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SUMMER TRAINING PROJECT REPORT

ON

“DIFFERENT FUNCTIONS OF FINANCE AND


ACCOUNT
DEPARTMENT WITH SPECIAL REFERENCE TO
CAPITAL BUDGETING”
TOWARDS PARTIAL FULFILLMENT OF
MASTER OF BUSINESS ADMINISTRATION

UNDER GUIDANCE OF: SUBMITTED BY:


Mr. D.R.NAHAK ARVIND SINGH
Senior Manager, Roll No. 0929770007
Finance Department, MBA 3rd Semester
H.A.L, Lucknow

DCET Business School

Kanchana Bihari Marg ( off Ring Road Via Kalyanpur )


Lucknow - 226022 (U.P)

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Website: - www.dcetbschool.com

CONTENTS

 Preface

 Declaration ,

 Acknowledgement

 Certificate Of The Organization

 Certificate Of The College

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Section-1

 History of the Firm

 Vision

 Mission

 Company objectives

 SWOT analysis of the firm

 HAL customer

 Organizational chart

 Financial highlights

 Product details

 Services

 Division

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Section-2

 Research objective

 Research methodology

 Research design

 Data collection method

 Sampling

 Analysis & Interpretation

 Result & Findings

 Conclusion

 Limitation

 Suggestion

 Annexure

 Questionnaire

 Bibliography

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PREFACE

This project report embodies the result of summer training in partial fulfillment
of M.B.A. . It was a great opportunity to me to work with such a flagship
organization. Management of Hindustan Aeronautics Limited, Lucknow Division
has given me this golden opportunity to get familiar with the organization and its
functioning. Since the duration of summer training was short so it become
difficult to cover each and every aspect in detail but I tried my level best to give
due consideration to all important aspect related to my study. This study
provided me practical exposure of the functioning of accounts and finance
department. The information so gathered for the presentation of this report is
collected by the personal contact with the concerned person of different
department.

The project report is merely concerned with the study of different functions,
which are dealt by account department. In the course of study I became aware of
the concepts, which are used in H.A.L., while dealing with costing and pricing
related matters. The cost and costing system that prevails in HAL is different
from the system that followed by other organizations.

The project report incorporates the procedure and flow of work applied by
different sections of the account department and how these sections are linked.
Although these sections are separate and perform there separate operations but
these are interrelated with each other.

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DECLERATION

I ARVIND SINGH, Roll No 0929770007 do declare that the Summer Training

has been successfully completed in Hindustan Aeronautics Limited, Lucknow on

the topic (Different function of finance and account department with special

reference to capital budget). For the partial fulfillment of the requirement for

the degree of Master of Business Administration. I am submitting my summer

training project report on the above mentioned topic which is my original work

and has not been copied from anywhere

Place: LUCKNOW

ARVIND SINGH

Date:

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ACKNOWLEGEMENT

I oblige the HAL organization for providing me an opportunity to get


aware with their environment and supporting me as could be possible

I am grateful to Mr. D.R. Nahak, Sr. Manager (Finance) under whose expert
guidance this training was completed.I am thankful to Mr. S.A.Z. Rizwi
(Manager Cost & Material Accounts), and I wish to express my deep sense of
gratitude to Mr. S.K. Singh, Mr. G.R.B. Saxena of Costing Department who
inspired, guided and gave there valuable suggestions.

I would like to affirm my gratitude to Mr. R.S. Sachdeva (Account Officer of


Payroll), Mr. Mohd. Afzal Ahamad (A.A.O of P.F. section), Mr. K.K. Lalwani
(Manager Book Keeping), Mr. K.C. Mishra of Time Office, Mr.Arun Narula of
Budget Section for their necessary help and encouragement intended in this
project.

ARVIND SINGH
MBA 3rd Semester

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HISTORY OF THE COMPANY

Hindustan Aeronautics Limited (HAL) came into existence on 1st October 1964.
The Company was formed by the merger of Hindustan Aircraft Limited with
Aeronautics India Limited and Aircraft Manufacturing Depot, Kanpur.

The Company traces its roots to the pioneering efforts of an industrialist with
extraordinary vision, the late Seth Walchand Hirachand, who set up Hindustan
Aircraft Limited at Bangalore in association with the erstwhile princely State of
Mysore in December 1940. The Government of India became a shareholder in
March 1941 and took over the Management in 1942.

Today, HAL has 19 Production Units and 9 Research and Design Centres in 7
locations in India. The Company has an impressive product track record - 12
types of aircraft manufactured with in-house R & D and 14 types produced
under license. HAL has manufactured over 3550 aircraft, 3600 engines and
overhauled over 8150 aircraft and 27300 engines.

HAL has been successful in numerous R & D programs developed for both
Defence and Civil Aviation sectors. HAL has made substantial progress in its
current projects:

• Dhruv, which is Advanced Light Helicopter (ALH)


• Tejas - Light Combat Aircraft (LCA)
• Intermediate Jet Trainer (IJT)

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• Various military and civil upgrades.

Dhruv was delivered to the Indian Army, Navy, Air Force and the Coast Guard
in March 2002, in the very first year of its production, a unique achievement.

HAL has played a significant role for India's space programs by participating in
the manufacture of structures for Satellite Launch Vehicles like

• PSLV (Polar Satellite Launch Vehicle)


• GSLV (Geo-synchronous Satellite Launch Vehicle)
• IRS (Indian Remote Satellite)
• INSAT (Indian National Satellite)

HAL has formed the following Joint Ventures (JVs):

• BAeHAL Software Limited


• Indo-Russian Aviation Limited (IRAL)
• Snecma HAL Aerospace Pvt Ltd
• SAMTEL HAL Display System Limited
• HALBIT Avionics Pvt Ltd
• HAL-Edgewood Technologies Pvt Ltd
• INFOTECH HAL Ltd

Apart from these seven, other major diversification projects are Industrial
Marine Gas Turbine and Airport Services. Several Co-production and Joint
Ventures with international participation are under consideration.

HAL's supplies / services are mainly to Indian Defence Services, Coast Guards
and Border Security Forces. Transport Aircraft and Helicopters have also been
supplied to Airlines as well as State Governments of India. The Company has
also achieved a foothold in export in more than 30 countries, having
demonstrated its quality and price competitiveness.

HAL has won several International & National Awards for achievements in
R&D, Technology, Managerial Performance, Exports, Energy Conservation,
Quality and Fulfillment of Social Responsibilities.

• HAL was awarded the “INTERNATIONAL GOLD MEDAL AWARD”


for Corporate Achievement in Quality and Efficiency at the International
Summit (Global Rating Leaders 2003), London, UK by M/s Global Rating
and UK in conjunction with the International Information and Marketing
Centre (IIMC).

• HAL was presented the International - “ARCH OF EUROPE” Award in


Gold Category in recognition for its commitment to Quality, Leadership,
Technology and Innovation.

• At the National level, HAL won the "GOLD TROPHY" for excellence in
Public Sector

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• Management, instituted by the Standing Conference of Public Enterprises
(SCOPE).

The Company scaled new heights in the financial year 2006-07 with a turnover of
Rs.7, 783.61 Crores

Vision

"To make HAL a dynamic, vibrant, value-based learning organization

with human resources exceptionally skilled, highly motivated and committed to

meet the current and future challenges. This will be driven by core values of the

Company fully embedded in the culture of the Organization"

MISSION

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" To become a globally competitive aerospace industry while working as an
instrument for achieving self-reliance in design, manufacture and maintenance of
aerospace defense equipment and diversifying to related areas, managing the
business on commercial lines in a climate of growing professional competence ".

VALUES

• Customer Satisfaction

dedicated to building a relationship with our customers where we become


partners in fulfilling their mission. We strive to understand our customers ' needs
and to deliver products and services that fulfill and exceed all their requirements.

• Commitment To Total Quality

H. A. L. is committed to continuous improvement of all our activities. We will


supply products and services that conform to highest standards of design,
manufacture, reliability, maintainability and fitness for use as desired by our
customers.

• Cost And Time Consciousness

We believe that our success depends on our ability to continually reduce the cost
and shorten the delivery period of our products and services. We will achieve this
by eliminating waste in all activities and continuously improving all processes in
every area of our work.

• Innovation And Creativity

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H. A. L. believe in striving for improvement in every activity involved in our
business by pursuing and encouraging risk-taking, experimentation and learning
at all levels within the company with a view to achieving excellence and
competitiveness.

• Trust And Team Spirit

H. A. L. believes in achieving harmony in work life through mutual trust,


transparency, co-operation, and a sense of belonging. We will strive for building
empowered teams to work towards achieving organizational goals.

• Respect For The Individual

H. A. L. values their people. We will treat each other with dignity and respect
and strive for individual growth and realization of everyone's full potential.

• Integrity

H. A. L. believes in a commitment to be honest, trustworthy, and fair in all our


dealings. We commit to be loyal and devoted to our organization. We will
practice self discipline and own responsibility for our actions. We will comply
with all requirements so as to ensure that our organization is always worthy of
trust.

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COMPANY OBJECTIVES

 To ensure availability of Total Quality People to meet the Organizational

Goals and Objectives.

 To have a continuous improvement in Knowledge, Skill and Competence

(Managerial, Behavioral and Technical)

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 To promote a Culture of Achievement and Excellence with emphasis on

Integrity, Credibility and Quality.

 To maintain a motivated workforce through empowerment of Individual

and Team- building.

 To enhance Organizational Learning.

 To play a pivotal role directly and significantly to enhance Productivity,

Profitability and improve the Quality of Work

HAL Customer

International Customers Domestic Customers


• Airbus Industries, France • Air India
• APPH Bolton, UK • Air Sahara
• BAE Systems, UK • Airports Authority of India
• Chelton, UK • Bharat Electronics
• Coast Guard, Mauritius • Border Security Force
• Corporate Air, Philippines • Coal India
• Cosmic Air, Nepal • Defense Research & Development
• Dassault Aviation, France Organization
• Dowty Aerospace • Govt. of Andhra Pradesh
Hydraulics, UK • Govt. of Jammu & Kashmir
• EADS, France • Govt. of Karnataka
• ELTA, Israel • Govt. of Maharashtra
• Gorkha Airlines, Nepal • Govt. of Rajasthan
• Hampson, UK • Govt. of Uttar Pradesh
• Honeywell International, • Govt. of West Bengal
USA • Indian Air force
• Island Aviation Services, • Indian Airlines
Maldives • Indian Army

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• Israel Aircraft Industries, • Indian Coast Guard
Israel • Indian Navy
• Messier Dowty Ltd., UK • Indian Space Research Organization
• Mistubishi Heavy • Jet Airways
Industries, Japan • Kudremukh Iron ore Company ltd.
• MOOG, USA • NALCO
• Namibian Air Force, • Oil & Natural Gas Corporation Ltd.
Namibia • Ordnance Factories
• Peruvian Air Force , Peru • Reliance Industries
• Rolls Royce Plc, UK
• Royal Air Force, Oman • United Breweries
• Royal Malaysian Air
Force, Malaysia
• Royal Nepal Army, Nepal
• Royal Thai Air Force,
Thailand
• Smiths Industries, UK
• Snecma, France
• Strongfield Technologies,
UK
• The Boeing Aircraft
Company, USA
• Transworld Aviation,
UAE

• Vietnam Air Force,


Vietnam

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Organisational Chart

Chairman

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Hindustan Aeronautics Limited (HAL) has cruised past the Rs.10, 000 crore
mark for the first time with a sales turnover of Rs.10, 373 crores during the
Financial Year 2008-09. The profit of the Company (Profit before Tax) soared to
Rs.2, 335 crores.

The highlights are given below:

Growth over
Particulars 2007-08 2008-09
Previous Year
Sales 8625 10373 20.27%
VOP 8791 11811 34.35%
Profit before
2164 2335 7.90%
tax
Profit after tax 1632 1740 6.62%
Gross Block 2255 2638 16.98%

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The Financial highlight Of the Performance During 2008-09 Are:-

(Rs in
crore)

Particular 2008-09 2007-09

Turnover 10373.38 8625.33

Export 436.58 341.09

Profit Before Tax 2334.86 2164.23

Provision For Tax 595.00 532.35

Profit After Tax 1739.86 1631.88

R & D Expenditure 674.78 662.14

Appropriation

Interim Dividend On Equity Share 299.95 287.95

Proposed Final Dividend On Equity share 48.03 39.05

Total Dividend 347.98 327.00

Tax On Dividend 59.14 55.57

General Reserves 1332.74 1249.31

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Total sales of the company

Dividend paid by the company on equity shares during the year and the previous
year: (Rs. in
crore)

2008-09 2007-08
Number of
p a r tic u la r s
Shares Dividend Dividend Dividend Total out- Dividend Total outflow
per including
per share amount Tax (Rs. flow
Dividend Tax
of Rs.10/- (Rs. cr.) cr.) (Rs. cr.) share
First Interim 4.00 48.20 8.19 56.39 4.00 56.39
12,05,00,000
Dividend

Second Interim 12,05,00,000 20.89 251.75 42.78 294.53 19.90 280.49


Dividend
Sub-Total 24.89 299.95 50.97 350.92 23.90 336.88

Final Dividend 12,05,00,000 3.99 48.03 8.17 56.20 3.24 45.69

TOTAL 28.88 347.98 59.14 407.12 27.14 382.57

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Distribution of surplus

Financial ratios for the year 2008 and 2009

2007 - 08 2008 - 09
Financial Ratios
Sales Per Employee 2512989 2978973
Value Added Per Employee 1196600 1198926
PBT to Sales 25.09 22.51
PBIT to Capital Employed 48.55 39.48
PAT to Net Worth 49.06 37.53
Debt Equity Ratio 0.00038 0.00030
Earnings Per Share 135.43 144.39
Dividend as %age of Equity 317.49 337.86

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Lucknow Division

Accessories Division of HAL was


established in 1970 with the primary
objective of manufacturing systems and
accessories for various aircraft and
engines and attain self sufficiency in
this area. Its facilities are spread over
94,000 sqm of built area set in sylvan
surroundings. At present it is turning
out over 1100 different types of
accessories. The Division started with
manufacturing various Systems and
Accessories viz, Hydraulics, Engine Fuel System, Air-conditioning and
Pressurization, Gyro & Barometric Instruments, Electrical System items,
Undercarriages, Electronic items all under one roof to meet the requirements of
the aircraft, helicopters and engines being produced by HAL. This was followed
up with manufacturing the same range of accessories for MiG series of aircraft,
International Jaguar and repair / overhaul of Mirage-2000 & Sea-Harrier
accessories. In addition the Division manufactures systems for Civil Aircraft i.e.
Avro, Dornier and AN-32 & cheetah, chetak & Advanced Light Helicopters.

• The Division, right from the beginning, laid a lot of emphasis on


developing indigenous capability for Design and Development of various
System and Accessories. This capability has culminated in indigenous
design and development of a variety of systems and accessories for the
Light Combat Aircraft (LCA) and Advanced Light Helicopter (all
versions i.e. Army, Air force, Navy & Civil) - two prestigious aircraft
programs in the country and IJT (Intermediate Jet Trainer). The Division
has also developed and has made successful strides into the area of
Microprocessor based control systems for the LCA Engine as well as
other systems.
• The Division diversified not only in
other defence applications like
tanks and armored vehicles for
Army, it look commercial
applications of hydraulic items.
Gyroscopic Equipment, Special
Purpose Test Equipment & Group
Support Equipment and
successfully supplied in the
market. The Division has been in
the forefront of accessories
development and supply not only to Indian Force but to Army, Navy and
various Defence Laboratories as well as for Space applications.
• The Division today has a prime name in the Aviation market and various

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international companies are interested to join hands with it for future
projects.

• The Division has also made steady progress in the area of Export.

Product In Current Manufacturing Range

• Instruments, Sensors, Gyros

Flight instruments, Electrical Indicators, Fuel Gauging Probes, Gyros,


Sensors and Switches

• Electrical Power Generation And Control

AC/DC Generator, Control and Protection Units, Inverters, Transformer


Rectifier Unit, AC/DC Electrical Systems, Actuators

• Land Navigation System

• Microprocessor Controller

• Undercarriage, Wheels And Brakes

• Hydraulic System And Power Control

Pumps, Accumulators, Actuators, Electro-selectors, Bootstrap Reservoirs


and various types of valves

• Environmental Control System

Pneumatics and Oxygen System, Cold Air Unit, Water Extractors, Valve -
various types

• Ejection System

Ejection Seats, Release Units etc.

• Engine Fuel Control System

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Booster Pumps, Main and Reheat Fuel Systems, Nozzle Actuators

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Repairs, Major Servicing And Supply Of Spares of lucknow division

The Division carries out Repair and Overhaul of Accessories, with minimum
turn-around-time. Site Repair facilities are offered by the Division by deputing
team of expert Engineers / Technicians.

Services provided for:

Military Aircraft

• MiG Series
• Jaguar
• Mirage-2000
• Sea - Harrier
• AN-32
• Kiran MK- I / MK- II
• HPT - 32
• SU-30 MKI

Civil Aircraft

• Dornier-22B
• AVRO HS-748

Helicopters

• Chetak (Alouette)
• Cheetah (Lama)
• ALH (IAF / NAVY / COAST GUARD / CIVIL)

Sub-contract Capabilities

• The Division has comprehensive manufacturing capabilities for various


Hi-tech components, Equipment and Systems to customer's specifications
and ensures high quality, reliability and cost effectiveness.

• The Division has over 25 years of experience in producing aeronautical


accessories making it an ideal partner for the International Aero
Engineering Industry.

The Division also manufactures and supplies complete range of components of


Cheetah (Lama) & Chetak (Alouette) Helicopters, Jaguar and MiG series
Aircraft to Domestic and International Customers to support their fleet.

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Division has embarked upon selecting and creating a strong base of suppliers for
outsourcing precision components, tooling and test equipment. This is required
to handle higher loads of existing and new projects being undertaken in the
division.

Vendors are selected as per the corporate guidelines, pursuing a vendor approval
process. Applicant Organization with established facilities & capabilities,
willingness to learn and excel in producing aeronautical level of quality product
and with financial strength and preferably with DGAQA approval stand a good
chance in becoming part of the aeronautical industrial expanse.

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Research Objective

To study the process of Capital budgeting with main emphasis on the


technique this is used in H.A.L.

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Research Methodology

In every step of life resources are always scarce. In the same way, Business
organizations are also facing such type of problems. In this respect every
organization wishes to use available resources in an optimum manner. Capital
Budgeting is a technique which helps in solving the same aspects of such
phenomenon. This study is basically emphasizing on the Capital Budgeting of
H.A.L. Lucknow and tries to find out ways of optimum utilization of financial
resources with the help of Capital budgeting technique.

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DIFFERENT SECTIONS IN THE ACCOUNTS
DEPARTMENT IN HAL LUCKNOW DIVISION

1. BILLS PAYABLE

a) INLAND BILLS
b) FOREIGN BILLS
c) SERVICES & CIVIL WORKS

2. PAYROLL

3. BILLS RECEIVABLE

4. CASH OFFICE

5. MATERIAL ACCOUNTS

6. BOOK KEEPING

7. FINANCE

8. PROVIDENT FUND

9. TIME OFFICE

10. BUDGET & M.I.S.

11. BUDGETARY CONTROL

12. COST ACCOUNTS

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FINANCE & ACCOUNTS DEPARTMENT

FUNCTIONS & RESPONSIBILITIES

1. To ensure financial discipline as per guidelines of the company.


2. To advice management for all matters having financial implications including
financial co-ordination before commitments are maid.
3. Regulation of payment for supply and service including salaries, wages and
other payments required for furthering legitimate objectives of the company.
4. Compilation of accounts and getting the same audited by statutory and Govt.
Auditors.
5. Compilation co-ordination of Fixed price Quotation for sale of Company’s
product and services as per the norms of the company.
6. Collecting dues on behalf of company from the customer as well as other
agencies.
7. Financial Appraisal of the project.
8. To prepare Budget and to exercise budgetary control for the utilization of
available resources in the best possible manner.
9. Inter-action with various operating levels in the Division.
10. Co-ordination and inter-action with the Managing Director Corporate office.
11. To have an effective M.I.S. for prompt reporting to the higher management
for decision making.
In order to fulfill these responsibilities the finance and accounts department has
been divided into different sections as per convenience and for smooth flow of
activities in discharging the above responsibilities.

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BILLS PAYABLE SECTIONS
OBJECTIVES:-

 To regulate the payment of suppliers and service providers as per the terms
and conditions of the purchase order/ agreement.

 To ensure that the payment of different parties are made promptly so that
supplies and services to the division are maintain uninterruptedly in
furthering the objects of the organization.

 To ensure the proper accounting is done as per the requirement of statute/


standing instructions from the H.O.

 To ensure that all statutory deductions e.g. - T.D.S. etc., are made from the
bills of suppliers/ service providers and deposited timely with the appropriate
authority Bill
Payable section is divided his work into three parts these are :-

1. Bills Payable inland (Indigenous).

2. Bills Payable Foreign.

3. Bills Payable Services.

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BILLS PAYABLE (INLAND)
FUNCTIONS :-

The following are the functions of Bills Payable (Inland) section:


1. Payment of Advance to suppliers as stipulated in the Purchase order.

2. Payment of Final Bills.

3. Bank dealings with relation to supplier’s e.g. Opening of Letter of credit,


Bank Guarantee and the payment to bank on the due dates.

4. Accounting and pricing of R.D.R. (Receiving cum discrepancy report).

5. Maintenance of Commitment Register for Budgetary Purpose.

6. Payment of Misc. Advances / imprest approved by the competent


authority.

Flow of Work :-

1. All the P.O. received is first entered in the P.O. Register before putting
the same in a separate file.
2. If the P.O. stipulates for payment of Advance to vendor, an Advance
payment is given.
3. After receipt of the goods, suppliers invoice duly linked with relevant
R.D.R are received from the Purchase Department which are scrutinized with
reference to relevant P.O. and then passed for payment after making
adjustments for Advance Payments.

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4. Already made Remittance vouchers are prepared based on the passed
invoices and are forwarded to cash section for issuance of Cheque.
5. In respect of P.O. where payment is stipulated as “Through Bank” the
BPT section after intimation from the Bank through Purchase Department,
makes entry in the Register and after checking the documents with the P.O.
passes the Invoice

and sends the remittance Voucher to the Cash section to arrange payment
and collection of Documents from the Bank by the Purchase Department.
6. In respect of Local purchase made on ”Cheque against Delivery basis” the
Performa invoice is linked with the relevant P.O. and the payment is
authorized and Remittance voucher is sent to the Cash section for making
payment.
7. Pending the receipt of R.D.R. from transit in respect of material received
but not taken on charge due to delay in inspection / commissioning / rejections
the payments made to suppliers as Advance on receipt of goods through
Bank Documents / Cheque against delivery basis are put in G.I.T. i.e. Goods
in Transit Account at the year-end.
8. In respect of that P.O. where material has been received but the payment
has not been released, the appropriate liability is provided for at the year-end
so as to account for all expenses.
9. Follow up with I.M.M Department for release of R.D.R. in respect of those
PO’s. Where Advance payment has been made so as to clear Advances.
10. In respect of rejected materials, follow-up is to be made with I.M.M.
Department to get those rejected materials replaced from the vendor so as to
clear G.I.T.

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FLOW CHART OF BILLS PAYABLE (INLAND)

Start

Purchase Orders received are


Entered in to the P.O. register

Yes No
Does P.O.
Stipulates for payment
Of Advance
R.D.R. received by purchase
Advance payment is given to
Department
Vendors
& scrutinized with purchase order

R.D.R. received by purchase


Department scrutinized
with purchase order

Adjust the advance payment

Based on invoice Based on invoice Remittance


remittance vouchers are vouchers are prepared &
prepared & passed to Cash passed to Cash Section
Section

Cheque issued Cheque issued


By Cash section Stop By Cash section

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BILLS PAYABLE (FOREIGN)
FUNCTIONS :-

1. Payment and accounting of :


• Advance to suppliers as per the term and conditions of
Purchase Order.
• License fees, Royalty etc. as per the license agreement with
the foreign collaborator.
• Customs duty, Freight bills.
• Final bills.
2. Opening of letter of credit on the advice of I.M.M. Department
and lassoing with banks for Foreign Exchange release and payment on
maturity date.
3. Maintenance of differed liabilities accounts.
4. Pricing of R.D.R. (Receiving- Cum- Discrepancy Report) with
P.O. rates and loading of Customs Duty, Freight and custom charges.
5. Priced R.D.R. is sent to Material Account Section / E.D.P for
purchasing in batch mode for the processing of Materials Ledger.

FLOW OF WORK :-

1. All purchase order / contrasts received are entered in the registers


before opening of separate file for each P.O.
2. All the L.C. opened in favor of Foreign Suppliers as per the terms of
Purchase Order are entered in register to revalidation and utilization. On

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maturity of L.C. the Bank Adjustment Voucher is prepared on the basis of
Bank Advice and send to the Cash Section for Adjustment. Particulars of
payment are also noted in the relevant P.O.
3. Where Purchase terms provide for “Documents through Bank” the Bills
Payable section after checking the documents with the Purchase Order passes
the invoice and issues Letter of Authority to the Bank for arranging payment.
4. All the Contractual payments in respect of Royalty, Licence fee &
Technical Assistance fees are made as per the Licence / Collaboration
Agreement after obtaining Foreign Exchange release from the Ministry, R.B.I
and Producing N.O.C.
from the Income Tax Department.

5. Bills of entry received from the IMM Department are entered in the
register to record value of goods assessed, correct and the amount of duty
paid to ensure that the duty levied is inventory accounts correctly. A copy of
B/E is sent to the Bank for forwarding the same to RBI.
6. After receipt of Goods the Store department sends the RDR to the
foreign bills for pricing and making necessary accounting.
7. Pending the pricing of R.D.R., the payments maid to foreign Vendors
through L.C. / Sight Draft is put temporarily in Goods In Transit Account
8. In respect to Material dispatched by the vendor against P.O. raised by
us, the liability is provided in our Books of Accounts if payments have not
been made for such supplies.
9. Follow-ups with I.M.M. Department for timely release of R.D.R. so as
to clear the G.I.T.
10. Co-ordination with the I.M.M. for replacement of rejected material so
as to clear G.I.T.

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BILL PAYABLE (SERVICES)

FUNCTIONS:-

1. Payment and accounting of advances.


2. Payment and accounting of running bills to contractors.
3. Payment and accounting of final Bills.
4. Adjustment and Recovery of Advances.
5. Adjustment and recovery of Earnest money and Security Deposits.
6. Capitalization of buildings.
7. Payment of all Consultants e.g. Architects, Advocates, part time
Doctors etc.
8. Payment of Misc. advances / imprest approved by the Competent
Financial Authority and their adjustments.
9. Payment to all casual employees.
10. Payment of all services Bills e.g. Telephones, Electricity, Water,
Canteen, Transportation Sanitation etc.

FLOW OF WORK:-

1. Advance to contractors are Given as per the acceptance Letter given to


the contractor which are recovered with interest by way of deduction from on

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account payment bills in suitable percentage in relation to the progress of
work so as to recover all sums advanced by the time 80% of the contract is
completed.
2. Material advances to the extent of 75% of the value of materials
brought by contractors and lying at the site are given on certification of
engineer-in-charge and are recovered from running/ final bills.
3. In respect of running bills the works account section links the bill,
submitted by contractors duly certified by engineer- in- charge, with the
contract / acceptance letter/ work order etc. and arranges payment after
deducting Income tax, balance security deposit and other advances if any and
retaining the prescribed percentage of bill

towards the retention money. However where the contractor has given
Bank Guarantee toward retention money no deduction is to be made on this
account.
4. Similarly, the final bill submitted by the contractor is checked with the
measurement book and the gross amount payable is determined. The amount
settled against running bills, advances if any, penalty for delay in completion
of work, recovery toward consumption of material, T.D.S. etc. is deducted
from the gross amount payable. One half of the security deposit refundable to
the contractor is retained as defect liability deposit.
5. Capitalization of the Buildings and other capital works is done on
receipt of the completion certificate and final bills and the classification of the
building is done in accordance with the rules in force.
6. Payment of bills for services e.g. Electricity, Telephone, Water etc.
received from plant Maintenance Dep’t. / Concerned users duly verified by
them and approved by the competent authority are made.
7. Payment in respect of other services received by the company is made
after the competent authority duly approves it.

41
PAYROLL SECTION
OBJECTIVE:-

The main objective of this section is to regulate the salaries and wages of the
employees.
1. To regulate Salaries and Wages of all employees as per terms of
employment.
2. To regulate payment of welfare facilities extended by the management e.g.
L.T.C., Medical, Interest subsidy, School fee etc.
3. This section also regulated with the payment of T.A, C.A., D.A, L.T.C,
medical reimbursement etc.
4. A part from this, they also make arrangement for interest, subsidy &
housing loans.
5. Payment and recovery of various natures of advances such as TA, LTC
advance, C.A., and timely adjustment thereof.
6. To ensure timely remittance of amounts recovered from employees to
various agencies like LTC, UPICA, and HDFC etc.
7. To ensure that all-statutory deductions like TDS and 12% PF etc are made
from the salaries of the employees and deposited timely with the appropriate
authority.
8. To ensure proper accounting is done as per the requirement of the statute
and corporate office guidelines.

42
9. To adhere to the provisions laid down in the Personnel Manual relevant to
the above functions.

FUNCTIONS :-

1. Based on the appointment / transfer notification from personnel


Department, individual files are opened in the payroll section to record the
particulars of the employees such as grade / group date of appointment /
transfer , department code, P.B. No., scale of pay Quarter details etc.

2. The payroll record is updated from time to time entering therein increment
drawn, promotion, transfers etc.

3. The master data in regard to all officers / employees is sent to Computer


Department in respect of Basic pay, DA, HRA, CCA etc and this data is
updated every month depending upon the changes.

4. The deductions to be made are fed to the computer Department by means of


deduction statement. Computer Department in turn prints out the deduction
statement in the form of check lists by 25th of every month. Payroll section
corrects the same with reference to the various documents and recovery
registers and sends it back to computer department for final adoption by 26th /
27th of the month.

43
5. The computer department prints the payroll in duplicate in which one copy
is maintained in the payroll section for record purpose and the original copy is
distributed to the employees concerned.

6. Disbursement of salary & wages


Payment of salary to officers is made through Bank based on the payroll
received from the computer department. In case of non-supervisory personnel
the payment is made by cash by various groups except few cases where the
payment is made through P.N.B., H.A.L. Branch. Cash is drawn two days in
advance i.e. last day of month and filled in the envelops and these envelops are
kept in safe custody in cash office for disbursement on 1st of next month.

7. Remittance of Recoveries
Various recoveries made from employees in respect of LIC premium, HDFC
loan, Income Tax etc are remitted to the various agencies within the stipulated
date by means of cheque.

8. Payment of advances and adjustment thereof and reimbursement of


expenses
Various types of advances such as Car/ Scooter advance, Contingency advance,
TA/ DA etc are paid and adjusted / recovered as per the rules of the company.
Also reimbursement of expenses like medical, school fee, conveyance etc. is
made as per the rules of the company.

9. Accounting Procedures
Monthly payroll Journal entry is made both for supervisory and non-
supervisory personnel and sent to book keeping section for adoption.
For payments made to persons from other divisions, proper accounting is
done to ensure that necessary advice is raised to the concerned division.

44
10. To make payments to ex-employees towards final settlement of their
dues.

11. To monitor the controllable expenditures e.g. Medical expenditure,


conveyance expenditure etc on monthly basis and to ensure not exceeds
the budget provided for it.

FUNCTIONING OF THIS SECTION:-

All files regarding appointment, transfer of individuals from personnel


department are opened in the Payroll Section to record the particulars pf
employees like date of Appointment, Department Code, pay-seal, P.B. number,
and grade of employees. This section maintained by E.D.P. Section. This dept.
prepared all the date relating basic pay, D.A., H.R.A., etc. according to the
feedback of payroll section to disbursement of salaries and payment of recoveries
to employees as per rules.

45
CALCULATION OF INCREMENT%

Grade No. of officers Increment rate Product


As on 1-4-08
1 ----- ----- -----
2 ----- ----- -----
3 ----- ----- -----
4 ----- ----- -----
5 ----- ----- -----
6 ----- ----- -----
7 ----- ----- -----
8 ----- ----- -----
9 ----- ----- -----
10 ----- ----- -----

46
Grade No. of Increment rate Product
employees
As on 1-4-08
1 Scale 1 ----- ----- -----
2 Group A ----- ----- -----
3 Scale 3 ----- ----- -----
4 Group B ----- ----- -----
5 Scale 5 ----- ----- -----
6 Group C ----- ----- -----
7 Group D ----- ----- -----
8 Group E ----- ----- -----
9 Group F ----- ----- -----
10 Scale 10 ----- ----- -----

Grand Total

BILLS RECEIVABLE SECTION

47
OBJECTIVES:-

1. To ensure that dues from customers in respect of good supplied and


services rendered and recovered timely as per the fixed price Quotation/
price catalogue approved by the ministry in accordance with the govt.
letter issued by Ministry of Defense dated 24th Aug., 1995.

2. To ensure that voices in respect of advances stage payments, final


deliveries are raised timely in order to have smooth cash flow position.

3. To ensure that proper accounting is done as per the requirement of statute


and accounting instructions laid down by the corporate offices.

4. To ensure that all statutory payments e.g. Sales Tax, Excise duty, Customs
duty is recovered from the customer and is deposited timely with the
appropriate authority.

5. Beside this B/R Section also provide details of budget section for
compilation of sales orders, firm/ forecast task, I.D.T.O. for budget
estimates, revised estimates, F.C. estimates etc. It also collect sales tax
from customer and deposited the same.

48
FLOW OF WORK:

Start

Preparation & rendering of


invoices to I.A.F. & Non I.A.F.
Customers

To raise debit on other division in


respect of supplied for fitment
manufacture by them for supply to
customers

To claim payment from AO (DAD) on


the basis of fitment details received
from the user division.

To create claims Receivable on the basis of


sales order

To follow up customers for all the pay against


invoices raised

Stop

49
Beside this B.R.S. also provide details of budget section for compilation of sales
orders, firm/ forecast task, I.D.T.O. for budget estimates, revised estimates, F.C.
estimates etc. It also collect sales tax from customer and deposited the same.
Bills receivable section prepare and render to I.A.F. in respect of the following
activities, these are:-

a) Manufacturing activity.
b) Repair overhaul.
c) Supply of spares against R.M.S. orders.
d) Differed Revenue expenditure.

To non I.A.F. customers it prepares invoices in respect of the following


activities:-

a) Development sales for customer financed projects.


b) Supplies and services rendered to civil customers.
c) Supplies against R.M.S. order from Navy and Army.
For doing his work B.R. section used different types of formats and
maintaining records. These are:-

FORMAT OF CONTROL ADVICE

Months Particulars Amount

50
FORMAT OF BILLS REGISTER

SI. no. date Order date Party Value of Advance S.Debtors Pay scale total
no. name Item tax

FORMAT OF SALES ORDER

CUSTOMER ADDRESS :-
AUTHORITY ORDER NO. :-
TERMS OF PAYMENT :-
ADVANCE COLLECTED :-
CONSIGNEE :-
SPECIAL INSTRUCTION :-

FORMAT OF ORDER OF REQUIREMENT

SL. No. REF/ Part no.Qty Unit price Total cost PR- SI No.
ordered (Rs.) (Rs.)

FORMAT OF INVOICE

Particulars Sl.
/ no. DA Year Qty. Rate Amount
Part No. No.

FORMAT OF DISPATCH ADVICE

Day No. Day- Party Division S.I.T. IFD Civil Rep/Oh RMS ArmyNavy
Sl. No. Date (New (Air
items) Force)

51
FUNCTIONS :-
The following are the functions of Bills Receivable section:
1. Preparation and rendering of Invoices to I.A.F. in respect of the following
activities in accordance with the Guidelines laid down in the Government
letter dated 30th Sept.,97 :
a) Manufacturing Activity
b) Repair and Overhaul
c) Supply of Spares against R.M.S. Orders
d) Deferred Revenue Expenditure

The following Documents shall be produced in support of the Invoices rendered:

 Initial advances are recovered on the basis of Customer order :


o Firm / Forecast task given by the Air Force ;
o C.R.I. Co-ordinate I.D.T.O. for Divisional Task ;
o R.M.S. Order.

 Subsequent Stages / Final Payments are claimed on the basis of Milestones


achieved, Dispatch Advices, Acknowledgement received from Air Force in
Form Q423, Inspection Note certified by the C.R.I. about the progress of
Work done.
In respect of Repair & Overhaul work the payment is strictly regulated
based on the nature of work carried out e.g. Functional Test, Defect
Investigation, and Zero Hours Servicing, Repaired, Overhauled.

 To prepare and render Invoices to Non-I.A.F. Customers in respect of


following activities :
o Development Sales for Customer Financed Projects.

52
o Supplies and Services rendered to Civil Customers.
o Supplies against R.M.S. Orders from Army, Navy.

 To raise debit on other Divisions as S.I.T. in respect of parts / accessories


supplied for fitment in Engines / Aircraft / Helicopters manufactured by them
for supply to Customers.

 To claim payment from AO (DAD) on the basis of fitment details received


from the user Divisions.

 To submit invoice for reimbursement of Royalty from Air Force and setup
sales for these Claims and create Claims Receivable.

 To follow up with AO (DAD) and other customers for collecting the payment
against the Invoices raised.

 To provide details to Budget section for compilation of Sales Budget on the


basis of Sale Orders, Firm / Forecast Task, I.D.T.O. for Budget Estimates,
Revised Estimates, F.C.

 To collect Sales Tax from the customers and deposit the same.

To compile Sales Tax returns and submit the same to IMM Department for
onward submission to Sales tax Authorities for Assessment

53
CASH SECTION

Cash section deals with receipts and payment of cash and cheques. Accounting of
all cash or bank transactions is done as per the guidelines provided by corporate
office. This section ensures timely drawl of cash from bank to cater to the daily
needs of cash vouchers.

OBJECTIVES :-

1. To ensure timely and accurate receipts and payments of cash and cheques.

2. To ensure accounting of Cash / Bank transactions is done as per the


statutes / corporate office guidelines.

3. To ensure safe custody of cash, cheque books, bank guarantees, deposit


receipts etc.

4. To ensure timely drawl of cash from bank to cater to the daily needs of
payments of cash vouchers.

FUNCTIONS:-

1. All amounts collected by different sections either from employee or from


external agencies is send to the cash office through cash credit vouchers.

2. Cash received in excess of requirement, cheque, bank draft, postal orders


are deposited into the company’s bank account the same day for realization.

3. Payment of employees such as medical reimbursement, TA/DA advances


etc. are made through payment vouchers, which are punched into the

54
computer through online system. The cash office in turn after proper
identification makes the payment through cash teller.

4. For payments to outside parties cheques are made on the basis of


remittance voucher send by different sections. These cheques are handed over
the purchase department for taking necessary action.

5. Entries are made every day on the basis of cash credit vouchers are
remittance vouchers and the cash balance are arrived at which is certified by
the in charge of cash office.

6. Based on the analysis of payments and receipts transactions computerized


monthly journal vouchers are prepared and send to book keeping section for
adoption.

7. Preparation of monthly bank reconciliation statement and liaisoning with


the bank authorities to check any discrepancy.

8. Periodical physical verification of cash is done by system audit


representatives and by the internal auditors on the last day of the financial
year.

FLOW OF WORK:-

All amount are received are recorded in a receipt register by section and send to
the cash office accompanied by the cash credit vouchers. Likewise cash credit
vouchers for cash remittance made by employee toward repayment of advances,
bus/ train passes, canteen receipt etc. are sending by the respective section of the
account department. After receipt of cash/ cheque etc cashier initials in the
receipt register in acknowledgement and issue official’s receipts for cash/ cheque
received.

55
In respect of out station cheques etc. where collection charges are leaved by the
bank, adjustment vouchers are prepared and accounted in respect of such
charges based on the bank advice.

Payment of employees and others in cash is maid on the basis of cash vouchers
issued by various accounting sections after proper identification. Entries in the
cash book are made every day on the basis of these paid cash vouchers.

Remittance vouchers are made by the various accounting sections for payment to
suppliers, contractors and other and sent to cash office for writing cheques. The
cheques are written/ typed by the cash office and the officers authorized to sign
the cheques, sign the same. The cheques are then send to purchase department
for collection of documents or dispatched directly to the parties.

Entries in the cash/ bank book are maid daily on the basis of the remittance
vouchers in respect of which cheque is issued.

56
MATERIAL ACCOUNTING SECTION

OBJECTIVES:-

To ensure that all the receipts and issues of materials from stores are recorded
and accounted for properly.
1. To ensure that all the receipts and issues of materials from stores are
recorded and accounted for properly.

2. To ensure that all non moving/ slow moving materials are identifies as
surplus by I.M.M. and a suitable redundancy provision is maid against them
and are disposed off.

3. To ensure that Bin Card balances are reconciled with the material ledger
balances in co-ordination with I.M.M. and the balances of material ledgers
tallies with the general ledger.

FUNCTIONS :-

1. To send the priced R.D.R. received from Bills Payable section to E.D.P.
for punching in the Batch Mode and thus all the Receipts are recorded and
control is exercised over all the Purchases Value-wise.

57
2. To generate exception list for missing R.D.R. and getting it resolved with
Bills Payable Sections.

3. All the materials drawn excess when returned are credited to stores
through Stores Return voucher.

4. The E.D.P. after processing of all M.R./ Issue Vouchers prints the
Material Issue Analysis Statements monthly indicated :-
a) The cost of materials drawn against various Job Orders, Expense
accounts;

b) The cost of material issued to Contractors and others;

c) The cost of tools issued to various tool cribs from Main Tool Stores;

d) Based on the above statements accounting for issue of materials is done


by debit to Work-in-progress / Expense/ Contractors account and credit to
relevant inventory accounts.

e) On the basis of List of Materials / transfers reclassifications indicating


the material Code No. / Quantity and Value, necessary Journal entries are
passed by debit / credit to relevant inventory accounts.

f) On the basis of stock verification sheets indicating stock verification


Note No., Material Code No., Shortage /Overages, necessary Journal
entries are passed after obtaining clarifications from Stores Department
by credit / debit to relevant inventory accounts after taking approval of
C.F.A. wherever required for adjustments / write-off of stores.

58
g) A list of materials not moved for over 5 years is given by E.D.P. which
is reviewed by Stores / concerned programming department Materials not
required for production or for other purposes are identified and suitable
action is taken by I.M.M. for finding their usage in other Divisions or is
auctioned.

h) Redundancy provision is made in the books of accounts at the rate of


100% for Non Moving inventory and for closed Projects as special
provision on the basis of list given by E.D.P. Further a normal provision
at 1.5% is made on the balance inventory.

Flow Chart of Material Accounting Section


Start

R.D.R received from bills payable

R.D.R. Sent to E.D.P. for punching in batch

YES NO
Are all the
Receipts recorded its
purchase value wise

E.D.P. process all MR / issue Generate exception list for missing


vouchers & print the material R.D.R.
issue analysis statement

Resolved with Bill Payable Section

On the basis of M.I.A. statement


accounting for issue of material is
done.
59
E.D.P. Process all the MR/ issue
vouchers & print the material issue
analysis statement

On the basis of statement accounting for


issue of material is done.

Stop

Material issue analysis statement indicates the following:-

A. The cost of material drawn against various job orders; expense


accounts.
B. The cost of material issued to contractors and others.
C. The cost of tools issued to various tools cribs from main tool stores.

Different types of Material Stores in HAL Lucknow Division are:-

1. Commercial Store.
2. Raw Material.
3. Jaguar’s parts.
4. Russian project.
5. Western project.

For doing his work properly MATERIAL ACCOUNTING SECTOON


use different types of format these are:-

PERFORMA OF ISSUE (KMR)


No. of
H.A.L.
Sl. No. Q.T.Y Req. Part no. Nomenclature qty. Bin no. Balance
Code no.
issued

60
PERFORMA FOR R.D.R
P.O Ins Qty. A
P Qty. Qty. Qty. Bin Purchas
. Dec Sort Over Re acc Loc Val
name ad rev Rej Bal. rate
no. m stock u

BOOK KEEPING SECTION


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

FUNCTIONS :-

1. Journal entries originated by the various sections of Finance and Accounts


Department are sent to book keeping section. These entries are serially
numbered and punched into the computer and thereby posted to the General
Ledger.

2. Preparation of Trial balance, Profit & loss A/C and Balance sheet.
Accounts are computerized and are drawn for every quarter as on 30th June,
30th September, 31st December and Final Accounts as on 31st March of every
financial year.

61
3. Maintenance of Fixed Asset Register and depreciation schedule.
o For all capital items purchases, RDR are furnished by the bills payable
section like wise details of assets like buildings etc. Capitalized are also
furnished by civil works section to the book keeping section. The
maintenance of Asset ledger is computerized in which the details like date
of purchase, nature of item, P.O. No. location of asset etc are recorded.

o Depreciation on capital assets is calculated as per the policy of the


company and is reckoned accordingly as an operating expense of the
Division.

4. Inter Divisional Transaction are accounted through control account


adjustment advices which are reconciled twice in a year at the clearing house.

5. Physical verification of fixed assets is done as per the


guidelines of corporate office.

6. To provide support to other Sections of accounts in their


reconciliation and control function.

Performa maintained in Book Keeping Section.


 Journal Voucher.
 Profit & Loss Account.
 Balance Sheet.

H.A.L. Lucknow Division

Journal Voucher

62
J.V. No. J.V. Nos.
Account Control
Debit Credit Sectional Sr. Book keeping
No. Adjustment A/c
No. Section

PROFIT & LOSS A/C

Particulars Schedule Amount Amount


Income:
Sales 16
Transfer to interdivisional unit 16(A)
Changes in W.I.P./S.I.T./Scrap 23(a/b)
Other Income 17
Charges received in interdivision 17(A)
Transactions
Transfer from R&D Reserves 2
Expenditure
Consumption of raw material components 18
Direct Expenses 19
Salaries & Wages 20
Other Expenses 21
Charges paid to interdivision transactions 21(A)
Interest 22
Depreciation
Provision 22(A)
Inter Services/ Common Services
Transfer of I.D.T.
Deductions
Exp. Related to Capital A/c & other 23

63
Net Exp.
Profit for the year
Profit for Tax
Profit after Tax

Balance b/d from last year profit


Appropriation reserves
Proposed dividend
Tax on Distributed Profit
General reserve
Total of Appropriation

FLOW OF WORK :-

All departments send their records to book keeping and Accounting entries. They
collect and feed the data in computer. Firstly they prepare J.V. and ledger of
each every particular like purchase, cash etc. Then they prepare P/L A/c or
Income and Expenditure A/c. At last this section deals with the Balance Sheet of
the company to know the financial position of company.

64
Data Collection Methods
The complete data has been collected from primary and secondary sources.

1. Primary Sources: The method adopted was personal interviews and

discussions along with questionnaires. The primary sources being discussion

with labor welfare officer, members of staff of HAL, few trainee officials and

workers. Through discussions many fine details were touched and discussed

upon.

2. Secondary Sources: Various books on the subject written by eminent


authors were studies. Special write ups and journals and HAL manuals dealing

with the topic were referred to. This was done with a view to gain thorough

knowledge about the topic and analyze training process objectively.

The facts and information were backed up by the written data and records to

safe guard against ambiguous and vague information. The whole study had been

done around the following area.

1. Interviewing the officers related to the concerned department i.e. Chief


Manager of Finance Department, Manager of Budgeting section.
2. Examination of records: Manual related to capital Budgeting, Fixed Price
Quotation Register.
Techno-Economic Justification Report

65
H.A.L Accessories Lucknow Division
Balance Sheet as on 31st March

66
Particulars Schedule Amount Amount
Source of funds:-
Shareholder Funds
 Capital 1
 Reserve & Surplus 2
Loan funds 3
 Secured loan
 Unsecured loan
 Different liability (net) 4
Application of Funds:-
Fixed Assets
 Gross Block 5
Less:- Depreciation 6
 Net block 7
 Special tools & 8
 Equipments
 Investment 9
 Current Assets, Loans & Advances
 Inventories 10
 Sundry Debtors 11
 Cash & Bank Balance 12
 Loan & Balances 13
Less:- Current liabilities & Provisions
 Liabilities 14
 Provisions 14
Net C.A.
 Miscellaneous Expenditure 15

FINANCE SECTION

OBJECTIVES:-

67
1. To ensure that the financial discipline is maintained in the Division.
2. To ensure that all expenditure is incurred with due regard to principles of
financial propriety.
3. To ensure that financial proposals are routed to the competent authority as
per delegation /sub-delegation of powers so as to ensure compliance of the
provisions of the Companies Act, the Memorandum and Articles of Association
of the company and the relevant rules & regulations of the company and the
guidelines issued by the company.
4. To ensure that the funds are available in the Approved Capital &
Performance Budget so as to cover the relevant proposals.
5. To submit MIS reports to corporate office monthly.

FUNCTIONS:-

 To scrutinize and give financial concurrence as per delegation of power for


each proposal involving :
1. Capital expenditure
2. Revenue expenditure
3. Purchase of materials / stores / tools and other services
4. Manpower requirements
5. Waiver of dues / write off of losses.
6. Cases involving relaxation of rules etc. As per Delegation of
powers.
7. Sale, lease, alienation or disposal of company’s assets.
8. Contracts entered into with suppliers / collaborators / sub
contractors.
9. Award of contract in respect of civil / electrical works / other works /
plant orders.
10. Project Reports.
 Certification for availability of funds with reference to Capital and
Performance Budgets and appropriation of Funds.

68
PROVIDENT FUND SECTION

This section ensures the timely collection of provident fund money from members
every month. The money so collected from employees is invested in approved
securities. Employee provident fund came into existence in year 1952. Provident
fund trust deals all the functioning of this department. Trust holds its rules and
regulations for the proper functioning.

OBJECTIVES :-

1. To ensure timely collection of Provident Fund money recovered from


members every month by the employer.
2. To invest the Provident Fund accumulations in approved securities as
stipulated by statute.
3. To make payment of loans to members as per the rules/ guidelines/ Bye-
laws.
4. To prepare Income and Expenditure Account and Balance Sheet of the
Fund and getting the same duly audited and approved by the Trustees.
5. To file the Returns of Provident Fund to RPFC.

FUNCTIONS :-

1. The PF subscription of members is deducted monthly from salary. The


amount so deducted (which is 10% of Basic pay and DA) along with
company’s contribution is collected from the Payroll section before 10th of
each month and credited to Fund’s Account.
2. Payment of loans (Refundable and Non-Refundable) to members as per the
rules of the company, subject to availability of funds.
3. The investments of Provident Fund money is made in the approved
securities and details of investment are approved by the Provident Fund
Board of Trustees.
4. To watch timely recovery of interest and keep watch on securities.

69
5. Interest is credited to the account of each member at such rate as may be
determined by the Board of Trustees, taking into account the income of the
Trust during each Financial Year.
6. To maintain Family Pension Account of each member and remittance to
RPFC at the stipulated dates and file monthly and yearly returns.
7. To remit the account of Provident Fund deduction for contractual / casual
workers by cheque to RPFC and file the return in respect of the same.
8. To distribute the Annual Statement of Provident Fund to all the members in
the format prescribed by RPFC.
9. To make final payment of Provident Fund due to a member on his
retirement / resignation or to the nominee in the case of death of a member
as per rules.
10. To maintain accounts of Provident Fund Transactions and get audited by
the Statutory Auditors of the company and approved by the Board of
Trustees.
11. To file the monthly returns in the prescribed formats and submit to RPFC
by 25th of each month in respect of Provident Fund and Family Pension
Fund.
12. To forward Insurance Claims to LIC Bangalore in respect of decreased
members.

Board of Trustees:-

Subject to the provision here after contained the fund shall vest in and be
administered by a “Board of Trustee” consisting the TEN Members. These
members are called “Board Members”. Five Representatives of the member of
fund are elected by recognized union and rest five representatives are elected by
management itself, in these five members one shall be Chairman, one shall be
Secretary, acting jointly on behalf of the board of trusty operate on account of
the fund with bank and discharge, receive or otherwise dispose of, as may be

70
necessary government promissory notes, interest, warrant etc. relating to fund
and shall on behalf of the board reassign to members in accordance with the
rules. Timely meeting are held which the member of fund deal. This trust deals
all the functioning of this department.

Contribution:-

Employers Share:

12% of the Pay (Basic pay + D.A. + Family Planning Increment + Non Practicing
Allowances + Service Weightage Pay, as the case may be) 8.33% out of the
employer share of the contribution to the P.F. Account (the pay for this purpose
being limited to Rs. 6500/- P.M.) is paid into the employees pension fund for the
purpose of employees pension scheme.

Employee’s share:

Employees share of contribution is equal to the contribution payable by the


employer (12%). An employee however can contribute at any rate higher than
the statutory rate, at his option.

Interest:

Interest shall be credited to the account of each member at the rate decided by
the concerned PF trust.

Loans and Advances:

Loans and advances (Refundable as well as Non Refundable) can be taken from
the P.F. Account for specified purposes.

71
Recovery period for refundable loans is maximum 48 months, along with interest,
which includes 1.5% service charges.

The employee’s pension scheme 1995, introduced by the government of India for
provident fund subscribers is in operation in the company. 8.33% of the
employer’s share of contribution to the PF account (pay for this purpose being
limited

to Rs 6500/- p.m.) is diverted to the pension scheme. There is no separate


contribution from the employees.

Legal reports are passed to the regional provident fund commission because of
certain legal bindings. Trust record audit is been done by R.P.F.C. and by C.A.’s
time

to time. Timely report send to the department of R.P.F.C. and the timely visit of
inspectors is held by R.P.F.C. by checking the proper functioning of the
department. Under pension scheme 1995 approximate Rs. 542/- month is send to
R.P.F.C. In cases like retirement, ceases are referred to R.P.F.C. evaluates the
cases and decides the amount to be paid to the employees as pension.

These funds that are collected by the department are invited in government
securities (RBI and state government securities) and government bonds (IDBI,
ICICI etc.). Interest that is gained by this process is equally distributed amongst
the employees of HAL.

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TIME OFFICE SECTION

The time office department is primarily concerned with recording of each


worker’s time ‘IN’ and ‘OUT’ of the factory, maintaining leaves records and
feeding of attendance record to computer department. It maintains the receipts
of approved leave applications and also provides data for the vacation leave
provision to be maid in the books of accounts.

OBJECTIVES :-

1. Maintenance of leave records and feeding of attendance records to


Computer Department.
2. Maintenance of attendance records of Casual Mali’s, Project Engineers
and Contract Diploma Technicians.
3. Receipt of approved leave applications.
4. To provide data for the Vacation leave provisions to be made in the Books
of Accounts.

FUNCTIONS:-

1. To issue leave cards for the calendar year to the employees/ officers of the
division.
2. To maintain leave ledger P.B. No. (Permanent Batch Number) wise for all
the personnel. Credit is given to each account according to his entitlement
as per the guidelines laid down by the corporate office and the posting is
done simultaneously from the attendance report received from the
concerned department.
3. To verify the application of vacation leave (V.L.) encashment and advice
accordingly to payroll section.

73
4. To make calculation for payment of attendance bones to group-A to group-
D employees.
5. To make calculations for provisions for vacation leave to be accounted for
in the final accounts.
6. To verify the applications for advance vacation leave approved through
concerned department and making adjustment thereof in subsequent time
period.
7. To maintain night duty roaster of officers deputed on night duty and to
ensure that time off claimed in lieu of such duty is not availed beyond 90
days.
8. To verify the time offs claims in lieu of extra work done/ Sunday duty/
sports duty scouts duty etc.
9. To advice the payroll section for payment of ex-gratia in accident cases.
10. To provide data to payroll section for payment of single wages in lieu of
work done on general holidays and double wages in lieu of work done on
National holidays.
11. To provide data for gratuity payment in case of final settlement.
12. To provide data to payroll section for deduction of time loss on the basis of
late arrival report received from security department.

LEAVE:-
Vacation Leave: Employees who are born on the regular rolls of the company
are eligible for vacation leave at the rate of 2.5 days for every 30 days of service.
Vacation leave can be accumulated up to 300 days for executives and up to 240
days for non-supervisory staff. There is a provision of encashment of vacation
leave. The minimum encashment vacation leave is ten days.
The maximum number of days of cashable vacation leave will be one half of the
vacation leave at credit of the employees on the date of encashment. Leave
encashment will be allowed only once during a calendar year. The encashment
will be at the rate of basic pay (including service Weightage pay in respect of
workman and

74
special pay and personal pay, if any, which are counted as pay for all purpose) +
dearness allowance drawn at the time of encashment.

Rate of Encashment = Basic Pay (Monthly) + D.A.


(Per Day) 26 Days

Casual leave: Employees who are born on regular rolls of the company are
eligible for 12 days of casual leaves in a calendar year. Casual leaves can be
availed up to a maximum of 8 working days at a stretch, subject to the same
being sanctioned. Casual leave can be availed for half a day also.

Rate of Encashment = Basic Pay (Monthly) + D.A.


(Per Day) 30 Days

Maternity leave: It would be available to regular married female employees for


12 weeks inclusive Sunday and Holiday.

Sick Leave: Entitlement of this leave is 15 days in a calendar year.

Prolonged Leave: It is an ex- gratia payment. It is been provided to employees


for long illness for ex. – T.B., Cancer, like diseases. During first 6 months of leave
employee is paid 50% of his monthly Basic Salary. For next 6 months employee is
not been paid any amount. Total duration of the prolonged leave is one year.

Other Provisions Also Exist Like:-


1. Vacation leave in advance.
2. Leave salary/ salary advance.
3. Extension of leave.
4. Encashment of vacation leave on termination of service.
5. Leave without pay.
6. Increment postponement.
7. Special leave/ compensation for employment injury.

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8. Cary forward of leave by management trainees/ executive trainees/
technical trainees.

MANAGEMENT INFORMATION SYSTEM

Management information system implies a type of task performed here by budget


section to provide information to the concerned department with respective need
for future performance. By it, the future contingency can be controlled too a
great extent. It is a very handy system so a great responsibility is handed over to
qualified personnel. This system holds a very important position in the
organization and its responsibility is handed over to budget section. For it
according to organization’s guidelines, section has to frame some important
statements for providing information to responsible executives in concerned
department. Some of these statements are:-

Sales Analysis:-
It is prepared after information supplied by B/R section and customer service
department after mutual co-ordination. It is based on the analysis regarding
Manufacture sales, Spares, Repair & Overhaul task, Development sales,
miscellaneous sales, IDTO sales, Export sales, etc. So altogether it consists of all
information regarding ordered contracts. It consists of all details with terms and
conditions, specifications, price, etc.

Capital & Deferred revenue expenditure for new Projects:-


It specifically shows capital as well as DRE. In addition to above specification it
contains information regarding cumulative in case of commitments and
expenditure.

Cash Flow:-
Cash flow statement’s information is provided by cash section. It contains
information regarding total receipts and their different sources as well as total
expenditures under main heads. In addition to it, it serves as a cash budget. Also

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it states probable receipts ad expenditures in future succeeding three months.
Income sources may be receipts from IAF, Non-IAF and expenditure contains
both capital expenditure as well as revenue expenditures.

Revenue Expenses:-
A statement separately for all revenue expenses which are minutely bifurcated is
prepared containing information as actual and estimated expenditure under
cumulative heads.

Status of Foreign Commitments & Expenditure:-


It is shown to inform in respect of foreign commitments and expenditures made
accordingly. As delay in this expenditure and eagerness to pay both may affect
the organization in drastic manner because foreign exchange so its regulation
must be done in an effective manner. It contains both Western and Russian
commitments regarding capital and revenue items.

Sundry Debtor’s Position:-


It is also clarified by way of previous dues, current month’s dues, period of dues,
and reason for pending which may be due to wait of Government Orders, due to
audit, pending with other divisions, pending for want of RMS & Q 423. It
contains information with balance, additions, realized & balance accordingly. It
helps to judge our debtor’s position and accordingly measures can be taken in
future projects and this one.

Financial Highlights:-
Financial highlights with respect to sales, value of production, profit, values
added in terms of different heads are shown to make at a glance evaluation of
major responsible, productive components of organization.

An Inventory Report:-

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It is also submitted according to Goods in Transit, Stores, Work in Progress,
Stock in Trade with remarks from commercial and store department by
inspection.

COST ACCOUNT SECTION

OBJECTIVE :-

1. To establish a costing system.


2. To determine the price realizable from the customers for the products
manufactured or supplied by division.

FUNCTIONS :-

1. To determine the rate of absorption / recovery of labour and other


Overheads for recovering Labour cost on the different Jobs undertaken i.e.
Man-Hour Rate Computation.
2. To accumulate the Labour & Overheads content5 of each activity Project-
wise based on evaluated L.T.B. generated by E.D.P. from Work orders / Time
Dockets.
3. To keep track of different Jobs completed and Jobs lying incomplete in
different stages over a reasonable period of time and to co-ordinate with
concerned Production Controllers for justification for jobs lying unfinished
beyond a reasonable period of time and to ensure their early disposition.
4. To review Work orders on which no material / labour cost has been
recorded and finding out the reasons for the same.

78
5. To get the W.I.P. statement as on 31st March from E.D.P. for all Mfg.
components, sub-assembly W.I.P., Assembly W.I.P. for Physical verification
by the concerned production shops.
6. To ensure that the valuation of W.I.P. has been done correctly keeping in
view the percentage of completion of the Job.
7. To keep track of S.I.T. transactions with different Divisions.
8. To keep record of all I.D.T.O. received and issued.
9. To send debit advices to other Divisions for items dispatched against
I.D.T.O received from them.

10. To accept the debit raised by other Divisions for items received by the
Division in respect of requirements raised by us through I.D.T.O.
11. To evaluate P.C. Memo for S.I.T. Issues, Russian consumption for
overhaul and Amortization of D.R.E.
12. To work out the cost of sales and to reconcile the same with the Design
Department for various customer Financed Projects.
13. To work out the Royalty payable to different Licensors as per the License
Agreement.
14. To Liaise with AO (DAD) for verification of claims in respect of Labour
booking on production and D.R.E. items and other issues like wage arrears,
idle hours etc.
15. To prepare Fixed Price Quotation / Price Catalogue for the different items
manufactured / repaired / overhauled / serviced / supplied by the Division and
to get the same approved by the AOQ.
16. To submit quotations in respect of enquiries received from Non-I.A.F. and
Civil customers.

Registers Maintained or Verified:


 Preparation of cost sheet.
 Bills of material.
 Maintenance of price Catalogue.

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 Computation of M.H.R.
 Calculation of L.T.B.

Preparation Of Cost Sheet

It is a document which provides for the assembly of details cost of centre or a cost
unit. The Cost Sheet is a periodical document of cost designed to show the total
cost and cost per unit of product.

FORMAT OF COST SHEET


Particulars Cost/ unit Total Cost
Direct Material
Direct Wages
Direct Expenditure
 Prime Cost
Factory Overhead
 Cost of Production
Selling and Distribution Expenses
 Total Cost
Profit
 Sales

DEFINITION OF COST
Labor Cost:
The labor cost in HAL is further broadly classified into these under mentioned
four heads-
i) Production overhead cost- POH
ii) Production overhead cost (others) – POH others.
iii) Non production overheads- NPOH.
iv) Inter service rendered/ received on work orders.

Production overhead Cost (POH) – Cost of Conversion:


The cost of conversion of inventories include cost directly attributed to units of
production such as direct labor and also include a rational allocation of fixed and
variable production overheads that are incurred in converting materials into
finished goods. Fixed production overheads are those indirect cost of production

80
that remain relatively constant regardless of the volume of production such as
depreciation, maintenance of factory building and the cost of factory
management and administration, variable production overheads are those
indirect cost of production that vary directly or nearly directive with the volume
of production.

Production overhead cost; others – (POH others):


In context of HAL there are some items of expenditure which are production
overhead in nature but not considered for Man Hour Rate (MHR) valuation of
inventories. These items are like exchange rate variance (deferred liability),
license fees, R & D expenses, selling agent commission, idle time, wage revision,
arrears etc., which are initially accounted under relevant account head. These
items of expenditure are treated as POH while accounting in cost books.

Non production overheads (NPOH):


non production overhead items are essentially those items of expenses which are
treated as period cost in the year of incurrence and those which are not reckoned
for the purpose of calculation of work in progress (WIP), interest, expenditure,
common service received from corporate office, common service received from
complex office. Marketing and selling expenses are treated as NPOH expenses.

Inter service rendered/ received on work orders:


The transaction accounted under this head of account relate mainly to Bangalore
complex. Divisions, which do not have facilities for executing a particular job
often, get it done at other divisions on their own orders. In these case cost
incurred (Direct labor overhead multiplied with man hour rate of the division
executing the job) is recorded in the WIP of the division which has sent the item
for doing the job. The cost so recorded is treated as inter service rendered on
work order in the books of division, which is executing the work and as inter
service received on work orders in the division in which this expenditure is
recorded.

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Material Cost:
This represents the value of material drawn on work orders for carrying out
production including those relating of sales and tooling. The material are drawn
from the holding stores against a material requisition voucher indicating the
work order number against which the material are drawn, where common
materials are drawn on a single work order, the same should be apportioned to
production work orders on a rational basis.
Differed Revenue Expenditure
Differed Revenue Expenditure is treated as one of the elements of cost of HAL.
DRE expenditure will include the expenses related to following items:-
1) Specialists Salaries and expenses.
2) Foreign technician fees.
3) License Fees.
4) Foreign Training charges.
5) Documentation.
6) Blue Printing.
7) Collaboration Charges.
8) Pre- production Expenses.
9) Royalty.
10) Static/ long term expenses.
11) Project Management expenses.

Expenditure not forming part of Cost Books:


There are certain items of income and expenditure, which are partly financial in
nature and are accounted for only in cost books of accounts. Being purely
financial expenses these do not form part of the costing expenses, income for
absorption purpose are to be reckoned only for the purpose of reconciling the
costing and financial profits.

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Illustrative lists of such income/ expenses, which are purely of financial
nature, are listed below:-
Charges received on IFD sales Schedule
Profit on sales of fixed assets (Schedule 17)
Provision on longer required (Schedule 17)
Expenses on VRS (Schedule 20)
All write Offs including write off of tooling, fixed assets, stores, (Schedule 21)
bad & doubtful debts, surplus stores, storage & rejection and
other write offs.
Liquidated damage, penalties (Schedule 21)
Charges paid to IFD jobs (Schedule 21A)
Provision for replacement and future charges (Schedule 22)
Provision for bad debts (Schedule 22)
Provision for claims (Schedule 22)
Provision for WIP & SIT (Schedule 22)

COMPUTATION OF COST
Direct Material + Direct labor + Direct Expenses = Prime Cost
Ind Mat + Ind Labor + Other Ind Cost Overheads = Works Overheads
Prime Cost + Work Overheads = Factory Cost
Factory Cost + Office & administrative Overhead = Office Cost
Office Cost + Selling & Distribution Overhead = Total Cost

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COMPUTATION OF NET AVAILABLE HOURS
S. Particulars Unit Submitted Submitte
No. for 06-07 d for 07-
08
1 Direct Labor Strength
1.1 Strength as on 1st Apr. No. _______ _______
1.2 Strength as on 1st Mar. No. _______ _______
_______ _______
1.3 Average Strength No. _______ _______
1.4 Less: Direct labor sent to other No. _______ _______
division
1.5 Add: Direct labor sent from other No. _______ _______
division
Net Average strength No.
2 Total average available hours Hrs. _______ _______
3 Hours spent on indirect works/ Lost _______ _______
3.1 Indirect Department Hrs. _______ _______
3.2 Short shift Hrs. _______ _______
3.3 Absenteeism Hrs. _______ _______
3.4 Standing Order _______ _______
a) Avoidable Hrs. _______ _______
b) Unavoidable Hrs. _______ _______
c) Working Standing orders Hrs. _______ _______
D & D others
Total
3.5 Training & welfare Hrs. _______ _______
4 Non available Hours Hrs. _______ _______
5 Add: Extra Hours From others Hrs. _______ _______
Divisions
Total available hours Hrs.
6 Breakup of total available hours _______ _______
6.1 Manufacture Hrs. _______ _______
6.2 R&D Hrs. _______ _______
6.3 Outstanding Jobs Hrs. _______ _______

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6.4 Idle Hours Hrs. _______ _______
Total Hrs.

COSTING AND ITS METHODS

Costing is the technique and process of ascertaining the cost of activities,


processes, products or services. The technique consists of a body of principles and
rules, which govern the procedure of ascertaining costs.

Methods of Costing:-

The principle in every type of costing is same but the methods of analyzing and
presenting the costs differ with the nature of business. There are two basic
methods of costing. There are-
(A) Specific order costing
(B) Operation costing

A) Specific order costing:-

Under this method each contract, job or batch is identified as a cost unit
and the formal mechanism to ascertain the cost of the cost unit is suitably
designed.
1. Job Costing:
In this method each job being quite different from the other is treated as
an independent cost unit. A specific number is given to each job to distinguish it
from the other and costs are ascertained in respect of each job represented as a
job order, production order or work order.

85
2. Batch Costing:
Where orders or jobs are arranged in different batches after taking into
account the convenience of producing articles, batch costing is employed thus in
this method, the cost of a group of products is ascertained. The unit of cost is a
batch or group of identical product instead of a single job order or contract.
3. Contract Costing:
Contract Costing does not in principle differs from job costing. A contract
is a big job while a job is a small contract. The term is usually applied where at
different sites large-scale contracts are carried out.

(B) Operation costing:-

Operation costing includes costing methods of varying complexities such as


output costing, process costing, by-product costing, joint product costing, and
service costing.
1. Process Costing:
If a product passes through different stages, each distinct and well defined, it is
desired to know the cost of production at each stage. In order to ascertain the
same, process costing is employed under which separate account is opened for
each process.
2. Output Costing:
The method of costing is used by concerns producing a single article or a few
articles which are identical and capable of being expressed in simple quantitative
units. The cost unit chosen depends upon the unit of measurement. The cost per
unit is arrived at by dividing the total cost during a given period by the total
number of units produced.
3. Service Costing:
Service costing is that form of operation costing which applies where
standardized services are provided either by an undertaking or by a service cost
center within an undertaking. The method is applicable to undertakings, which
provide service rather than manufacture goods.
4. Composite Costing:

86
The costs of different sections of production are combined after finding out the
cost of each and every part manufactured. The system of ascertaining costs in
this way is applicable where a product comprises con many is applicable where a
product comprises of many assembled parts.
There are other methods of costing which are Absorption Costing, Uniform
costing, marginal, Output Costing, and Direct Costing, Departmental costing,
Component etc.

JOB COSTING IN HAL

HAL follows this system of costing in accounting. For every work in production
shop job order is issued whether it is work of manufacturing a component for
repairs and overhauls or for assembling or testing the equipments, separate job
order is issued or each and every task.
HAL specify the code no. for each job that mentioned which project or task
performed under which job order.

Following are the schemes for job order costing:

1 2 3 4 5 6 7 8 9 10 11

I digit comprises with following:


1) Production
2) Tooling
3) Stock Order
4) Plant order
5) Resource and Overheads
6) Design and Development
7) Miscellaneous (G.R.E.)
8) Second line tooling

87
II and III digit contains project code like:

DUNLOP (01), DOWTY (02), MIG 21 (08) etc.

IV, V, VI digit comprises with assembly code under each project code; assemblies
being produced have been assigned 3 digit code.

VII digit comprises with following:


1. S/F Component
2. Sub Assembly
3. Assembly

0,4,5,6,7,8,9 although not allotted by MSD (Management services department),


now being considered as S/F component.
VIII digit includes batch numbers.
IX & X, XI contains programming registration no...

Main Functions of costing in respect of Job Costing


1. Estimating of issue job order.
2. Closure of job order.
3. Maintenance of job cost sheet.

Pricing Policy in HAL

From the beginning HAL has used different types of pricing methods in unlike
periods like upto 1981, Cost plus pricing policy, In 1982-88 Fixed Cost Quotation,
In 1988-94, Fixed piece or cost whichever is less is used and in 1998 & onwards
Fixed Price Quotation (FPQ) is used as pricing policy of HAL.
Currently, pricing policy of HAL is based on Fixed Price Quotation (FPQ)
system.

88
FORMAT OF PRICING CATALOGUE:-

HAL LUCKNOW DIVISION


PRICE CATALOGUE OF AIRCRAFT SPARES OF 2007-08

Part NamesMtr. Mtr. Total Actua Labour Break Total Total Unit
no. Cost Cost Mtr. l Cost up break up cost price
(B) (M) Cost hours Rs.410.75 cost profit
NPOH/
POH
5.5% /
10%

1) Material Cost= Quantity from bills of material * escalation rate


2) Total Material Cost= Material Cost (import) + Material Cost
(Manufactured)
3) Actual hours= Work done / efficiency (the efficiency of workers is to be
determined as 66 %)
4) Labour Cost=SMH * MHR / efficiency
(Here, labour cost is computed by taking proportionate of escalation cost
of previous year and current year i.e. 35:65, in this, labour cost is calculated by
multiply hours with Rs. 410.75.)
5) Break up cost= Material cost + Labour cost – NPOH
6) Total cost= Total material cost + Labour cost
7) Total break up profit= 5.5% in NPOH + 10% on material cost
8) Unit cost= Total profit + Total cost & productive hours
9) Total profit= Total break up profit

Maintenance of Price Catalogue

89
The price system of HAL is based on FPQ...P.C. of HAL comprises with part no.,
nomenclature, material cost of import and indigenous goods, total material cost,
hours @ 6% of efficiency, Labour Cost i.e. proportionate of escalation rate of
previous year and current year, break up cost included material cost and labour
cost and excluded non productive hours and then we find out total break up
profit which is 5.5% on non productive hours and 10% of break up cost and at
last we calculate total profit and unit cost.
Unit Cost= Total Profit + Total Cost

Computation of M.H.R.

It is computed by taking into account the total budgeted expenses and budgeted
production. It is calculated by dividing the total expenses of division by total
direct labour hours of all direct departments.

Calculation of M.H.R.

SI. No. Particulars Actual Revised Budgeted Forecast


Estimates Estimate
I Divisional Expenses
1 Salaries and Wages
2 Other Expenses
Total expenses
3 Less: Expenses relating to D.R.E.
3.1 Training
3.1.1 Foreign Technical Fees
3.1.2 Others
Sub Total(3.1+3.1.1+3.1.2)
3.2 Exchange Rate Variation
3.3 Ground Risk Insurance
3.4 Others
Sub Total (3.1-3.4)

90
3.5 Net Other Expenses (1+2-3)
4 Depreciation
5 Provision for contingencies increase
redundancies
6 Interdivisional expenses
6.1 Debit
6.2 Less:- Credit for transfers
Sub Total (6.1+6.2)
7 Gross divisional
expenses(3.5+4+5+6)
8 Less:- Misc. Income
9 Other Income
Net divisional expenses(7.8)
II MD’s Office Expenses
III Corporate Office expenses
IV Net conversion cost(I+II+III)
V Net available hours
VI M.H.R. (IV / V)
VII Interest on Fixed Capital
VIII Interest on W.C.
IX Net conversion cost
X M.H.R. (IX / V)

Calculation for Labour Time Booking:

It is computed by multiplication of M.H.R. with total hours.

HAL Lucknow Division


Expenses of design project
P.C. Description Sanction RDR Issue IDTO Total Feb. March Total LTB A/T Total
Mtr. Mtr. Mtr. Mtr. Hours Hours hours

Computation of D.R.E.

91
It is differed revenue expenditure. Expenses it includes all expenses in respect of
Fixtures, non Standard equipments, Training equipments, Project management
expenses etc.
The costing section of HAL kept all records in regarding to DRE. The balance of
revenue items should be closed in that year but some balances are not closed. It
should be opening balance of next year i.e. DRE.

Bills of Material:

Format of BOM
HAL LUCKNOW DIVISION

SI Part Categories No. of RDR Last Total


No. details of product material nos. procurement value
purchased rate esc. Rate
order no.

COMPUTATION OF NET AVAILABLE HOURS

S. No. Particulars Unit Submitted Submitted


for 06-07 for 07-08
1) Direct Labor Strength
1.1 Strength as on 1st Apr. No. _______ _______
1.2 Strength as on 1st Mar. No. _______ _______

92
_______ _______
1.3 Average Strength No. _______ _______
1.4 Less: Direct labor sent to other No. _______ _______
division
1.5 Add: Direct labor sent from other No. _______ _______
division
Net Average strength No.
2) Total average available hours Hrs. _______ _______
3) Hours spent on indirect works/ Lost _______ _______
time hours
3.1 Indirect Department Hrs. _______ _______
3.2 Short shift Hrs. _______ _______
3.3 Absenteeism Hrs. _______ _______
3.4 Standing Order _______ _______
a) Avoidable Hrs. _______ _______
b) Unavoidable Hrs. _______ _______
c) Working Standing orders Hrs. _______ _______
D & D others
Total
3.5 Training & welfare Hrs. _______ _______
4) Non available Hours Hrs. _______ _______

5) Add: Extra Hours From others Hrs. _______ _______


Divisions
Total available hours Hrs.
6) Breakup of total available hours _______ _______
6.1 Manufacture Hrs. _______ _______
6.2 R&D Hrs. _______ _______
6.3 Outstanding Jobs Hrs. _______ _______
6.4 Idle Hours Hrs. _______ _______
Total Hrs.

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BUDGETARY CONTROL

As there is wide difference between budgeting and budgetary control. But it is


often used interchangeably as a system of managerial control. But budgetary
control has this phenomenon as it implies the use of a comprehensive system of
budgeting to aid management in carrying out its functions like planning, co-
ordination and control. It is a system which uses budgets for planning and
controlling different activities of business. The same concept applies to this
organization as its main concentration on budget and its approach, emphasizes
management to derive useful information and used accordingly. But this
phenomenon there is needed to check the activities time to time by way of
“variance analysis” by accepting it as standard figure. In this way, budget section
serves its purpose by fulfilling these objectives:-

• Helping in forming plans.


• Helping in communicating plans to concerned personnel.
• Co-coordinating all activities of the organization so as to facilitate its
working and its success.
• Motivating employees to actively participate in decision making process
and achieving goals by fulfillment of duty.
• Controlling mainly by thorough discussions, passing on reports, reviewing
budgets, taking into consideration different types of contingencies, etc.
• Helps to define the results to be expected.

94
In addition, it is a type of budget follow up, which performs to watch as it has,
has been used properly and accordingly improvement is done. In this way by this
type of system it provides base for future budgets lying.

This function serving well in this manner in HAL and organization is giving
emphasis by actively participation of corporate executives. Their review,
discussions and report collections serving the purpose well.

Flow chart of purchasing, receiving, recording and paying materials

95
Purchase
Requisition

Vendor
Returns
Purchase department Acknowledgement
Issue of P.O. to vendor Accounting dept.
Copy
Accounting Dept. use
Ships material
Receiving Dept. Invoice P.O.,
Send invoices
material ledger account. R.D.R. payment
File copy approved

Cash office for


Receiving dept.
payment.
Issue receiving
report to purchase
dept. own file
balance Material ledger
clerk ports quantity
and amount value.

Inspection dept.
Makes distribution
to own files
according dept.
material.

Material dept.
Storekeeper stores
material in proper
location.

96
Budget
System
BUDGET SECTION

OBJECTIVES :-

97
1. To layout a comprehensive plan of action expressed in financial and
physical terms and to achieve the targets of the company against the available
resources.
2. It is a tool in the hands of the management to establish goals, objectives,
and targets of the company and measure the performance against the above
targets.
3. To ensure that overall control over expenditure, it is necessary that all
expenditures (except that of contingent nature) is authorized through the
budget approval.

For its effective operation, management must know what are its resources, where
it wants to go, what it wants to achieve, whether operations are going on
according to the plan set & such other things which are to be considered. So for
this purpose it is also required that plans are laid down into verifiable terms i.e.
quantitative terms and for that necessary guidelines with target period for
achievement are set. It is called a type of budget. In this manner Budget can be
defined as:

“It is a financial statement of plans laid down prior to the period of


its implementation during which it has to follow based on management’s
policy and prepared for specified objective.”

In this way, a budget serves as the guiding path for the prosperity of an
organization. The movement must be accordingly done so that it gives optimum
result with less effort.

The following guidelines are there of budget section :-

98
 The period of budget is April to March. The budget is divided in three
part:
1. Current year - Revised estimates i.e.
R.E.
2. Budget year - Budget estimates i.e.
B.E.
(Next year)
3. Forecast year - Forecast estimates i.e.
F.C.
(Next to Budget year)
 To ensure that capital facility is made available in time to suit the
production requirement. The proposal under each subhead is classified under
three- P& M, Civil works and others.
 All important budgets after approval of the board are broken into
monthly budgets.
 To ensure that capital facility is made available in time to meet the
production requirement. The proposals are classified under three categories
i.e. plant & machinery, civil works & others.
 Presenting estimates and expenditures in terms of function, programmes
activities and project with their financial and physical aspects closely
interwoven.
 The targets set are critically reviewed from the point of view of
availability of resources and their optimal utilization and to achieve cost
reduction.
 Analysis of variances and to find out the reasons of such variances and
take suitable remedial measures.
 All important budgets like production, sales, profit & loss, working capital
etc after approval of the Board are broken into monthly budgets to ensure
uniform production from month to month.

99
The Budgets are broadly classified into two categories
Capital Budget Performance Budget
1. New projects 1. Order status
2. Existing project 2. Production budget
3. Improvement & Rationalisation 3. Sales budget
4. Replacement 4. Purchase budget
5. Welfare budget 5. Foreign Exchange
6. Design & Development 6. Manpower budget
7. Information & Technology. 7. Training budget
8. Profit & loss budget
9. Welfare budget
10. Overhead budget
11. Ways & means budget
12. Projected Balance Sheet

CAPITAL BUDGET:-

It is the most important budget which is heavily loaded with funds as due to high
& long term investment. This budget is related to the capital item i.e. items which
are to be used for long period to the betterment of the organization for many
task’s accomplishment. Such as investments in plant and machinery, building,
Roads, vehicles etc.
So in this way it is a long term budget. In this type of budget, management’s duty
also increases as it is a base for all activities. It involves huge capital outlays
projects and long term commitments. It affects decisions over a period of year. It
involves large risks and uncertainties. So in this budget, its preparation is handed
over to senior and experienced executives. It serves following purposes:-
1. Helps to evaluate capital expenditures proposals.
2. Helps to formulate other organizational budget.
3. Helps to consider the best proposals according to which first priority be
granted.
4. Helps to control capital expenditure I.e. utilization in effective manner.

100
5. Helps a systematic procedure for appraising profitability performance of
the company.
Generally top executives of the Corporate and operational level take initiation of
proposals of capital expenditure as per requirements. It is generally concerned
department and project in charge that feel its need. Here in capital budget is laid
down under following heads :

• New projects
• Existing project
• Improvement & Rationalisation
• Replacement
• Welfare budget
• Design & Development
• Information & Technology

PERFORMANCE BUDGET:-
This budget is also termed as Revenue budget but due to misconceptions, which
might be taken by others it is names as performance budget. This budget can be
recognized as the type of budget related to different fields which directly and
indirectly affect profitability. But try to serve its purpose basically by incurring
small expenditure and benefits are realized generally at short period of time but
some exceptional cases are there. This type of budget contains different types of
budgets which are explained below:-

Order Status:-
This budget is related to the order pending to order. There are some items which
are too needed later on and earlier not included in budget approval but due to its
later need, sections are obtained and order is raised through P.O. & gets verified
by different department. So these orders status is recognized under this budget.
Generally there is also relaxation where in financial approval is not needed to
taken which is for capital item upto Rs.20,000/- and revenue item up to Rs.

101
50,000/-. The rest of order’s value is judged by commercial and verified by
finance.

Purchase Budget:-
This budget is prepared to calculate expected purchases to be made and also
payments pending regarding. These types of budgets are prepared after the
information data submitted by bills payable, purchase department & also finance
department. Its value is generally calculated after the FPQ given be costing
section.

Sales Budget:-
This budget is prepared after the information supplied by customer service
department and bills receivable section which is ultimately responsible for
dispatching the sales order to words order and bill realization respectively. So in
this way expected sale is prepared. Actually these both budgets i.e. purchase and
sales are inter-related as one affects automatically other’s need. Generally it is
calculated be sales order.

Production Budget:-
As we can understand what this budget stands for. It takes into consideration the
production to be done in the budget period. For its preparation mainly
production department on the basis of work order received, gives its information
to the budget section. It is also concerned with keeping sufficient inventory
requirement. Production budget is generally calculated as
Budget sales + Desired closing inventory – Opening inventory
So in this way, it is totally based on sales budget and desired inventory
levels. It also shows unit wise cost. By keeping balance between sales budget
and production budget, idle capacity can be avoided. It is a basis for
preparation of material, labor and factory overhead budget. It also takes into
consideration the cost of carrying out production plans and programs. Here
in scientific management has also to play a significant role.

Manpower Budget:-

102
This budget is prepared out of the requirement for direct and indirect work
force, to carry out budget plan. Human Resource Department with the help of
other department judges mainly its equipments and sections mainly machine
shop. It takes into consideration the new appointments, their forecasted
grade/scale, and retirement. Payroll has to play an important role here in for
calculating dues to be paid. It also takes into consideration the provident fund
and other consideration. As contingency exists too much under this budget due to
deaths, accidents and sudden resignation so every time there is exceed in
expenditure from the budgeted figure. So in these cases adjustments are made
from time to time. It also calculates recruitment and selection expenditure.

Foreign Exchange Budget:-


Basically it is a part of purchase budget but it specifically takes into consideration
the foreign purchases i.e. imports. In this way, it has to calculate according to the
foreign currency payment. As its rate is not fixed so in this way, every time there
is plus-minus. Mainly two types of imports are mentioned i.e. Russian and
Western (UK, France etc.)
Training Budget:-
As we all can understand that such an organization always need to be get aware
with new technologies, its implementation and operation so that its position can
be maintained. As for this, different types of seminars, group discussions, tests
are held. For this, personnel are also sent to abroad for better learning.
This information according to need is collected from different department
and consolidated in well framed manner and submitted to budget section.
Welfare Budget:-
There are various facilities which are provided to employees of HAL as well as to
their families such as medical, canteen, transport, education, maintenance of
clubs and grounds, etc. So in this way, there are two items under it:

a) Capital item which is dealt in Capital budget;


b) Revenue item which is dealt in this budget.

103
There are some facilities that are availed by only employees so accordingly
classification is done.
Ways & Means Budget:-
This budget defines the ways to spend money and means to gather money. It
means where from the finance can be generated and where there is need to spend
that collected fund. It is generally defined in broad heads as public debts, loans,
Government grants, payments from customer mainly IAF and others. In this
way, it is to be taken into consideration that wherein we have to spend basically.
It is mainly in capital items, revenue expenditure, communication facility, etc. In
this way, it studies deeply into the matter.

DRE Budget:-
Deferred Revenue Expenditure is those which are not fully realized as per their
expenditure in that year itself but a certain proportion are written off every year
and as per charged to the subject matter. Under its head there are various types
of expenditures such as royalties, technical fee, training expenditure, foreign
tours regarding seminars, licensing, documentation charges, etc. different
department’s requirement and corporate office’s judgment plays an important
role in it.

Projected Balance Sheet:-


On the basis of all these budgets about income & expenditure, when they are
consolidated it takes the form of balance sheet which shows the whole thing at
glance and its result as per the Profit & Loss. In this way, we can conclude and
reach to a decision easily. However as per this basis there are chances of much
more contingencies that can totally distract organization from its path and this
type of Balance sheet’s effectiveness becomes negligible.

104
RESEARCH DESIGN

The research design is DESCRIPTIVE

105
Data Collection Methods

The complete data has been collected from secondary sources.

Secondary Sources: Various books on the subject written by eminent

authors were studies. Special write ups and journals and HAL manuals dealing

with the topic were referred to. These were done with a view to gain thorough

knowledge about the topic and analyze training process objectively.

 Interviewing the officers related to the concerned department i.e. Chief


Manager of Finance Department, Manager of Budgeting section.
 Examination of records: Manual related to capital Budgeting, Fixed Price
Quotation Register.

106
SIGNIFICANCE FOR ORGANIZATION

It is a tool in the hands of management to establish goals, objectives and targets


of the organization and to measure performance against the above targets. It sets
out a path to walk over to achieve goals accordingly by taking care against
probable hurdles. As this section is related to almost organization so its
responsibility increases as for performing policies.

PERFORMANCE EVALUATION

After the budget layout, it is communicated to all concerned section and


department regarding their action to move accordingly. It as necessary to know
what is the result which prove budget to be efficient and effective. For it,
performance report is obtained time to time from different department of their
progress. It is generally performed quarterly. Monthly review is done in an
informal manner which provides time to time linking with the department and
corporate office. It shows whether the target achieved, not achieved or exceeded.
It gives an insight into the operational inefficiencies.

Generally here in production and sales report plays a major role and main
emphasis is given on it. It decides basically following things:-

 Productivity
 Growth
 Profitability

As there are major aspects which helps to know about an organization’s position.
Here invariance analysis is also made to know that how much distraction has
occurred and whether it is controllable or not. As this is the major function
which is to be performed by budget section. Generally 5 % contingency is taken
into consideration so that significant performance can’t be outshined.

107
COST BENEFIT ANALYSIS OF DIFFERENT PROJECT

Cost Benefit Analysis depend on 

• Cost Incurred
• Benefit Achieved

It is made to find out the benefits achieved in term of profit (money) by selling
the products and making comparison with that of cost incurred to make the
product. For this purpose, element wise cost is computed in respect of
(1) Material consumed
(2) Labour spent / consumed
(3) Other overheads.

The organization of management is always eager to identify the element of profit


over and above the expenditure is made towards the making the product by
making Cost – Benefit Analysis.

When we arrived at Cost – Benefit Analysis. We are interested to know whether


we have gained the profit or sustained loss by comparing the price of the product
or services and the sale proceeds. If there is excess sale proceeds as compare to
the price of that product then there is profit gained by us and when there is sale
proceeds less than the price, then there is loss.

Following are some examples given for cost incurred for a particular product and
benefit achieved against the sale of the product.

108
Participation of Lucknow Division in Totality
(Rs. in Lakhs)
Name Profit
Material Labour Other Total Selling
Sr.No. of the % of
consumed Consumed Overheads Cost Price
Project Cost
1. Chetak 190 169 63 422 10% 464
2. GSE 112 99 37 248 71/2% 266
3. Rigs 101 90 34 225 10% 247
4. HPT-32 137 122 45 304 10% 334
5. Jaguar 234 208 78 520 10% 572
6. Kiran 58 51 19 128 71/2% 137
7. MIG 411 366 137 914 10% 1005
8. SU-30 1958 1740 652 4350 10% 4785
9. ALH 18 16 6 40 10% 44
10. Dornier 142 126 47 315 10% 346

Participation of Lucknow Division in T otality

6000

5000

4000
Material consumed
3000 Labour Consumed
2000 Other Overheads
Total Cost
1000
Profit % of Cost
0 Selling Price
IG
ak

Do H
ar
Ja 2

n
E

HP s

r
ie
ra
g

-3
AL
GS

gu

M
et

Ri

T-

rn
Ki

SU
Ch

Generation of Internal Resources

109
The position of generation of internal resources and its utilisation is as under:

(Rs. in Lakh)
Internal Actual RE BE
Resource 05-06 06-07 07-08
Profit 5817.97 6051.16 6197.05

Depreciation 398.67 403.5 450

Sub Total (A) 6216.64 6454.66 6647.05

B) Utilisation
Replacement of GOI 874.8 684.8 915.51
Loan, Term/other Loans

Income Tax 1970.31 2036.82 2085.93

Transfer to R&D 769.53 802.87 822.22

Sub Total (B) 3614.65 3524.49 3823.66

Net Available (A-B) 2601.99 2930.17 2823.39

40% of net 1040.8 1172.07 1129.36

Funding of Capital Expenditure


(Rs. In Lakh)
HAL Financed RE BE FC
06-07 07-08 07-08
Internal Resources 1040.8 1172.07 328.4

Term Loan 2346.57 1319.41

Sub-Total 3387.37 2491.48 328.4

Customer Financed 111.13 285 762.34

Total 3498.5 2776.48 1090.74

Appropriation Fund in Capital Budget

110
S.No. Descrition Sanction Commitment Deficit Description Sanction Commitment Surplus
Value Value Value Value
Frequency
1 Distortion 0.60 2.10 1.50 Meter 0.60 0.26 0.34
Meter
2 LCR 1.00 1.07 0.07 DVA Meter 1.00 0.68 0.32
Bridge
3 Multi Meter 0.46 Light Meter 1.20 0.88 0.32
4 digit 1.00 1.46
Power
4 Meter 5.00 6.92 1.95 Insulation 2.00 0.94 1.06
Resistance
Tester
Digital
5 Inverter 6.00 7.70 1.70 Multimeter 3.00 2.82 0.18
for AC
Supply
6 AC for 7.00 9.20 2.20 Digital CRO 6.00
clean room 4.92 4.08
Choke
7 cleaning 2.50 2.77 Gauge
M/C 0.27 Calibration M/C 6.00 1.57 4.43
Digital 3.50 9.21
pressure Automatic
8 Indicator 0.71 power factor 7.00 5.76 4.24
9 Electronic 5.00 5.20 Stabilizer for
Height 100 KVA-3
Gauge 0.20 Phase 5.50 4.87 0.63
10 Misc. 5.00 5.34 0.34
Measuring
Inst.
Total 36.60 45.97 9.37 Total 32.30 22.70 9.60

Lucknow Division Capital Budget Year RE


06-07
BE 07-08
Justification in respect of Items for which fresh sanctions sought (Rs. In Lakhs)
in 06-07 for commitment in BE 07-08

S.No. Details Amount Justification


(Rs)
(in Lakhs)
These machines are more than 25 yrs. Old. By processing
Machine new Accessories the life of existing machine tolls shall be
1 Accessories 7 prolonged.

2 Cabin Fin 0.9 It is required for providing fresh air in cabins & conference hall.

3 Ceiling Fan 5.4 It is required for providing fresh air in cabins & conference hall.

111
Exhaust fan 18
4 Inch 0.9 It is required for provided in new area of SU 30 projects.

112
SAMPLING
Respondents were drawn using random tables and sample size chosen was :-

15 Executives.

* 50 employees

35 Workers.

QUESTIONNAIRE CONSTRUCTION:

The questionnaire included simple multiple choice questions and

subjective questions. It comprised of two parts namely-

1) For Senior Management

2) Trainees (employees).

DATA ANALYSIS

113
Q1. ARE YOU AWARE OF BUDGET?

(A)YES (B) NO

35 TOTAL

30
YES
25
20
TOTAL
15
YES NO
10
NO
5
0
EXECUTIVES WORKERS
YES 10 25
NO 5 10
TOTAL 15 35
YES NO TOTAL

Q2. BUDGET PLAYS ANY ROLE IN MAKING PROFIT.

114
(A) STRONGLY DISAGREE (B) DISAGREE (C) AGREE
(D) STRONGLY AGREE

35
30
25
20
15
10
5
0
EXECUTIVE WORKERS
STRONGLY 2 7
DISAGREE
DISAGREE 3 7
AGREE 4 16
STRONGLY 6
AGREE
TOTAL 15 35
STRONGLY DISAGREE DISAGREE
AGREE
Q3. WHICH STRONGLY
BUDGET TECHNIQUE IS MORE USEFUL IN HAL? AGREE
TOTAL
(A) CAPITAL BUDGET (B) PERFORMANCE BUDGET

115
TOTAL

TOTAL

TOTAL

PERFORMANC
PERFORMANC
E BUDGET PERFORMANCE
E BUDGET
BUDGET
CAPITAL
BUDGET

CAPITAL
BUDGET

CAPITAL BUDGET

EXECUTIVES WORKERS
Q4. OBJECTIVE OF BUDGETRY CONTROL IS PLANNING FOR FURTURE
BY SETTING UP VARIOUS BUDGETS

116
(A)STRONGLY DISAGREE (B) DISAGREE (C) AGREE (D)
STONGLY AGREE

100%

80%

60%

40%

20%

0%
EXECUTIV
WORKERS
ES
TOTAL 15 35
STONGLY 8 15
AGREE
AGREE 3 12
DISAGREE 2 5
STRONGLY 2 3
DISAGREE
STRONGLY DISAGREE DISAGREE
AGREE STONGLY AGREE
TOTAL
Q5. BUDGETING IS A PART OF MANAGEMENT PROCESS.

(A)YES (B) NO

117
40

35

30

25
YES
20 NO
TOTAL
15

10

0
EXECUTIVE WORKERS

Q6. BUDGET SHOULD BE FLEXIBLE.

118
(A) Yes (B) No

EXECUTIVES
WORKERS

Q7. CAPITAL BUDGET IS?

(A) LONG TERM BUDGET (B) SHORT TERM BUDGET (C)


BOTH A AND B (D) NONE

LONG TERM
SHORT TERM
BOTH A AND B
NONE

Q8.CAPITAL BUDGET HELPS IN EVALUATE CAPITAL EXPENDITURE ?

119
(A) STRONGLY DISAGREE (B) DISAGREE (C) AGREE
(D) STRONGLY AGREE

STRONGLY DISAGREE DISAGREE


AGREE STRONGLY AGREE

Q9. MASTER BUDGET REPRESNTS THE INFORMATION REGARDING


PRODUTION, COST, SALES AND PROFIT?

120
(A) Yes (B) No

35

30

25

20

15

10

5 NO

0
YES
EXECUTIVES
WORKERS

YES NO

Q10. PREVIOUS YEAR PLAYS A ESSENTIAL ROLE IN BUDGETING?

121
(A)STRONGLY DISAGREE (B) DISAGREE (C)
AGREE (D) STRONGLY AGREE

20
18
16
14
12
10
8
6
4
2
0
EXECUTIVES WORKERS
STRONGLY 1 1
DISAGREE
DISAGREE 2 2
AGREE 4 12
STRONGLY 8 20
AGREE
STRONGLY DISAGREE DISAGREE
AGREE STRONGLY AGREE

FINDINGS

122
1. The beginning of H.A.L. can be traced to the year 1940 when the Late S.W.
Hirachand set up a company called Hindustan Aircraft Limited, Bangalore.
2. Today, H.A.L. has 14-production division/ unit. Seven at Bangalore and one
each at Nasik, Koraput, Kanpur, Lucknow, Korwa, Hyderabad and
Barrackpore.
3. These centers are engaged in the design & development of Combat Aircraft,
Helicopters, Aero engines, Test Beds, Aircraft Communication & Navigation
system and Accessories of Mechanical & fuel system & instruments.
4. the financial highlights of 2006-07 is as follows:
Sales 7783 Crores
Profit before Tax 1744 Crores
Profit after Tax 1149 Crores
Gross after Tax 2081 Crores
5. Steps involved in Capital Budgeting are:
a) Idea generation
b) Cash Flow estimation
c) Cost- Benefit Analysis
d) Authorization & Further Security
e) Control & Review Procedure
6. In case of Customer financed Projects, funds are provided by the parties
other than IAF. For eg, Navy, Coast guard or Border Security Forces. H.A.L.
has to work for them.
7. The term loan or other Government loan which is provided to H.A.L. by
IAF is at very minimum rate of interest i.e. 2-3%.
8. Only 40% of Internal Resources are available for funding capital
expenditure and Rest 60% is used in provisions & Reserves.
9. H.A.L. invests 60% in the form of securities.
10. The share of H.A.L. is 45%. The share of Government is 51% and the rest
4% share are taken by Tata Steel.

11. While purchasing any machines H.AL. adopt pay back period in order to
know the period in which total cost of the machines can be recovered.

123
12. Replacement cost involves cost of machine and the processing charges which
include labour overhead and installation charges.
13. HAL has no big competitor in the whole market. i.e. means H.A.L. has
monopoly in the field of aircraft industry.
14. HAL is listed amongst the top ten public sector units in the country.
15. Main customer of HAL is IAF; ADA is one other customer of HAL. Ratio
between IAF and other customers is 87:13 approx.
16. All standards related to production more or less depend upon direct
workers.
17. Pricing policy which is adopted by HAL is based on FPQ. 10% profit is
taken on total cost, which is fixed price of the company.
18. Production depends upon the direct and indirect workers.
19. Efficiency of direct workers is calculated 66%. Earlier it is used to be
75%. It is decreased by 9%. It is one of the causes of increasing of MHR.
20. Establishing of rapport direct and indirect workers is very well.
21. Company is performing its responsibilities by providing employment to
4000 people in their division itself.
22. Tight security is made to avoid any kind of distortion. Without entry pass
no outsider can enter into the premises of factory.

CONCLUSION

124
As H.A.L. has number of projects, which need huge investment so it also used
appraisal method like pay-back period method for evaluating the capital
expenditure proposals. But as pay-back period method does not consider the time
value of money so it must adopt discounted cash flow techniques which consider
the time value of money. Pay – back period method does not able to tell post pay-
back profitability. These factors can only be judged by net-present value method
or internal rate of return method.

The topic undertaken for study was too wide to be studied in detail & in all
aspects. Duration of the summer training was limited and the sample size was
restricted to accessories division Lucknow only. The data so collected to write this
report is the result of direct personal accounts department. This study not only
makes me familiar with big organization like HAL, but also provided me the
practical view that how the financial functions and theories are applicable in an
organization.

HAL is listed among top ten public sector units which are running in profit. Its
main customer is IAF; its other customers are ADA and other civil customers,
Navy, Air Force and Coast Guard etc.

Budget and budgetary control system is a wide area to cover. The method of
budgeting is differs from industry to industry on the basis of requirements. In
HAL budgeting system, the period considered for budgeting is the financial year
from April to March. It lays a comprehensive plan of action expressed plan of
action expressed in

financial and physical terms. It acts as a tool in the hands of management to


establish goals, objects and target of the company. It ensures the overall control
over the expenditure as all the expenditures are sanctioned in the budget.

125
The budget is classified into 2 categories for convenience Capital and
Performance. It is ensured that capital facility is made available in time to suit
production requirement. Estimates and expenditures are presented physical and
financial aspects. Approval of Board is required to break the budget into monthly
budget to ensure uniform production from month to month. In the context of
HAL, budgeting system that is prevailing can be said to be an effective one of the
organization.

All sections of Finance & Accounts department functioning separately but in a


coordinated manner. Their functioning depends on each other. One section
provides data as an input to other section, the section processes it and gets output
in this manner these sections are interdependent.

SUGGESTIONS

126
1) Before preparation of capital Budget, the records documents available in

the locations of Capital Assets physically present should be checked to

compare with that of items physically available.

2) Year wise records showing the value of the capital items with the gross

value and written down value should be maintained.

3) The source of supply with the details of Purchase Orders and dealers. If

any available in India alternatively should be computerized and maintained.

4) No. of years which the total value of the capital items to be depreciated,

should be indicated against each item on the basic of type of the capital items.

5) If existing machineries / plants are in need of frequent repairs /

maintenance, then history book should be maintained with the details of date

of breakdown, repair / maintenance cost.

6) Two Registers i.e. one for purchase of plant / machineries from foreign

vendors and other for Indigenous source should be maintained to know the

feasibility of procuring similar type of capital items within or below the

procuring time with economical condition.

7) A team consisting of concerned user department for this there is need of

the capital items. Finance, commercial should be proposed for incorporating

the capital item in the Budget.

8) Budgeting should include every pie of amount so that there is no

embarrassing situation during procurement; so far the funds are concerned

to pay.

127
9) The exchange rate applied in case of anticipated foreign sources for

procurement should have the authentic record for cross- check.

10) Lead time for receiving raw materials from suppliers is more, it should be

reduced.

11) Many employees are very qualified and well endorsed with valuable ideas;

their ideas should be taken into consideration.

12) Intranet facility should be frequently used so as to save money and time.

13) The system of company should be elastic and capable of adopting changes.

14) While preparing capital budget Present Value of money should be taken.

15) Similar kind of working conditions should be provided to employees of

same level.

16) Promotion criteria should not only be based on seniority basis. It should

be based on criteria performance standards.

17) The company should try to set orders from other customers other than

permanent customers so that company could get economy of scale and reduce

cost of production to maximize its profit.

BIBLIOGRAPHY

128
1) Annual Report of H.A.L. Lucknow.

2) Introduction of Accountancy by S.N. Maheshwari.

3) Financial Management by S.N. Maheshwari.

4) Financial Management by Khan & Jain.

5) Financial Management by I.M.Pandey.

6) Journals and Magazines etc.

7) Financial websites 

• www.hal-india.com

• www.hindubusiness.com

• www.mag-india.com

• www.domail-b.com

129
ANNEXURE

QUESTIONNAIRE

NAME…………………………………………. GENDER: M/F


AGE …………….

PH.NO…………………………
Mobile No. ………………………………………

ADDRESS ……………………………………………………………………
..………………………………………………………………….
…………….……………………………………………………..

PLEASE TICK OUT THE CORRECT OPTION IN QUESTION 1 TO 14


GIVEN BELOW:

Q1. ARE YOU AWARE OF BUDGET?

(A) YES (B) NO

Q2. BUDGET PLAYS ANY ROLE IN MAKING PROFIT.

(B) STRONGLY DISAGREE (B) DISAGREE (C) AGREE


(D) STRONGLY AGREE

Q3. WHICH BUDGET TECHNIQUE IS MORE USEFUL IN HAL?

(A) CAPITAL BUDGET (B) PERFORMANCE BUDGET

Q4. OBJECTIVE OF BUDGETRY CONTROL IS PLANNING FOR FURTURE


BY SETTING UP VARIOUS BUDGETS

130
(A)STRONGLY DISAGREE (B) DISAGREE (C) AGREE (D)
STONGLY AGREE

Q5. BUDGETING IS A PART OF MANAGEMENT PROCESS.

(A)YES (B) NO

Q6. BUDGET SHOULD BE FLEXIBLE.

(B) Yes (B) No

Q7. CAPITAL BUDGET IS?

(B) LONG TERM BUDGET (B) SHORT TERM BUDGET (C)


BOTH A AND B (D) NONE

Q8.CAPITAL BUDGET HELPS IN EVALUATE CAPITAL EXPENDITURE ?

(A) STRONGLY DISAGREE (B) DISAGREE (C) AGREE


(D) STRONGLY AGREE

Q9. MASTER BUDGET REPRESNTS THE INFORMATION REGARDING


PRODUTION, COST, SALES AND PROFIT?

(A) Yes (B) No

Q10. PREVIOUS YEAR PLAYS AN ESSENTIAL ROLE IN BUDGETING?

(A)STRONGLY DISAGREE (B) DISAGREE (C)


AGREE (D) STRONGLY AGREE

Q11. ARE YOU AWARE OF THE NATURE OF WORKING OF THE

FINANCIAL DEPARTMENT IN HAL?

(A) Yes (B) No

131
Q12. IF YOU WANT TO GIVE ANY SUGGESTION IN MAKING CAPITAL
BUDGET MORE EFFECTIVE?

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Dear Respondent,

Thank you very much for your kind support.

Date:

Place: (Signature)

132
LIST OF ABBREVIATION

P.O. Purchase Order


R.D.R. Receiving Cum Discrepancy Report
G.I.T. Goods In Transit
S.I.T. Stock In Trade
B/E Bill Of Entry
L/C Letter Of Credit
M.I.S. Management Information System
F.P.Q. Fixed Price Quotation
P.C. Price Catalogue
I.D.T.O. Inter Divisional Transfer Order
I.F.D. Inter Factory Demand
D.R.E Deferred Revenue Expenditure
R.M.S.O. Repairs Maintenance Supply Order
L.T.B. Labor Time Booking
W.I.P. Work In Progress
A.H.Q. Air Head Quarters
M.R. Material Requisition
C.F.A. Competent Financial Authority
B.E. Budget Estimates
R.E. Revised Estimates
F.C. Forecast
AO (D.A.D) Accounts Officer(Defense Accounts Department)
E.D.P. Electronic Data Processing
M.S.D. Management Service Department
B.O.M. Bills Of Material
I.M.M. Integrated Material Management
S.M.H. Standard Minimum Hours
L.O.H. Labor Overheads
P.O.H Production Overheads
N.P.OH. Non Productive Overheads
I.A.F. Indian Air Force
A.D.A. Aeronautical Development Agency

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134