at Central Accounts Section. This output is distributed to all the sections of Finance Deptt. on monthly basis. Responsibility Analysis:- This output gives the responsibility code-wise booking & is useful for responsibility analysis & MIS reporting. A copy is available at Central Account Section. ISA Balances:- This output gives the particular of ISA Balances & is helpful for clearance ISA Balances. It gives the details of J.E. s with account code of Raising Sections and the details of J.E. of Responding Section. Review of this output helps to locate un-responded J.E. this output is distributed to all the sections of Finance Deptt. & a copy of this is available at CSA. IUBA Balances:- This output gives the details of IUBA Balances & is distributed to all the concerned sections. This output contains the transactions between the Rajhara mines, Nandini mines, Hirri mines, Mines Coordination, Store Accounts & Energy Cell. This output helps in clearing the IUBA Balances. 2. Quarterly & Half yearly closing:-

As per SEBI guidelines all the listed companies have to published unaudited quarterly result this job is carried out by the central accounts section in the same manner as is done in Annual Closing. The program for quarterly & Half yearly closing is decided by corporate office within the time limit provided by SEBI i.e. within 1month from the end of the quarter. Consolidation of accounts is carried out in the last week of the following month at the Corporate Office. The jobs involved at the time of quarterly & half yearly closing are :Account are closed in various stages from 15th of the following month depending upon the flow of the information from different section and closing of Cash Book. Closing of accounts, its review & preparation of B/S & P&L a/c to be carried to Corporate Office for final consolidation is done within the time scheduled framed by Corporate Office.

IUCA Balances are reconciled at IUCA meetings held at Kolkata as per corporate office program which usually takes place during the second or third week of the following month. All the information collected at Kolkata are then provided to respective sections for its accounting. Central Accounts takes care that all the transactions intimated through DA or CA are accounted for by the respective sections well in time. Collection of all the necessary information data for Note on Accounts & preparation of additional data are compiled by CAS werll in time for purpose of Consolidation of accounts. Data to comply with all the AS issued by the institute of CA s & applicable to us are also furnished to Corporate Office by CAS. 3. Limited Review of Quarterly and Haly-yearly accounts :As per the SEBI guidelines Quarterly & Half-yearly accounts after consolidation at Corporate Office to be reviewed by the Statutory Auditors.

CAS gets the accounts reviewed by the statutory auditors and furnishes all the information and data required for the audit with the help of all the sections of Finance Deptt. this is also a time bound program, which has to be completed as per the time frame of Corporate Office. Finally the Audit Report is prepared & is sent to the Corporate Office for final consolidation at SAIL level by the Main Auditors. 4. Annual Accounts Closing:CAS plays a vital role in the completion of Annual A/c Closing with the help & coordination of all the Sections of Finance Deptt. which is done during the month of April & May. As soon as the program for Annual Closing Accounts is intimated by the Corporate Office, CAS draws time schedule & program for closing of various stages of accounts, flow of information & data for Notes On A/cs, Additional Data & data to comply with all the AS issued by the ICAI applicable to SAIL. CAS monitors that all the sections of Finance Deptt. adheres to the time schedule to enable timely closing of accounts. Review of balances after every stage of accounts is carried out & discrepancies are informed to all the sections to take corrective actions. Al the necessary outputs after closing of every state are sent in time to all the section for review at their level. After the review all the transaction compilation of B/S & P&L a/c is carried out through SAIL a/c preparation system(SAILAPS), a s/w package provided by the Corporate Office and use by all the plants. After preparation of accounts data for Notes on accounts, Additional Data, and all the AS applicable to SAIL are compiled so that the same can be submitted in time. Accounts along with all the data on Notes On Accounts and Additional Data are then placed before the Statutory Auditors for audit. CAS with the help of EDP has developed its own SAILAPS program which can be prepared B/S & P&L a/c at any point of time after considering all the vouchers accepted upto that point of time. B. ASSETS SECTION:-

Section 227 (4A) of the Companies Act, 1956 requires all manufacturing, mining & processing companies to maintain proper records showing full particulars, including quantitative & location of fixed assets. It is entrusted with the job of maintaining records related to fixed assets and as such our asset register contains the following information in the columnar form :Location of assets (there are 500 locations in which assets are situated.) Few of the major locations are as under :BBM, Blast Furnace, CCCS, CEZ, Cokeoven, Compressed air station, DNW, Decoiling & Twisting Units, EDP, Fire Brigade, Health & Medical Services, Instrumentation, Machine Shop, Merchant Mill, Mines, Oxygen Plants, Plate Mill, SMS, T&D, WRM etc. Group Item code Division Section Asset description Date of capitalization Quantity Original value.(Gross Block) Rate of depreciation(as per schedule XIV) Cumulative depreciation(total depreciation till previous year B/S date) Current depreciation (depreciation for the year) Total depreciation Net value (Net Block) Scheme No. Record No. Asset register is prepared on yearly basis after Incorporation & reconciliation of the following asset related activities / transactions during a financial year. Inter Unit Current Account : Under the IUCA system, transactions between plants / units inter pertaining to IP transfers of materials, employees & other transactions are accounted for through book adjustment by exchange of debit/credit advices.

Examples of IUCA transactions are mentioned as under: 1) IP transfer of iron & steel products, by-products, scrap, etc. at mutually agreed price to & from sister plants. 2) Receipt of indigenous coal from CCSO, imported coal from CMO (T&S-IMPORT) & other raw materials received through RMD. 3) Transactions with Corporate Office :

Interest & finance charges allocated by the Corporate Office, Exchange Variation on account of FE loans & interest thereon, Foreign traveling expenses, Operation remittances / Public Deposit Scheme etc. 4.) Transactions with CMO :Direct Sales through CMO, Stockyard Sales, Export Sales, Conversion charges, Warehousing & Handling Charges for fertilizers, under charges/siding charges paid to railways, demurrage, and wharfage transportation charges, credit for railway claims for shortages in transit, missing wagons. 5.) Transactions common to all units :TA advance, payment of medical bills on behalf of other units, dues from and to employees on transfer, traveling advance/allowance for management trainees. The CAS of the originating plants must ensure that the IUCA debit/credit entries raised by different sections contain complete details before sending DA/CA to the responding plants / units . IUCA activities at BSP are computerized & linked to VMS of EDP.

Incoming Originating DA/CAs :-

Original DA/CAs raised on BSP are centrally received at the CAS . After scrutiny, these DA/CAs, along with supporting documents, are forwarded to the respective section for acceptance. Unit-wise & Section-wise data are fed into the IUCA module of the VMS. Outgoing responding DA/CAs :Sections respond to these Debit or Credit through Journal Vouchers. Responding debits & credit advices are prepared through VMS modules before sending them to respective units. Outgoing Originating DA/CAs :Original debit/credit raised by our sections on various units identified by scrutiny of accounts sequence & sectional journal vouchers. DA/CAs are prepared through IUCA modules of VMS & sent to respective sister units along with supporting details. Incoming Responding DA/CAs :On receipt of the DA/CAs responding to our originating debits or credits, concerned plants responding DA/CAs are received, fed in the VMS for linking.

Section wise / unit-wise list of DA/CAs pending for acceptance are prepared periodically and taken up with the concern section for expediting acceptance. Cases of disputes or non-furnishing of supporting documents by any units are taken up with the respective sister units for early settlement.

IUCA balances are drawn periodically through generation of statement accounts w.r.t the VMS and are cross tallied with accounting IUCA ledger balances.

Unrealized profit on unconsumed stock:Unrealized profit on unconsumed stock of IPT from BSP with any other Sister Units worked out and credit, if any, given to the concerned units / plants.

For the purpose of knocking of IPT transactions details of product, quantity & value etc. are furnished to the concerned official of the Corporate Office during Accounts Closing.

RECOMMANDATIONS Here are some recommendations for improving the working capital health of BSP some of them are implied from the ratio analysis and others are taken from the restructuring plan of SAIL. 1. To further improve the state of liquidation, BSP should increase its liquid assets by maximizing of sales revenue by manufacture and sales of value added products. 2. Cost of sales should be reduced to some extent. 3. Co-Ordination between CMO and plant should be improved. The plant be made well aware about the sale proceeds taking place of their products in right time, currently it is done in one month lag. 4. Though SAIL has online system of data flow but there is need to improve in data updatation especially with regard to credit sales and credit purchase of different CMO branches and regions. 5. Although coaking coal, iron ore and other raw materials for steel industry are natural resources and are necessary, yet BSP and all other steel manufacturing co. should be cautious while the intensive use of these natural resources. They all together should think and develop the alternatives of these raw materials in steel making process.

6. ERP package should be installed.

BIBLIOGRAPHY

1. Financial Management by M.Y.Khan and S.P. Jain. 2. Financial Management by Prasana Chandra 3. Financial Management by I.M. Pandey 4. Financial Management Analysis by John N. Myer. 5. Annual Reports of B.S.P. , TISCO & SAIL. 6. SAIL News.

RATIO OF B.S.P. 2000

2001

2002

2003

2004

2005

Current Ratio =CA/CL

2.35:1

1.65:1

1.65:1

1.597:1

1.285:1

1.366:1

Liquid Ratio =LA/CL

0.52:1

0.46:1

0.44:1

0.499:1

0.297:1

0.267:1

W.C. to Gross Sales =W.C./Gross Sales

0.16:1

0.087:1

0.098:1

0.081:1

0.031:1

0.031:1

W.C. to Net Block =W.C. / Net Block

0.44:1

0.24:1

0.21:1

0.230:1

0.127:1

0.151:1

0.192:1

0.105:1

0.12:1

0.091:1

0.039:1

0.047:1

W.C. to Cost of Sales= W.C./Cost of Sales

FIANANCE DEPARTMENT OF BHILAI STEEL PLANT Finance Department of BSP is subdivided into various sections. These sections are independently responsible for the duties assigned to them. The major sections are:Cash:

This section is responsible for the cost management at the plant. All cash inflows and outflows are managed by this particular section.

Township: This section is responsible for matters concerning to the township area associated with plant. Township Education and Medical also come under the preview of Township section. Raw Material Accounts: This section looks after & everything from the purchase of raw material. This includes maintaining accounts for the raw materials and payment of bill due for the raw material purchased by the plant. Stores Account: This section is responsible for accounting of store items and looks after the issue of materials from stores. This section is divided into2. a.

Import Accounts.

b.

Indigenous Accounts.

a.

Import Accounts look after the payment and payment of imported store items.

b.

Indigenous Accounts handles only the payments of bills for store items excluding the import items.

Sales:

This section is responsible for all sales related matters. This section is further divided into invoicing section, Excise section, sales tax section, Direct sales section and stock ledger. All sections look after their area and the stock ledger section is responsible for accounting of stockyard sales and stock valuation at the end of the year.

Expansion: This section deals with all the project works and the expansion plans undertaken at Bhilai Steel Plant. This section also prepares the capital budget. Costing :

This section is responsible for ascertainment of cost of production of various products of produced at Bhilai Steel Plant.

Management Accounting: This section is responsible for all accounting details. This is done by preparation of various financial reports for providing information to the and middle level management. Central Accounts: This section complies of all the accounts including the statutory & legally required statements like accounts manual. Operation Budget: This section is responsible for preparation of that to related to the operations. Provident Fund:

This section is looks after provident fund.

Finance(Mines): There are three more sections for the captive mines handle the finance requirements of the mines.

OVERVIEW

Overview of W.C. MGT at Bhilai Steel Plant Working Capital typically means the firms holding of current or short term assets such as cash, receivables, inventory & marketable securities. BSP a major unit of SAIL tries to manage its working capital in the best possible manner. Forecasting : The corporate office allocates the funds to various unit of SAIL. The amount of fund required is decided by individual unit during the preparation of operation budget of for the coming year & the amt. is intimated to the corporate office. Cash inflows and outflows are also estimated in the budget. The marketing of all SAIL prime products is done by the Central Marketing Organization and the receipts of sales are directly sent into the Inter Unit Current Account which is centrally controlled by the corporate office and the corporate office allocates the funds as per intimation to individual units. Besides coordinating with Central Marketing Organization, the cash realization is also done by the plant itself through the sale of scrap, defectives & by products. Monitoring:

In Bhilai Steel Plant, all the three aspects of working capital are monitored separately. 1.Cash: Cash is monitored every day and intimated to top management as well as fortnightly to the company. The cash report generated daily has all details of cash inflows & outflows. The annual cash budget is again broken into month wise cash budget which tries to estimate the cash inflows & outflows on monthly basis. In the total cash inflow, 12% is from the plant & the rest 88% is from that of Inter Unit Current Account. 2. Inventory: Inventory is monitored differently for stores, raw materials and finished goods on monthly basis. Every month one report is directly sent to the Chairman through the finance dept. of corporate office known as the 3rd day report providing the bill details of sales, inventory, working capital position and debtors of the local sales for the previous month. These figures are compared with month wise budgeted figures in this particular report. This report is prepared at plant level. The Production Planning & Control report gives the closing stock of Raw Material and closing stock of finished goods are estimated while preparing the monthly profitability report.

3. Receivables. The receivables are monitored separately. The major portion of debtors are dealt by the Central Marketing Organization and at the plant level only the debtors concerning the sale of scrap or some of the township debtors are dealt with. As for the creditors, the coal is monitored by corporate office and the individual creditors are monitored by the concerned departments i.e. the Raw Material. Stores & Spares & the Operations accounts department which look after the contracts. In this way the main creditors and debtors are estimated. To summaries, Working Capital at a plant level of SAIL, mainly involve fore-casting & monitoring of different elements which is done quite systematically. However, decisions regarding borrowing of funds for working capital are done at corporate level. Major portion of Sunday debtors are managed by Central Marketing Organization for all plants & part of Sunday

creditors with regard to coal purchase- a major raw material is managed by Central Coal Supply Organization.

WORKING CAPITAL MANAGEMENT

MANAGEMENT OF CASH Cash is the life blood of a business firm needed to acquire supplies, resource, equipment, and other assets used in generating the products and services providing by the firm, cash is the medium of exchange that allows management to carry on the varies activities of the business firm from day to day.

Objective of Cash Management (i) To meet cash disbursement needs as per the payment schedule.

(ii) To minimize the amount of funds held as cash balance [non earning & lying idle].

Mgt. of Cash in Bhilai Steel Plant Basically the cash is managed by the corporate office. The corporate office allocates different amounts of each to different steel plant as per requirement. We can say that corporate office acts as a linkage between the SAIL & the main bank i.e. the SBI known as the Corporate Account Group. Here also, the bank has a limit for credit facility for the company known as the Rolling Cash Credit Limit. This limit keeps on changing from year to year depending upon company s position, profitability & inventory position. For this particular year the Rolling Cash Credit Limit For SAIL-> Rs.5000 Crores. For BSP -> Rs. 250 Crores. [including the deferred payments] The corporate office manages the cash & it doesn t provide the money in bulk to the individual steel plants. Therefore BSP priorities its payment depending upon status of the disbursement and send it to the corporate office. Here also, we can see that BSP is not fully dependent on the corporate office but at first it adjusts fund from collection through sale of scrap & defectives at plant level and then balance amount is only intimated to the corporate office for payment. After the prioritization intimated, the corporate office releases the cash.

Fund Allocation: Initially the fund allocation is done by the corporate office. The corporate office allocates the fund for all steel plants & particularly talking about Bhilai Steel Plant the corporate office allocates it for the steel plant, the 3 mines & the 2 resident office. All the three mines and two resident office

work independently and all activities are same as that of Bhilai Steel Plant. The mines are situated at: Rajhara

-

Iron ore

Nandini

-

Limestone

Hirri

Dolomite

-

Resident office:

Basically there are 3 resident office sat :-

(i)

Delhi -

Looked after by the corporate office

(ii)

Kolkatta}

Both are Looked after

(iii)

Mumbai}

by Bhilai Steel Plant

Here the initial allocation for mine & resident office is done by the corporate office and all supplementary requirements are to be looked by Bhilai Steel Plant. Fund Utilization: Funds are generated to different department as per their requirements. It is always seen at BSP that proper utilization of cash should be done. Daily reports on cash transitions is prepared by the cash section to keep a track of all payments made in the day s work. Based on the report sent by cash section another report is prepared which is sent to be management daily for scrutinizing. Every day Bank Statements are received which tells the actual money left with them and the payments actually to be made on that particular day. Every month report is sent to the corporate office showing the working of the plant. Apart from monthly report, the comparison between allocation and the actual utilization of cash is also provided. If the justification is not found convincing then letters of improvement is given by the corporate office. Sometimes the credit note arrangement is also given. This credit note arrangement is a kind of barter system which is a letter of arrangement for lifting the material.

Annual Cash Forecasting:

Annually the forecasting is done by preparation of cash budget. The annual cash requirement is got from cash budget. Again this cash budget is broken into month wise budget where allocation of cash on month wise it becomes easier to allocate the amount. Thus we can say in BSP, the management of cash is not so emphasized as the major allocation of cash is given by the corporate office and the plant just have to follow its working according to the allocated amount.

MANAGEMENT OF INVENTORY Every enterprise needs inventory for a smooth running of its activities. On an average, inventories are approximately 60% of current assets in public limited companies India. Because of the large size of inventories maintained by firms, a considerable amount of funds is required to be committed to them. It serves as a link between production and distribution processes. The unforeseen fluctuations in demand and supply of goods necessitate need for inventory. The investment in inventories constitute the most signification part of working capital in most of the undertakings. The purpose of inventory management is to ensure availability of material in sufficient quality as when required and also minimizes investment in inventories. Objective of Inventory Management: To ensure continuous supply of material, spares and finished goods so that production is not hindered. To maintain investments in inventories at the optimum level as required by operational and sales activities. Inventory Management in Bhilai Steel Plant: Here, inventory is divided into 3 parts namely: i.

Raw material

ii.

Stores/Spares

iii.

Semi finished & Finished Goods

Raw Materials: In BSP, basically the raw materials are purchased using Central procurement and regional procurement. From Central procurement, we mean to say the bulk purchases and these bulk purchases are made by the nodal agency of SAIL. As per the requirements of the individual steel plants, the bulk purchase are procured and sent to the place of need. The divisions looking after the bulk purchase are: Raw Materials i)

Imported Coal

Agencies Central Market Organization Transport and Shipping

ii)

Indigenous Coal

Central Coal supply organization

iii)

Sulphur

Bokaro Steel Plant

iv)

Alloys

Durgapur Steel Plant

The regional procurements are the small purchase made by the individual plants as per their requirements and decisions. It can also be said that the total requirements of Bhilai Steel Plants is met by the sum total of bulk purchase and the regional purchase and also from captive mines. Total procurement =

Purchase (Bulk + Regional) + Captive

mines of raw material Mainly the bulk purchase are made on global tender basic by SAIL itself whereas the regional purchase are done on limited tender basic by BSP which means limited people are called for tender & they give their offers and tender prices are fixed. While fixing the tender price, a special eye is kept on the specification; quality parameters, rates of taxes by the in tender. These tenders are been seen in 3-bits known as the Technical Bit, The Commercial Bit and The Price Bit. The lower offer party is decided. Negotiation can be done for pricing and acceptance is through the acceptance of Tender which contains all terms and conditions of tender including the specification. The movement of material is by rail or road. Bhilai Steel Plant is more dependent on railways and for this a special division is there inside the plant known as the Transport and Diesel Division. The main function of this division is to coordinate the movement of material inside the plant. Once the raw materials are inside the plant they are transported to their particular depots near the consuming units by roadways. The pricing method followed is the weighted average method. For this , periodically norms are setup by the committee of corporate office and these norms acts as a guiding factor for the stock holding at different plants. At the year end, physical stock verification is done and if any surplus is found then it is treated to the profit and loss a/c. In all there are 25 raw materials and the total annual consumption of raw material is of Rs.2000 crores in addition of

keeping an inventory of 5 from 1 week 3 week.

7%. The inventory of bulk material is maintained

Stores & Spares Here the inventory is categorized into: a.

ABC analysis,

b.

XYZ analysis,

c.

Non-moving inventory,

d.

Surplus inventory.

(i)

ABC Analysis: Items which constitute top 70% of total consumption (of stores & spares) value when arranged in descending order of consumption value will be termed as A Class items. Next 20% of total consumption value will be termed as B class items and the rest 10% as the C items.

(ii)

XYZ Analysis : Items which constitute the top 70% of total stock (of stores & spares) holding value when arranged in descending order of stock holding will be termed as X class items. Next 20% of stock holding value is Y class items & the rest 10% as the Z class items.

(iii)

Non-moving inventory: Items which have not been issued for the last 3 or 5 years shall be considered as non-moving items.

(iv)

Surplus inventory: Out of the above non-moving inventory when there is issue made to various shops asking for the requirements of the inventory and if there also it is not needed then transferred to another steel plant and if again not needed there also then sent for disposal through auction sale.

Placement of order:

The procurement of items of common use is done through automatic procurement which means that as these items reach the reorder level the orders are placed for the same. Here again, another department comes into action i.e. the Material Planning Department. This department takes responsibility of floating the purchase of Material and the process of purchasing starts only when it scrutinizes that the orders made are specifically as per the requirements and there is sufficient capital to make the purchase. But at first, the Material Planning Department checks in the stock and see to whether making the item is cost beneficial or not and if the decision is in favour of buying then MPD looks into budget and then the purchase is registered . Again here, the purchase department will issue enquiry letters to different vendors who are registered. The quotations are received from various bidders and the technical analysis are made i.e. the technicalities as well as the price are compared. Here again the discretion is with the purchase department to whom the tender should be given based on their experience.

Procurement After the purchase order is of delivery whether through rail\road, nature of sharing taxes, the inspection time, the terms and documents needed with the material all the formalities are finalized. Once the material is received then it is examined by visual survey. Then the whole lot is sent to the central store which takes into account the whole documentation process known as the central documentation Cell. After the documentation the wagons are unloaded and materials are sent to those stores which have been allocated to the products as per the nature of material by Central Documentation Cell. The details of stores and materials stored are given below: Bulk Store

-

Bulk material

Central Plant Store Cell

-

Silicon Mangenese

Borio Store

-

Capital Items

Plant Spare Store

-

Spare items

When the material is received the consignment control number is provided and when the identification of material with the purchase order is done then the R.N number is given. Here again, the inspection takes place and if the quality received is accepted then receipt is prepared and accounting is done and if the quality is rejected then no receipt is prepared and here again

there is a clause that if the quality rejected is accepted to the acceptable level by the Material Review Board then new receipt certificate is prepared by Material Review Board. Budgetory Control The budgeting section monitors the shop wise procurement budgets for indents raised by the shop. The amount sanctioned are utilized for the items and quantities. The material Management Department monitors the receipt budget on monthly basis and control the daily receipts. Separate funds are being allocated to the product. Here the inventory pileup is very large i.e., the annual consumption is of Rs.50 crores while the pile up of inventory is of Rs.70 crores which is more than the annual consumption.

Semi/Finished Goods The entire process of selling steel is quite cumbersome & the dynamics involved mind boggling. The specifications are stringent, operations are complex, the tonnage is staggering and logistics are troublesome. A long chain of activity is configured to make sure that right material reach customer at the right time. At SAIL, the coordination between plant and marketing wing is done through a section of its marketing outfit the Sales Residence Manager s office better known as SRM s office situated in each of 4 plant locations Bhilai, Bokaro, Durgapur and Rourkela. SRM`s office is the single point of coordination between respective plant and CMO. The plant officials interact with SRM to collect feedback on marketing trend, customer s satisfaction level and the criticalness of the orders. Sales coordination meeting are held every month which becomes a forum for both plant and marketing to meet the customer requirements. The movement plan is issued after the SRM office receives order from the branches. The SRM office has to think globally and act locally.

Once the movement plan is prepared it is immediately sent to the Production, Planning and control Department of the plant and to other concerned department. The critical point in production plan is to match the rolling plan with the market requirements so that with the minimum inventory the company satisfies the maximum customers. The movement plan is discussed in the presence of the heads of mills and their planning section. Accordingly the requirements are communicated to the Steel Melting Shops and Rollling Mills and depending upon the priorities &mill availability the production commences. The movement plan no. now becomes the point of reference for any further communication among the units. Once the material is produced it is dispatched through rail or road. For rail dispatch rake formation is there which means that minimum 35 numbers of wagons are to be filled. Every week a Committee Review Meeting is held. Now at the end of the year while the valuation of stock is done it is seen whether the stock remaining with the plant is Rollable or Saleable. Valuation is done on the basis of cost or NRV whichever is less. At BSP, it is valued at Plant, Stockyard and at export yard. The entire process of movement planning, monitoring and documentation is on line. The smooth and efficient function of SAIL s marketing is a testimony to this harmonious work culture.

MANAGEMENT OF RECEIVABLES A Sound managerial control requires proper management of liquid assets and inventory. When the firm sells its products and services and does not receive cash for it immediately, the firm is said to have granted trade credit to customers. Trade credit thus creates receivables or book debts which the firm is expected to collect in near future. The purpose of maintaining or investment in receivables is to meet competition and to increase the sales and profit. Objectives of Receivables Management. a.

To take a sound decision as regards to investment in debtors

b.

To promote sales and profit until that point is reached where the return on investment in future funding of receivables is less than the cost funds raised to finance that additional credit.

Management of Receivables in Bhilai Steel Plant Managing the receivables is basically done by Corporate office and the Central Marketing Organization directly deals with it. The major part of receivables is managed by CMO and the minor part relating to the plant is dealt at the Bhilai Steel Plant. The minor part consists of the recovery of the direct sales of defectives and by products and employee related matters. In most of the cases the due month is 1 month and only in the case of exemployees money is not recovered as the final payment are only due. Mostly the whole of sundry debtors and the 3rd party and debtors like CISF, IT and shopkeepers. The shop keepers are the ones to whom the BSP quarters and shops are given from whom the money is recovered and that too the credit given is one month s credit. In case of interest which are basically got from house building advances given where 1 month recovery is done. Other debtors are the claims which cannot be controlled. These are got as per the negotiations with the party for freight, raw materials etc. Sundry Creditors The creditors are managed at plant level only. Mostly the creditors comprises of contractors to whom payments are to be given and the capital works. This is basically done as per terms and conditions with the respective parties. In the case of small scale industries it is done with in 30 days if the dues are above 1 lakh. There is also a scheme of Earnest Money Deposit for the registered small industries. The scheme allows to have a security deposit which is refundable at the contract. In case of statutory payments i.e. the Income Tax, Sale Tax, Excise Tax one month due is there. The account of receivables are prepared quarterly on estimated basic and finally prepared on the closing date. Ex- Employees When the final payment is to be made, it is only done after the file reaches the department as per the individual case. Major chunk is from statutory liabilities which are repaid as per i.e. one month due is given. Credit Note Facility

According to this facility no outflow of money from the department is made and as such the material is also lifted. Therefore with the facility of credit note we are able to manage funds without actual outflow of cash but through material. Thus we can say that management of receivables in Bhilai Steel Plant is done on minor basis and the major work of managing it is done in the corporate office.

CERTIFICATE This is to certify that the project report titled: A Comparative Study on Working Capital Management Between Bhilai Steel Plant & Tisco is a bonafide work carried out by Anil Kumar Singh for Bhilai Steel Plant. He is a student of Vishwakarma Institute Of Management, and has worked under our direction and guidance. The project is submitted is partial fulfillment of Master of Business Administration (MBA) Course of University of Pune for the academic year 2004-06

Director VIM

Dr. Sharad Joshi

Internal Guide

S.A. Ranade

STORE ACCOUNTS FUNCTIONS: C. STORE AND MATERIAL FUNCTIONS I. To account purchase, issue and inventory of following items:1) Stores and spares 2) Minor raw materials, where A/T is placed and store is the custodian of materials. 3) LSHS, where A/T is placed and Energy Management is the custodian. II. Transfer of capital items to Expansion accounts section. III. Transfer of Stores and Spares consumed in mines section for booking in Cost of the raw material. IV. To account for materials issued to Local Fabricators for conversion. V. To adjust consumption based on the inventory available at shops VI. To account for consumption of gases, internally produced. VI. To account for consumption of steel, internally produced. ACCOUNTING PROCEDURES 7) Store accounts books the receipt transactions after the Generation of Receipt Certificate by stores, after inspection by inspection deptt.and transferred to suppliers ledger. 8) Issue transactions are booked cost centre wise, at the time of issue by stores. 9) All the transactions are booked online in the MMIS system, for preparation of monthly accounts. 10) Statement of shop floor inventory is received periodically from shops and consumption is adjusted for the stock after physical verification. 11) Provision, as decided by the management, is being made for non-moving items where the items is not issued for more than 5 years from the date of receipt.

12) Provision, as decided by the management, is being made for surplus items, declared out of non-moving items, which is no longer usable by shops. AGENCIES INVOLVED 10) Stores, for preparations of RCs, Issue notes & inventory keeping in the bin card. 11) Purchase, for placement of Purchase order. 12) Inspection, for clearance of RCs. 13) MPD, for screening purchase Indents. 14) Planning cell of all shops, for getting custody stock statements. 15) MMIS, for maintenance & development of Material Management Database. 16) EDP, for maintenance & development of Accounting Database. 17) CMMS, for maintenance & development of Shop floor inventory system. 18) INCOS, for maintenance of Plate Mill Dispatch Advice system. FINANCE SECTIONS INVOLVED 4) Stock ledger, for materials consumed internally out of own production. 5) Store bill accounting, for transfer of RC liability to Supplier Ledger. 6) Expansion finance section, for transfer of capital items.

D. DISPOSAL STORES SALES SYSTEM FUNCTIONS 1) To account for sale of store/steel items through Disposal Store Tender / Auction System. 2) Maintenance of Customer Ledger.

ACCOUNTING PROCEDURES 4) Income is recognized at the time of invoice preparation and Sales & Tax portion is being transferred to sales & sales tax section respectively.

5) Customer ledger is prepared after taking into account sales, refunds & other adjustments. 6) Preparation of receipts, refund and other adjustment vouchers, based on DDs received from CMM (stores) along with Sales, Delivery orders. AGENCIES INVOLVED 3) DISPOSAL STORES 4) CMM (STORES) FINANCE SECTIONS INVOLVED 4) Sales Tax 5) Sales 6) Store Bills, for recovery & adjustment.

CASH MANAGEMENT

INTRODUCTION Cash section is an important section of Finanace & Accounts Deptt. It deals with the employees, contractors & suppliers for their payments. FUNCTIONS The main functional areas of the Cash Section is as follows :Liaison with Bankers Fund Management Daily Fund Monitoring and reporting Vouchers checking & control Preparation & signing of cheques

Bank Reconciliation Coordination with EDP Preparation of Cash Book Control of Physical Cash Bank Guarantees control Coordination with other sections and deptts.

Liaison with Bankers:-

This section is required to closely interact with the bankers at times even on minute-to-minute basis to ensure smooth functioning.

Fund Management:Fund allocation are made by SAIL corporate office on time-to-time basis whereas the payments are required to be made evenly through out the month. This is done through rationing, prioritizing and constant monitoring so that all the obligations are met and at the same time all the payments are duly honoured. Daily Fund Monitoring and reporting This involves constant monitoring the fund availability, project the requirements to the higher authorities based on discussions with the payment section, report the management about the availability & utilization of funds on time to time basis. Vouchers checking & control Voucher received in the cash section are as follows :Cash payment vouchers Cash Receipt vouchers

Bank payment vouchers Bank receipt vouchers Adjustment vouchers

Vouchers with the required supporting documents are sent to the cash section for making payments and receiving deposits. These vouchers are scrutinized before processing for payment / deposits.

Preparation & signing of cheques For every bank payment voucher, the output is cheque. Normally around 200-250 cheques are prepared on average per day.these cheques are to be authenticated before issue by 2 officers. Bank Reconciliation Bank reconciliation is a very important aspect of finance & accounts function. Through this process the cheques issued & instruments deposited are compared with the payments made and credits given by the bank. Differences if any are sorted out by passing necessary accounting entries. Coordination with EDP The acceptance and processing of vouchers, cheques printing, organization of Central Bill Clearance System (CBCS)

all such activities are computerized. Necessary

hardware & software is supported by our EDP deptt. Preparation of Cash Book

After all the payments & receipt of cash & cheques are reconciled, a consolidate cash book comprising cash and bank data is prepared. Control of Physical Cash This involves dealing with the receipt and payment in terms of hard cash, its custody. Cash deposits into and withdrawals from the bank. Custody of cash and any other specified documents. Operation of a currency chest and a petty cash chest.

Bank Guarantees control Custodial function of Bank Guarantees sent by various sections.

Coordination with other sections and deptts Interaction and coordination with related agencies such as CISF, Garage, various branches of the banks.

OPERATION ACCOUNTS OBJECTIVES: Various work orders / contracts are awarded by contract cell operation for smooth running, maintanence, repair, revamping, transportation & handling, capital work etc. of the plant. This section deals with payments of all such contractors. Apart from this, section also deals with various types of payments, such as

CISF

(postage,telephone bills,printing & stationery,library books,advertisement,law charges etc.), canteen, BWCCS, advance out of contingencies,training fees, BMTC/BTI expenses, telephone bills, imprest, NMR,RDCIS,CET,PRO etc various miscellaneous receipts like EMD, ISD, vendor registration charges, refund of unspent advances etc.

FUNCTIONS:To make payments to various contractors working in works / non-works area strictly as per contract / W.O. conditions, miscellaneous payments as per DOP / budget etc. Accounting of miscellaneous payments as well as receipts and proper maintenance of ledger and other records thereof.

PAYMENTS:Works bills :The type of job got done through contractual agencies inside the plant are mainly : 5. Regular maintenance, repair, revamping to keep the plant in smooth running condition. 6. Contract awarded for handling of Raw materials, pig iron, processing of scrap etc. 7. Civil Engineering Deptt. Undertakes some jobs like additions / alterations, which are normally revenue in nature. 8. Some job capital in nature are also undertaken by Civil Engg. Deptt. / other Deptt s, based on the scope of capital scheme. Expenditures against such type of jobs is capitalized and added to fixed assets.

Running bills duly filled in/recorded and signed MB and relevant documents are sent to this section for making payments. After verifications, payments are released strictly as per contracts terms. Before payments, deductions like

SD,

IT,WCT etc. are also made. Final payments / SD refund are made only after completion of contract and on fulfillment of contractual obligation. Capital exp. Amt. is tfd to Expasion a/c sec.

Miscellaneous payments :This section also deals with the payments of entertainment bills, audit expenses, workers education expenses, A/C maintanence, attendant fees engaged at the residence of sr. executive, re-imbursement of cost of brief case and calculator, CET, RDCIS payments, payments of interest/principal against SAIL bonds, payment from PM trophy fund and accounting and payment of CPD bills,NSVA payments, printing payments, administrative deptt. Payments etc.

Bank guarantees:It is submitted by the contractor as SD and/or performance guarantee. These BG s are submitted to operating authority who in turn sends to contract cell. The section receives the BG s from the contract cell. The same are sent to cash section for safe custody. The operating deptt./ contract cell are intimated status of bank guarantee well in advance to take care of the expiry. On request the BG s are returned to contract cell after verifying the fulfillment of contractual obligations. HSCL Payments:As per the budget allocations, work orders are issued by RVC with approval competent authority. The same taken to the database of CMS. On execution of

work, the final bills with the MB s submitted and checked in finance and payments are released / adjustments are made if advances are already released.

RECEIPTS:Earnest money deposit:This amount is taken in the form of DD at the time of opening of tender. Money

are refunded back to the parties who are not successful. The EMD of the

contractor who bags the order is converted into SD. Security Deposit:The successful tenderer has to deposit an amount of 2.5% of the total value of the work before the work is actually awarded to him after setting off the EMD. This amount along with EMD is accounted for as SD. The SD is refunded after getting clearance from IR section on successful completion of guarantee period. Accounting :The accounting of contractors payment is made through CMS system. This system is on

line & the status of contracts can be taken at any time. All the

vouchers when passed are accounted for immediately against Bank Payment Voucher entry. The accounting for advances is done through advance management system developed by EDP. The accounting for miscellaneous transaction are done through directly in VMS system. TDS when recovered is deposit to the treasury in the following month by 7th of each month.

Journal entries ;6. Adjustments for temporary advances. 7. Clearance of inter sectional transfers.

8. Acceptance of IUCA transactions. 9. Preparation of quarterly/half yearly/annual accounts. 10. Passing of rectification journal entries

CENTRAL ACCOUNTS AND ASSETS

A. CENTRAL ACCOUNTS:This section is engaged in the following jobs:1. Monthly Closing of Accounts: Every month the accounts are closed taking into account all the J.E. s passed by all the sections of the Finance Deptt. for that particular month. Central Accounts Section takes special care that all the entries pertaining to any particular month are passed by the sections and are accepted by the Central Accounts Section. For performing this job it takes care that cash book is closed in tme taking into account Resident Office transactions. This job is done every month by the third week of the month following the month for which the account is being closed. After the account is closed by running the program prepared by EDP following outputs are taken from EDP: Five digit all division comparative This output gives the account code wise & in account code section-wise cumulative balances of current year & also the comparative cumulative balances of the previous year. This is available at central accounts section & is very useful for review of balances & checking whether proper booking has been done by all the sections by comparing the balances with that of previous year balances. This output is also useful for audit purpose. Five digit all division this output gives the account code wise & in account code section wise balances. This output is available at central accounts section & is used for review of balances & is also used by the auditors. Five digit division-wise this output gives the balances division wise & in division account code wise & section wise.this output is available at central account section for review of division wise balances and checking whether the booking has to be done in proper division.

Seven digit balances :- This output gives the seven digit balances that is with by-codes of all the sections. It is useful to analyse the balance by-code wise. By-codes are given to identify the various nature of transactions in any particular account code. Accounts grouping :- This output gives the group wise totals with account code total division wise in the manner in which the balances are carried into B/S & P&L a/c. Thus, the total of any group can be traced & checked with the balance in B/S & P&L a/c depending upon the nature of Account Code & Group Code. It is also used for Audit purpose. Summarised Grouping :- This output gives the group-wise totals without account codes in the manner in which the balances are carried into the B/S & P&L a/c. It is also used by the auditors. Cumulative Balances:- This output is in the sequence of section codes & it gives the cumulative balances division wise & in division account code wise. This output is distributed to all the sections of Finance Deptt. & is used by the sections for the review of balances at any particular month. One copy is kept at central accounts for reference. Account Sequence:- This output gives account code wise & in account code section-wise and in division-wise transactions details for any particular month. This output contains the details of all the vouchers passed by the section in one particular month. This is useful for tracing the particulars of any transaction. This output is available at Central Accounts Section. Section Sequence:- This output gives section code-wise and in section account code-wise & in division-wise transactions details for any particular month. This output contains the details of all the vouchers passed by the section in one particular month. This is useful for tracing the particulars of any transaction. This output is available at Central Accounts Section. This output is distributed to all the sections of Finance Deptt. on monthly basis. Responsibility Analysis:- This output gives the responsibility code-wise booking & is useful for responsibility analysis & MIS reporting. A copy is available at Central Account Section. ISA Balances:- This output gives the particular of ISA Balances & is helpful for clearance ISA Balances. It gives the details of J.E. s with account code of Raising Sections and the details of J.E. of Responding Section. Review of this

output helps to locate un-responded J.E. this output is distributed to all the sections of Finance Deptt. & a copy of this is available at CSA.

IUBA Balances:- This output gives the details of IUBA Balances & is distributed to all the concerned sections. This output contains the transactions between the Rajhara mines, Nandini mines, Hirri mines, Mines Coordination, Store Accounts & Energy Cell. This output helps in clearing the IUBA Balances. 2. Quarterly & Half yearly closing:As per SEBI guidelines all the listed companies have to published un-audited quarterly result this job is carried out by the central accounts section in the same manner as is done in Annual Closing. The program for quarterly & Half yearly closing is decided by corporate office within the time limit provided by SEBI i.e. within 1 month from the end of the quarter. Consolidation of accounts is carried out in the last week of the following month at the Corporate Office. The jobs involved at the time of quarterly & half yearly closing are :Account are closed in various stages from 15th of the following month depending upon the flow of the information from different section and closing of Cash Book. Closing of accounts, its review & preparation of B/S & P&L a/c to be carried to Corporate Office for final consolidation is done within the time scheduled framed by Corporate Office. IUCA Balances are reconciled at IUCA meetings held at Kolkata as per corporate office program which usually takes place during the second or third week of the following

month. All the information collected at Kolkata are then provided to respective sections for its accounting. Central Accounts takes care that all the transactions intimated through DA or CA are accounted for by the respective sections well in time. Collection of all the necessary information data for Note on Accounts & preparation of additional data are compiled by CAS werll in time for purpose of Consolidation of accounts. Data to comply with all the AS issued by the institute of CA s & applicable to

us are also furnished to Corporate Office by CAS. 3. Limited Review of Quarterly and Haly-yearly accounts :As per the SEBI guidelines Quarterly & Half-yearly accounts after consolidation at Corporate Office to be reviewed by the Statutory Auditors. CAS gets the accounts reviewed by the statutory auditors and furnishes all the information and data required for the audit with the help of all the sections of Finance Deptt. this is also a time bound program, which has to be completed as per the time frame of Corporate Office. Finally the Audit Report is prepared & is sent to the Corporate Office for final consolidation at SAIL level by the Main Auditors. 4. Annual Accounts Closing:CAS plays a vital role in the completion of Annual A/c Closing with the help & coordination of all the Sections of Finance Deptt. which is done during the month of April & May. As soon as the program for Annual Closing Accounts is intimated by the

Corporate Office, CAS draws time schedule & program for closing of various stages of accounts, flow of information & data for Notes On A/cs, Additional Data & data to comply with all the AS issued by the ICAI applicable to SAIL. CAS monitors that all the sections of Finance Deptt. adheres to the time schedule to enable timely closing of accounts. Review of balances after every stage of accounts is carried out & discrepancies are informed to all the sections to take corrective actions. Al the necessary outputs after closing of every state are sent in time to all the section for review at their level. After the review all the transaction compilation of B/S & P&L a/c is carried out through SAIL a/c preparation system(SAILAPS), a s/w package provided by the Corporate Office and use

by all the plants. After preparation of accounts data for Notes on accounts, Additional Data, and all the AS applicable to SAIL are compiled so that the same can be submitted in time. Accounts along with all the data on Notes On Accounts and Additional Data are then placed before the Statutory Auditors for audit. CAS with the help of EDP has developed its own SAILAPS program which can be prepared B/S & P&L a/c at any point of time after considering all the vouchers accepted upto that point of time. B. ASSETS SECTION:-

Section 227 (4A) of the Companies Act, 1956 requires all manufacturing, mining & processing companies to maintain proper records showing full particulars, including quantitative & location of fixed assets. It is entrusted with the job of maintaining records related to fixed assets and as such our asset register contains the following information in the columnar form :Location of assets (there are 500 locations in which assets are situated.) Few of the major locations are as under :BBM, Blast Furnace, CCCS, CEZ, Cokeoven, Compressed air station, DNW, Decoiling & Twisting Units, EDP, Fire Brigade, Health & Medical Services, Instrumentation, Machine Shop, Merchant Mill, Mines, Oxygen Plants, Plate Mill, SMS, T&D, WRM etc. Group Item code Division Section Asset description Date of capitalization Quantity Original value.(Gross Block) Rate of depreciation(as per schedule XIV) Cumulative depreciation(total depreciation till previous year B/S date) Current depreciation (depreciation for the year) Total depreciation Net value (Net Block) Scheme No.

Record No. Asset register is prepared on yearly basis after Incorporation & reconciliation of the following asset related activities / transactions during a financial year. Inter Unit Current Account : Under the IUCA system, transactions between plants / units inter pertaining to IP transfers of materials, employees & other transactions are accounted for through book adjustment by exchange of debit/credit advices. Examples of IUCA transactions are mentioned as under : 4) IP transfer of iron & steel products, by-products, scrap, etc. at mutually agreed price to & from sister plants. 5) Receipt of indigeneous coal from CCSO, imported coal from CMO(T&SIMPORT) & other raw materials received through RMD. 6) Transactions with Corporate Office : Interest & finance charges allocated by the Corporate Office, Exchange Variation on account of FE loans & interest thereon, Foreign traveling expenses, Operation remittances / Public Deposit Scheme etc.

4.) Transactions with CMO :Direct Sales through CMO, Stockyard Sales, Export Sales, Conversion charges, Warehousing & Handling Charges for fertilizers, under charges/siding charges paid to railways, demurrage, and wharfage transportation charges, credit for

railway claims for shortages in

transit, missing wagons.

5.) Transactions common to all units :TA advance, payment of medical bills on behalf of other units, dues from and to employees on transfer, traveling advance/allowance for management trainees. The CAS of the originating plants must ensure that the IUCA debit/credit entries raised by different sections contain complete details before sending DA/CA to the responding plants / units . IUCA activities at BSP are computerized & linked to VMS of EDP. Incoming Originating DA/CAs :Original DA/CAs raised on BSP are centrally received at the CAS . After scrutiny, these DA/CAs, along with supporting documents, are forwarded to the respective section for acceptance.Unit-wise & Section-wise data are fed into the IUCA module of the VMS. Outgoing responding DA/CAs :Sections respond to these Debit or Credit through Journal Vouchers. Responding debits & credit advices are prepared through VMS modules before sending them to respective units.

Outgoing Originating DA/CAs :Original debit/credit raised by our sections on various units identified by scrutiny of accounts sequence & sectional journal vouchers.DA/CAs are prepared through IUCA modules of VMS & sent to respective sister units along with supporting details. Incoming Responding DA/CAs :On receipt of the DA/CAs responding to our originating debits or credits, concerned plants responding DA/CAs are received, fed in the VMS for linking.

Section wise / unit-wise list of DA/CAs pending for acceptance are prepared periodically and taken up with the concern section for expediting acceptance.

Cases of disputes or non-furnishing of supporting documents by any units are taken up with the respective sister units for early settlement.

IUCA balances are drawn periodically through generation of statement accounts w.r.t the VMS and are cross tallied with accounting IUCA ledger balances. Unrealized profit on unconsumed stock:Unrealized profit on unconsumed stock of IPT from BSP with any other Sister Units worked out and credit, if any, given to the concerned units / plants. For the purpose of knocking of IPT transactions details of product, quantity & value etc. are furnished to the concerned official of the Corporate Office during

Accounts Closing.

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