working capital management

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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

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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

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 by-

a) 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 manager who is ready to play an important role in his

organization the goods which are manufactured in a given time may not be sold in

thatperiod. Naturally fund is 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.

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1.1 DEFINITION

Working capital (abbreviated WC) is a financial metric which represents operating

liquidity available to a business, organization or other entity, including governmental entity.

Along with fixed assets such as plant and equipment, working capital is considered a part of

operating capital. Net working capital is calculated as current assets minus current liabilities. It is

a derivation of working capital, that is commonly used in valuation techniques such as DCFs

(Discounted cash flows). If current assets are less than current liabilities, an entity has a working

capital deficiency, also called a working capital deficit.

A company can be endowed with assets and profitability but short of liquidity if its assets cannot

readily be converted into cash. Positive working capital is required to ensure that a firm is able to

continue its operations and that it has sufficient funds to satisfy both maturing short-term

debt and upcoming operational expenses. The management of working capital involves

managing inventories, accounts receivable and payable, and cash.

1.2 CALCULATION

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Current assets and current liabilities include three accounts which are of special

importance. These accounts represent the areas of the business where managers have the most

direct impact:

accounts receivable (current asset)

inventory (current assets), and

accounts payable (current liability)

The current portion of debt (payable within 12 months) is critical, because it represents a short-

term claim to current assets and is often secured by long term assets. Common types of short-

term debt are bank loans and lines of credit.

An increase in working capital indicates that the business has either increased current assets (that

it has increased its receivables or other current assets) or has decreased current liabilities—for

example has paid off some short-term creditors, or a combination of both.

Implications on M&A: The common commercial definition of working capital for the purpose of

a working capital adjustment in an M&A transaction (i.e. for a working capital adjustment

mechanism in a sale and purchase agreement) is equal to:

Current Assets – Current Liabilities excluding deferred tax assets/liabilities, excess cash, surplus

assets and/or deposit balances.

Cash balance items often attract a one-for-one, purchase-price adjustment.

1.3 WORKING CAPITAL MANAGEMENT

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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.

Proportion in long term and short term funds to finance current assets.

It may be clear that the objective management is to maintain a satisfactory level to working

capital. In other words, the current assets should not only be sufficient enough or cover the

current liabilities but at the same time should ensure the reasonable amount of safety margin.

This is possible only when the different components of working capital are properly balanced.

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1.4 WORKING CAPITAL CONCEPTS

Decisions relating to working capital and short term financing are referred to

as working capital management. These involve managing the relationship between a firm's short-

term assets and it’s short. The goal of working capital management is to ensure that the firm is

able to continue its operations and that it has sufficient cash flow to satisfy both maturing short-

term debt and upcoming operational expenses.

A managerial accounting strategy focusing on maintaining efficient levels of both components of

working capital, current assets and current liabilities, in respect to each other. Working capital

management ensures a company has sufficient cash flow in order to meet its short-term debt

obligations and operating expenses. There are two concept of working capital

I. Gross concepts

II. Net concepts

I. Gross working capita concepts

Simply called as working capital refers to the firm investment in current assets are

the assts which can converted into cash within an accounting year and includes cash short term

securities, debtors, bills receivables and stocks.

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II. Net working capital concepts

Net working capital refers to the difference between current assets and current liabilities.

Current liabilities are those claims of outsiders which are expected to mature for payments wit 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 the

current liabilities are in the excess of 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 determine the amount of working capital and timely action should be

taken by management to improve the liquidity position of the firm.

1.5 OBJECTIVES OF THE WORKING CAPITAL MANAGEMENT

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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 assets In such a way that the managerial returns on investment in

these assets is not less than the cost of the capital acquired to finance them. This will

ensure the maximization of the value of business unit.

iii. To maintain proper balance between the amount of current assets and the amount of

current liabilities in such a way that the firm is always able to meet its financial

obligation whenever due. This will ensure smooth working of the unit without ant

production held ups due to paucity of funds.

Thus, the objective is to ensure the maintenance of the 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.

1.6 MANAGEMENT OF WORKING CAPITAL

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Guided by the above criteria, management will use a combination of policies and techniques for

the management of working capital. The policies aim at managing the current

assets (generally cash and cash equivalents, inventories and debtors) and the short term

financing, such that cash flows and returns are acceptable.

Cash management. Identify the cash balance which allows for the business to meet day to

day expenses, but reduces cash holding costs

Inventory management. Identify the level of inventory which allows for uninterrupted

production but reduces the investment in raw materials - and minimizes reordering costs -

and hence increases cash flow. Besides this, the lead times in production should be lowered

to reduce Work in Process (WIP) and similarly, the Finished Goods should be kept on as low

level as possible to avoid over production - see Supply chain management; Just In

Time (JIT); Economic order quantity (EOQ); Economic quantity

Debtor’s management. Identify the appropriate credit policy, i.e. credit terms which will

attract customers, such that any impact on cash flows and the cash conversion cycle will be

offset by increased revenue and hence Return on Capital (or vice versa); see Discounts and

allowances.

Short term financing. Identify the appropriate source of financing, given the cash conversion

cycle: the inventory is ideally financed by credit granted by the supplier; however, it may be

necessary to utilize a bank loan (or overdraft), or to "convert debtors to cash" through

"factoring".

1.7 DETERMINATES OF WORKING CAPIAL

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To determine the amount of working capital needed bya a firm, the number of factors may

be includes in analysis.

Nature and size

Trading and financial firm require a large sum of the money to be invested in working

capital. Some manufacturing businesses like tobacco manufacturing and construction firm 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 longe

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 operates with less working

capital than a firm such a facility.

Attitude toward risk

The grater the amount of capital, lower the risk of liquidity problem. If firm don’t want

liquidity deficiency, may keep extra cash.

Operating efficiency

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Batter operating efficiency, lower need of working capital. Most firms seek to maintain

sufficient working capital to meet their need for liquidity.

Manufacturing cycle

Longer the manufacturing cycle larger will be the firm working capital requirements.

Manufacturing cycle stands with the purchase and use of raw material 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 advance payments from

their customers.

Above all the amount of working capital that a firm would need. It is affected not only by

the factors associated with firm itself but it is also affected by economic, monetary and general

business environment.

1.8 TYPES OF WORKING CAPITAL ON THE BASIS OF CONCEPT

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Generally there are two concepts of working capital. They are gross working capital and net

working capital. But they are defined by different names. They are explained below:

1) In Broad Sense : working capital refers to gross working capital. It is also defined as

financial concept or going concern concept. It means the capital invested in the current

assets of the firm. Current assets mean the assets which can be converted into cash easily

or within one accounting period. It helps in determining the return on investment in

working capital and providing correct amount of working capital at right time.

2) In narrow sense : working capital refers to net working capital. It is also defined as

accounting concept. It means excess of current assets over current liabilities. It helps in finding

out firm’s capability to meet short term liabilities as well as indicates the financial soundness of

the enterprise.

NET WORKING CAPITAL = CURRENT ASSETS – CURRENT LIABILITIES

Net working capital can be +ve or –ve. When current assets are more than the current liabilities

than working capital is +ve and when current assets are less than the current liabilities than

working capital is –ve.

At the end we can say, that both the working capital are important but according to the

suitability gross working capital is suitable for companies having separate ownership or

management while net working capital is suitable for sole trader companies or partnership firms.

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Types of working capital on the basis of time

1) Permanent working capital: it is also called fixed working capital. It means to carry on the

day to day expenses the firm is required to maintain the minimum amount of working capital.

For example the firm is required to maintain the minimum level of raw material, finished goods

or cash balance etc.

a) Regular working capital- it means the minimum amount which the firm has to keep with

itself to carry on the day to day operation.

b) Reserve working capital- it means the excess amount over the regular working capital for

uncertain circumstances like strike, lock out, depression etc.

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2) Temporary working capital: it is also called variable working capital, which is required to

meet the seasonal demands as well as for special purposes.

a) Seasonal working capital- it is required to meet the seasonal needs of the enterprise.

b) Special working capital- it is required for some special purposes of the enterprise. For

example advertising the product of the firm requires special working capital.

Temporary working capital is for short period and fluctuates while permanent working capital is

stable and fixed.

These are the types or classification of working capital.

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CASE STUDY

II.1 BHILAI STEEL PLANT

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Bhilai steel plant a symbol of indo-soviet techno-economic collaboration is the one of

first three integrated steel plants set up by Government of India to build 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 2 nd February

1955. Today the plant has already been expended to the capacity of 4.0 million tons of crude

steel & is producing 3.925 million tons of crude steel & 3.153 million tons 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, is only plant, which has been earning profits

continuously. More so when there has been a total loss to the tune of 1707 crores. BSP has

individually earned a profit in crores Rs. For the year march 2003 – 732.20. 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.

ORGANISATION STRUCTUREOF

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FINANCE & ACCOUNTS DEPARTMENT

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

G. M. (F & A)

D.G.M. (F &A)

CFMD.G.M (F &A) CFM CFMCFM

SALES EXCISE,SALES TAX, FRT.OUTWARD

PROJECT FINANCE,CAPITAL BUDGET.WORKS FINANCEZONAL A/Cs &WORKSCOMPLATION

RAW MATERIALSA/Cs, FREIGHT &CLAIMS STOCKVERIFICATION,TOWNSHIPSERVICES, HOSPIAL A/Cs

MINES, ZONALWAGES, WAGESCOORDINATION

CENTRAL A/Cs, MANAGEMENTA/Cs, ASSETS A/Cs, OPERATIONBUDGET, COST A/Cs, ENERGYCELL OPERATION A/Cs, PC, CC

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II.2 STEEL AUTHORITY OF INDIA LIMITED

Steel Authority of 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 plant at Bhilai, Durgapur, Rourkela and Bokaro having

a total capacity of producing over 11 million tons 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 InternationTrade 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 center for

iron and steel (RDCIS).

Besides it has its own in house center 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.

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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 place in the industrial scenario of India. Quality steel products from

SAIL have carved a niche for themselves in the globe steel market. The company aims at

thinking its global 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 of 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.

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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, adapt to

emerging competitive business environment and excel as a business organization both within and

outside India.

ORGANISATION STRUCTURE OF SAIL

CHAIRMAN

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ORGANISATION STRUCTURE OF BHILAI STEEL PLANT

DIRECTORS (TECH)

DIRECTOR (PERSONAL)

DIRECTOR (FINANCE)

CHIEF VIGILANCE OFFICER

EXE. DIRECTOR (OPRNS)

EXE. DIRECTOR (IA)

ED (TECH & LEGAL SERVICES)

EXE. DIR. (PROJECTS)

EXE. DIR. (CMMG)

EXE. DIR. (CIG)

EXE. DIR. (CP)

MANAGING DIRECTIOR, BSP

MANAGEING DIRECTOR, BSL

MANAGENING DIRECTOR, RSP

MANAGENING DIRECTOR, DSP

EXE. DIRECTOR, VISL

EXE. DIRECTOR, SSP

EXE. DIRECTORS, ASP

MANAGING DIRECTOR

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II.3 MAJOR UNITS OF SAIL

STEEL PLAN.

DIR (M &HS)

ACVO

GM (M & SP)

GM (IA)

ED (PROJECTS)

GM (IT)

GM (F&A) ED (WORKS)

GM (PP&E & BEDB)

GM I/C (SERVICE)

COC

GM (P MILLS)

GM (MS)

GM (TS) GM (MM)

ED (MM)

GM (PROJECTS)

GM I/C (MINES)

GM I/C (STEEL)

GM (PERS) GM (SAFTY)

GM (HRD)

DGM (L&A)

GM (Refr)

GM I/C (M&U)

GM I/C (MILLS-LP)

ED (P&A)

GM (QUALITY)

GM I/C (PE & EN)

GM (IRON)

GM (CO & CCD)

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a. Bhilai Steel Plant (BSP) in C.G.

b. Durgapur Steel Plant (DSP) in West Bengal.

c. Rourkela Steel Plant (RSP) in Orissa.

d. Bokaro Steel Plant (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. (I(SCO) in West Bengal.

b. Maharashtra Elektrosmelt Ltd (MEL) in Maharashtra.

OTHER UNITS.

a. Raw Material Division (RMD) at Kolkata.

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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.) at Kolkata.

k. Central Coal Supply Organisation (CCSO) at Dhanbad.

STORE ACCOUNTS

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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.

VII. To account for consumption of steel, internally produced.

ACCOUNTING PROCEDURES

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1) Store accounts books the receipt transactions after the Generation of Receipt Certificate by

stores, after inspection by inspection depts. 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 non-moving items where the

items are 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 SECTION INVOLVED

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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.


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.

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AGENCIES INVOLVED

1) DISPOSAL STORES

2) CMM 9STORES0

FINANCE SECTIONS INVOLVED

1) Sales Tax

2) Sales

3) Store Bills, for recovery & adjustment

CASH MANAGEMENT

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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 are 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 depts.

LIAISON WITH BANKERS:-

This section is required to closely interact with the bankers at times even on

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Minute-to-minute basis to ensure smooth functioning.

FUND MANAGEMENT

Fund allocations are made by SAIL corporate office on time-to-time basis whereas the payments

are required to be made evenly throughout 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.

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PREPARATION & SIGNING OF CHEQUES

For every bank payment voucher, the output is cheques. 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.

CO-ORDINATION 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 dept.

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.

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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.

CO-ORDINATION WITH OTHER SECTIONS AND DEPTS.

Interaction and coordination with related agencies such as CISF, Garage, various branches of the

banks.

OPERATIO ACCOUNTS

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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 ;-

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Works bills:-

The type of job got done through contractual agencies inside the plant are mainly :

1. Regular maintenance, repair, revamping to keep the plant in smooth running condition.

2. Contract awarded for handling of Raw materials, pig iron, processing of scrap etc.

3. Civil Engineering Dept. Undertakes some jobs like additions / alterations, which are

normally revenue in nature.

4. Some job capitals in nature are also undertaken by Civil Eng. Deptt./other Dept.’s based

on the scope of capital scheme. Expenditures against such type of jobs is capitalized and

added to fixed assets.

Running bills duly filed – in/recorded and signed MB and relevant documents are sent to this

section for making payments. After payment 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 tad to Expansion a/c sec.

MISCELLANEOUS PAYMENTS:-

This section also deals with the payments of entertainment bills, audit expenses, workers

education expenses, A/C maintenance, 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:-

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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

depts. / 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 Deposits:-

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

36

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 contractor’s 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 is done through directly in VMS systems. 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. Clearances 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

37

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 time 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 wide & in

account code section-wise cumulative balance 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.

38

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 digits 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 analyze 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.

Summarized 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.

39

Account Sequences: - 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 Balance & 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 Balance: - This output gives the details of IUBA Balance & 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.

40

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 15 th 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 well 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.

41

3. Limited Review of Quarterly and Half-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 furnished 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 Section 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/c’s, 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

42

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. AS 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 up to 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, Coke oven, Compressed air station,

DNW, DE coiling & 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

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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.

44

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

wharf age 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.

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Incoming Originating DA/CAs:-

Original DA/CAs raised on BSP is 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.

46

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.

47

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 isdivided 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

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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.

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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.

50

OVERVIEW

51

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 units 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.

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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.

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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.

54

WORKING

CAPITAL

MANAGEMENT

55

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]

56

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 offices. 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) Kolkata 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.

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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 are

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.

58

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

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1. 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 Agencies

i) Imported Coal Central Market Organization Transport and shpping

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

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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

-7%. The inventory of bulk material is maintained from 1 week 3 week.

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2. 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 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.

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3. 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 favor 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:

63

Bulk Store - Bulk material

Central Plant Store Cell - Silicon Manganese

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.

Budgetary Control

The budgeting section monitors the shop wise procurement budgets for indents raised by the

shop. The amounts 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.

64

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 Rolling 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.

65

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 Roll able or saleable.

Valuation is done on 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.

66

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. 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 ex employee’s

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 interests which are basically got from house

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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 within 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 having 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.

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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.

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STORE ACCOUNTS

FUNCTIONS:

C. STORE AND MATERIAL FUNCTIONS

a. To account purchase, issue and inventory of following items:-

i. Stores and spares

ii. Minor raw materials, where A/T is placed and store is the custodian of

materials.

iii. LSHS, where A/T is placed and Energy Management is the custodian.

b. Transfer of capital items to Expansion accounts section.

c. Transfer of Stores and Spares consumed in mines section for booking in

Cost of the raw material.

d. To account for materials issued to Local Fabricators for conversion.

e. To adjust consumption based on the inventory available at shops VI. To account

for consumption of gases, internally produced.

f. To account for consumption of steel, internally produced.

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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 non-moving items where the

items are 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.

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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.

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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.

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.


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.

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AGENCIES INVOLVED

i. DISPOSAL STORES

ii. CMM (STORES)


1. Sales Tax

2. Sales

3. Store Bills, for recovery & adjustment.

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CASH MANAGEMENT

INTRODUCTION

Cash section is an important section of Finance & Accounts Dept. It deals with the

employees, contractors & suppliers for their payments.

FUNCTIONS

The main functional areas of the Cash Section is as follows :-

1. Liaison with Bankers

2. Fund Management

3. Daily Fund Monitoring and reporting

4. Vouchers checking & control

5. Preparation & signing of cheques

6. Bank Reconciliation

7. Coordination with EDP

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8. Preparation of Cash Book

9. Control of Physical Cash

10. Bank Guarantees control

11. Coordination with other sections and depts.

1. 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.

2. Fund Management:-

Fund allocations are made by SAIL corporate office on time-to-time basis whereas the

payments are required to be made evenly throughout 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.

3. 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.

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4. 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.

5. Preparation & signing of cheques

For every bank payment voucher, the output is cheques. Normally around 200-250

cheques are prepared on average per day. These cheques are to be authenticated before

issue by 2 officers.

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6. 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.

7. 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 dept.

8. 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.

9. 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.

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10. Bank Guarantees control

Custodial function of Bank Guarantees sent by various sections.

11. Coordination with other sections and depts.

Interaction and coordination with related agencies such as CISF, Garage, various

branches of the banks.

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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, interest,

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.

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PAYMENTS:-

Works bills:-

The type of job got done through contractual agencies inside the plant are mainly :

1. Regular maintenance, repair, revamping to keep the plant in smooth running condition.

2. Contract awarded for handling of Raw materials, pig iron, processing of scrap etc.

3. Civil Engineering Dept. undertakes some jobs like additions / alterations, which are

normally revenue in nature.

4. Some job capital in nature is also undertaken by Civil Eng. Dept. / Other Deptt s, based

on the scope of capital scheme. Expenditures against such type of jobs is capitalized and

added to fixed assets.

5. 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 tad to Expansion a/c sec.

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Miscellaneous payments:-

This section also deals with the payments of entertainment bills, audit expenses,

workers education expenses, A/C maintenance, 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 dept. Payments etc.

Bank guarantees:-

It is submitted by the contractor as SD and/or performance guarantee. This BG s is

submitted to operating authority that 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 dept. /

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.

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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 contractor’s 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 is

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;-

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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

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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 time 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

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the sections by comparing the balances with that of previous year balances. This output is

also useful for audit purpose.

Five digits 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 digits 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 analyze the balance by-code wise. By-codes are given to

identify the various natures 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.

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Summarized 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 Dept. & 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.

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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 Dept. & 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:-

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Account is 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 cares 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 well 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 Half-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:-

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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/c’s, 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 up to that point of time.

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C. 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, Coke oven, Compressed air station, DNW, DE coiling

& 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

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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&SIMPORT) &

other raw materials received through RMD.

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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.

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 warfare transportation charges, credit for railway claims for shortages in transit,

missing wagons.

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:-

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Original DA/CAs raised on BSP are centrally received at the CAS . After scrutiny, this 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:-

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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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RATIO ANALYSIS OF B. S. P.

2010 2011

Current Ratio=CA/CL

1.285:1 1.366:1

Liquid Ratio =LA/CL 0.297:1 0.267:1

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

0.031:1 0.031:1

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

0.127:1 0.151:1

W.C. to Cost ofSales=

W.C./Cost of Sales

0.039:1 0.047:1

RECOMMANDATIONS

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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 cooking 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.

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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.

working capital management

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