Chapter 1 Introduction ABOUT INDUSTRY The Electronics Industry in India took off around 1965 with an orientation towards space and defence technologies. This was rigidly controlled and initiated by the government. This was followed by developments in consumer electronics mainly with transistor radios, Black & White TV, Calculators and other audio products. Color Televisions soon followed. In 1982-a significant year in the history of television in India - the government allowed thousands of colour TV sets to be imported into the country to coincide with the broadcast of Asian Games in New Delhi. 1985 saw the advent of Computers and Telephone exchanges, which were succeeded by Digital Exchanges in 1988. The period between 1984 and 1990 was the golden period for electronics during which the industry witnessed continuous and rapid growth. From 1991 onwards, there was first an economic crises triggered by the Gulf War which was followed by political and economic uncertainties within the country. Pressure on the electronics industry remained though growth and developments have continued with digitalization in all sectors, and more recently the trend towards convergence of technologies. After the software boom in mid 1990s India's focus shifted to software. While the hardware sector was treated with indifference by successive governments. Moreover the steep fall in custom tariffs made the hardware sector suddenly vulnerable to international competition. In 1997 the ITA agreement was signed at the WTO where India committed itself to total elimination of all customs duties on IT hardware by 2005.
CURRENT SCENARIO In recent years the electronic industry is growing at a brisk pace. It is currently worth US$ 32 Billion and according to industry estimates it has the potential to reach US$ 150 billion by 2010. The largest segment is the consumer electronics segment. While is largest export segment is of components. The electronic industry in India constitutes just
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0.7 per cent of the global electronic industry. Hence it is miniscule by international comparison. However the demand in the Indian market is growing rapidly and investments are flowing in to augment manufacturing capacity. The output of the Electronic Hardware Industry in India is worth US$11.6 Billion at present. India is also an exporter of a vast range of electronic components and products for the following segments Display technologies Entertainment electronics Optical Storage devices Passive components Electromechanical components Corporate Catalyst India A report on Indian Electronics Industry Telecom equipment Transmission & Signaling equipment Semiconductor designing Electronic Manufacturing Services (EMS) This growth has attracted global players to India and leaders like Solectron, Flextronics, Jabil, Nokia, Elcoteq and many more have made large investments to access the Indian market. In consumer electronics Korean companies such as LG and Samsung have made commitments by establishing large manufacturing facilities and now enjoy a significant share in the growing market for products such as Televisions, CD/DVD Players, Audio equipment and other entertainment products. The growth in telecom products demand has been breathtaking and India is adding 2 million mobile phone users every month! With telecom penetration of around 10 per cent, this growth is expected to continue at least over the next decade. Penetration levels in other high growth products are equally high and growth in demand for Computer/ IT products, auto electronics, medical, industrial, as well as consumer electronics is equally brisk. Combined with low penetration levels and the Indian economy growing at an impressive 7 per cent per annum, the projection of a US$150 Billion+ market is quite realistic and offers an excellent opportunity to electronics players worldwide.
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India is well-known for its software prowess. But on the hardware front, the progress is rather slow. However, the country has been making gains in this sector also. Already, 50 Electronics Manufacturing Services (EMS)/Original Design Manufacturers (ODMs) providers are operating in India.
Meaning of asset Asset is the one used by the International Accounting Standards Board. The following is a quotation from the IFRS Framework: "An asset is a resource controlled by the enterprise as a result of past events and from which future economic benefits are expected to flow to the enterprise." The accounting equation is the mathematical structure of the balance sheet. It relates assets, liabilities, and owner's equity: Assets = Liabilities + Capital (where Capital for a corporation equals Owner's Equity) In financial accounting, an asset is an economic resource. Anything tangible or intangible that is capable of being owned or controlled to produce value and that is held to have positive economic value is considered an asset. Two major asset classes are tangible assets and intangible assets. Tangible assets contain various subclasses, including current assets and fixed assets. Current assets include inventory, while fixed assets include such items as buildings and equipment. Intangible assets are nonphysical resources and rights that have a value to the firm because they give the firm some kind of advantage in the market place. Examples of intangible assets are goodwill, copyrights, trademarks, patents and computer programs, and financial assets, including such items as accounts receivable, bonds and stocks.
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Meaning of fixed asset management. Fixed assets management is an accounting process that seeks to track fixed assets for the purposes of financial accounting, preventive maintenance, and theft deterrence. Fixed asset management is a part of asset management that involves asset management software also. Organizations face a significant challenge to track the location, quantity, condition, maintenance and depreciation status of their fixed assets. A popular approach to tracking fixed assets uses serial numbered Asset Tags, which are labels often with bar codes for easy and accurate reading. Periodically, the owner of the assets can take inventory with a mobile bar code reader and then produce a report. Off-the-shelf software packages for fixed asset management are marketed to businesses small and large. Some Enterprise Resource Planning systems are available with fixed assets modules. Some tracking methods automate the process, such as by using fixed scanners to read bar codes on railway freight cars or by attaching a radio-frequency identification (RFID) tag to an asset.
FIXED ASSETS MEANING. Fixed assets are long lived assets in the sense that they provide enduring benefits to the entity. An enterprise holds a fixed asset (property, plant and equipment, or intangible assets) for use in production and supply of goods or services, for rental or for administrative purposes on a continuing basis. It expects to use a fixed asset for more than one accounting period and does not intend to sell the same in the normal course of business. Examples of fixed assets are land, building, plant and equipment, furniture and fixtures, vehicles, goodwill, and patent. Disposal of fixed asset on retirement is a peripheral activity.
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Fixed assets may be tangible or intangible. Assets acquired for safety and environmental reasons qualify as fixed assets. Although they may not directly increase future economic benefits, they help the entity to obtain future economic benefits from other fixed assets. A fixed asset is carried at cost less accumulated depreciation and accumulated impairment loss. The depreciable amount, that is, the cost less estimated residual value of the asset, is allocated over the estimated useful life of the asset.
Impairment loss occurs when the asset is unable to recover its carrying amount. In this situation, the carrying amount of the asset is reduced to the recoverable amount and the difference between the carrying amount and the recoverable amount is recognized as impairment loss. The recoverable amount becomes the new carrying amount.
DEFINITIONS The following terms are used in this statement with their meanings specified:
Fixed asset is an asset held with the intention of being used for the purpose of producing or providing goods or services and is not held for sale in the normal course of business. Fair market value is the price that would be agreed in an open and unrestricted market between knowledgeable and willing parties dealing at arms length who are fully informed and are not under any compulsion to transact. Gross book value of a fixed asset is its historical cost or other amount substituted for historical cost in the books of account or financial statements. When this amount is shown net of accumulated depreciation, it is termed as net book value.
EXPLANATION Fixed assets often comprise a significant portion of the total assets of an enterprise, and therefore are important in the presentation of financial position. Furthermore, the
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determination of whether expenditure represents an asset or an expense can have a material effect on an enterprises reported results of operations.
IDENTIFICATION OF FIXED ASSETS The above definition gives criteria for determining whether items are to be classified as fixed assets. A judgment is required in applying the criteria to specific circumstances or specific types of enterprises. It may be appropriate to aggregate individually insignificant items, and to apply for the criteria to the aggregate value. An enterprise may decide to expense an item which could otherwise have been included as fixed assets, because the amount of the expenditure is not material. Stand-by equipment and servicing equipment are normally capitalized. Machinery spares are usually charged to the profit and loss statement when consumed. However, if such spares can be used only in connection with an item of fixed assets and their use is expected to be irregular, it may be appropriate to allocate the total cost on a systematic basis over a period not exceeding the useful life of the principal item. In certain circumstances, the accounting for an item of fixed asset may be improved if the total expenditure thereon is allocated to its component parts, provided they are in practice separable, and estimates are made of the useful lives of these components. For example, rather than treat an aircraft and its engines as one unit, it may be better to treat the engines as a separate unit if it is likely that their useful life is shorter than that of the aircraft as a whole.
COMPONENTS OF COST The cost of an item of fixed assets comprises its purchase price, including import duties and other non-refundable taxes of levies and any directly attributable cost of bringing the asset to its working condition for its intended use; any trade discounts and rebates are deducted in arriving at the purchase price. Example: Determination of cost of fixed asset
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Details
Amount(Rs.) Amount(Rs) Invoice price-Net
55,00,000 Less: CENVAT credit availability 4,00,000 51,00,000 Add: Transportation charges to factory site. 25,000 Add: Special foundation and installation charges 75,000 Cost of the machine 52,00,000 (Source: Financial accounting management by Ambharish Gupta) Examples of directly attributable costs are: Site preparation; Initial delivery and handling costs; Installation cost, such as special foundations for plant; and Professional fees, for example fees of architects and engineers. The cost of a fixed asset may undergo changes subsequent to its acquisition or construction on account of exchange fluctuations, price adjustments, and changes in duties or similar factors.
Financing costs relating to deferred creditors or to borrowed funds attributable to construction or acquisition of fixed assets for the period up to the completion of construction or acquisition of fixed assets are also sometimes included in the gross book value of the asset to which they relate. However, financing costs (including interest) on fixed assets purchased on a deferred credit basis or on monies borrowed for construction or acquisition of fixed assets are not capitalized to the extent that such costs relate to periods after such assets are ready to be put to use.
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Administration and other general overhead expenses are usually excluded from the cost of fixed assets because they do not relate to a specific fixed asset. However, in some circumstances, such expenses as are specifically attributable to construction of a project or to the acquisition of a fixed asset or bringing to its working condition, may be included as a part of the cost of the construction project or as a part of the cost of the fixed asset. The expenditure incurred on start-up and commissioning of the project, including the expenditure incurred on test runs and experimental production, is usually capitalized as an indirect element of the construction cost. However, the expenditure incurred after the plant has begun commercial production, i.e., production intended for sale or captive consumption, is not capitalized and is treated as revenue expenditure even though the contract may stipulate that the plant will not be finally taken over until after the satisfactory completion of the guarantee period. If the interval between the dates of a project is ready to commence commercial production and the date at which commercial production actually begins is prolonged, all expenses incurred during this period are charged to the profit and loss statement. However, the expenditure incurred during this period is also sometimes treated as deferred revenue expenditure to be amortized over a period not exceeding 3 to 5 years after the commencement of commercial production. SELF-CONSTRUCTED FIXED ASSETS In arriving at the gross book value of self-constructed fixed assets, the same principles apply as those described in above lines. Included in the gross book value are costs of construction that relate directly to the specific asset and cost that are attributable to the construction activity in general and can be allocated to the specific asset. Any internal profits are eliminated in arriving at such costs.
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NON-MONETARY CONSIDERATION 1. When a fixed asset is acquired in exchange for another asset, its cost is usually determined by reference to the fair market value of the consideration give. It may be appropriate to also consider the fair market value of the asset acquired if this is more clearly evident. An alternative accounting treatment that is sometimes used for exchange of assets, particularly when the assets exchanged are similar is to record the asset acquired at the net book value of the asset given up. In each case an adjustment is made for any balancing receipt or payment of cash or other consideration. 2. When a fixed asset is acquired in exchange for shares or other securities in the enterprise, it is usually recorded at its fair market value, or the fair market value of the securities issued, whichever is more clearly evident.
IMPROVEMENTS AND REPAIRS Frequently, it is difficult to determine whether subsequent expenditure related to fixed assets represents improvements that ought to be added to the gross book value or repairs that ought to be charged to the profit and loss statement. Only expenditure that increases the future benefits from the existing asset beyond its previously assessed standard at performance is included in the gross book value. E.g. an increase in capacity. The cost of an addition or extension to an existing asset which is of a capital nature and which becomes an integral part of the existing asset is usually added to its gross book value. An addition of extension which has a separate identity and is capable of being used after the existing asset is disposed of, is accounted for separately.
AMOUNT SUBSTITUTED FOR HISTORICAL COST
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Sometimes financial statements that are otherwise prepared on a historical cost basis include part or all of fixed assets at a valuation in substitution for historical costs and depreciation is calculated accordingly. Such financial statements are to be distinguished from financial statements prepared on a basis intended to reflect comprehensively the effects of changing prices. A commonly accepted and preferred method of restating fixed assets is by appraisal, normally undertaken by competent values. Other methods sometimes used are indexation and reference to current prices which when applied is cross- checked periodically by appraisal method. The revalued amounts of fixed assets are presented in financial statements, either by restating both the gross book value and accumulated depreciation so as to give a net book value equal to the net revalued amount or by restating the net book value by adding there in the net increase on account of revaluation. An upward revaluation does not provide a basis for crediting to the profit and loss statement the accumulated depreciation Existing at the date of revaluation Different bases of valuation are sometimes used in the same financial statements to determine the book value of the separate items within each of the categories of fixed assets or for the different categories of fixed assets. In such cases, it is necessary to disclose the gross book value included on each basis. Selective revaluation of assets can lead to unrepresentative amounts being reported in financial statements. Accordingly, when revaluations do not cover all the assets of a given class, it is appropriate that the selection of assets to be revalued be made on a systematic basis. For example: an enterprise may revalue a whole class of assets within a unit. It is not appropriate for the revaluation of a class of assets to result in the net book value of that class being greater than the recoverable amount of the assets of that class.
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An increase in net book value arising on revaluation of fixed assets is normally credited directly to owners interests under the heading of revaluation reserves and is regarded as not available for distribution. An decrease in net book value arising for revaluation of fixed assets is charged to profit and loss statement expect that, to the extent that such a decrease is considered to be related to a previous increase on revolution that is included in revaluation reserve, it is sometimes charged against that earlier increase. It sometimes happens that an increase to be recorded is a reversal of a previous decrease arising on revaluation which has been charged to profit and loss statement in which case the increase is credited to profit and loss statement to the extent that it offsets the previously recorded decrease. RETIREMENTS AND DISPOSALS An item of fixed asset is eliminated from the financial statements on disposal. Items of fixed assets that have been retired from active use and are held for disposal are stated at the lower of their net book value and net realizable value and are shown separately in the financial statements. Any expected loss is recognized immediately in the profit and loss statement. In historical cost financial statements, gains or losses arising on disposal are generally recognized in the profit and loss statement. On disposal of a previously revalued item of fixed asset, the difference between net disposal proceeds and the net book value is normally charged or credited to the profit and loss statement except that, to the extent such a loss is related to an increase which was previously recorded as a credit to revaluation reserve and which has not been subsequently reversed or utilized, it is charged directly to that account. The amount standing in revaluation reserve following the retirement or disposal of an asset which relates to that asset may be transferred to general reserve.
VALUATION OF FIXED ASSETS IN SPECIAL CASES
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In the case of fixed assets acquired on hire purchase terms, although legal ownership does not vest in the enterprise, such assets are recorded at their cash value, which if not readily available, is calculated by assuming an appropriate rate of interest. They are shown in the Balance Sheet with an appropriate narration to indicate that the enterprise does not have full ownership thereof. If the enterprise owns fixed assets jointly with others(otherwise than as a partner in a firm), the extent of its share in such assets and the proportion in the original cost, accumulated depreciation and written-down value are stated in the Balance Sheet. Alternatively, the pro rata cost of such jointly owned assets is grouped together with similar fully owned assets. Details of such jointly owned assets are indicated separately in the fixed assets register.
Details of the companys share of jointly owned assets included above. (Rs.Lakhs) Assets particulars
Name of the joint owners
Original cost
Accumuated depreciaion& amortization
W.D.V. as at 31.3.02
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Land free hold HPC/IBP 119.02 0.00 119.02 Land-Leasehold BPC/IBP 95.31 10.50 84.81 Buildings HPC 42.54 7.38 35.16 Plant and machinery HPC/BPC/IBP/G SFC/IPCL/ACC/ CSIR 1157.46 304.10 853.36 Transport equipment RAILWAYS 18234.86 8875.95 9358.91 Railways sidings HPC/BPC 2243.8 5
592.05 1651.80 Drainage, Sewage & Water supply GSFC 99.4
94.13 4.97 21,992.44 9884.41 12108.03
(Source: Ambharish gupta financial accounting management) Basket purchase: The several assets are purchased for a consolidated price; the consideration is apportioned to the various assets on a fair basis as determined by competent values. FIXED ASSETS OF SPECIAL TYPES Goodwill, in general, is recorded in the books only when some consideration in money or moneys worth has been paid for it. Whenever a business is acquired for a price (payable either in cash or in shares or otherwise) which is in excess of the value of the net assets of the business taken over, the excess is termed as goodwill. Goodwill arises from business connections, trade name or reputation of an enterprise or from other intangible benefits enjoyed by an enterprise.
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As a matter of financial prudence, goodwill is written-off over a period. However, many enterprises do not write-off goodwill and retain it as an asset. Patents are normally acquired in two ways: (i) by purchase, in which case patents are valued at the purchase cost including incidental expenses, stamp duty, etc. and (ii) by development within the enterprise, in which case identifiable costs incurred in developing the patents are capitalized. Patents are normally written-off over their legal term of validity or over their working life, whichever is shorter. Know-how in general is recorded in the books only when some consideration in money or money worth has been paid for it. Know-how is generally of two types: Relating to manufacturing process Relating to plans, designs and drawings of building or plant and machinery Know-how related to plans, designs and drawings of buildings or plant and machinery is capitalized under the relevant asset heads. In such cases depreciation is calculated on the total cost of those assets, including the cost of the know-how capitalized. Know-how related to manufacturing processes is usually expensed in the year in which it is incurred. The amount said for know-how is composite sum in respect of both the types mentioned in paragraph 16.4; such consideration is apportioned amongst them on a reasonable basis. The consideration for the supply of know-how is a series of recurring annual payments as royalties, technical assistance fees, contribution to research, etc., such payments are charged to the profit and loss statement each year.
DISCLOSURE Certain specific disclosures on accounting for fixed assets are already required by Accounting Standard 1 on Disclosure of Accounting Policies and Accounting Standard 6 on Depreciation Accounting.
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Further disclosures that are sometimes made in financial statements include: Gross and net book values of fixed assets at the beginning and end of an accounting period showing addition, disposals, acquisitions and other movements; Expenditure incurred on account of fixed assets in the course of construction or acquisition. Revalued amount substituted for historical cost of fixed assets, the method adopted to compute the revalued amounts, the nature of any indices used, the year of any appraisal made, and whether an external value was involved, in case where fixed assets are stated at revalued amounts. The items determined in accordance with the above definition of this statement should be included under fixed assets in financial statements. The gross book value of a fixed asset should be either historical cost or a revaluation computed in accordance with this Standard. The method of accounting for fixed assets included at historical cost and the method of accounting for revalued assets is set out. The cost of a fixed asset should comprise its purchase price and any attributable costs of bringing the asset to its working condition for its intended use. Financing cost relating to deferred credits or to borrowed funds attributable to construction or acquisition of fixed assets for the period up to the completion of construction or acquisition of fixed assets should also be included in the gross book value of the asset to which they relate. However, the financing costs (including interest) on fixed assets purchased on a deferred credit basis or on monies borrowed for construction or acquisition of fixed assets should not be capitalized to the extent that such costs relate to periods after such assets are ready to be put to use. The cost of a self-strutted fixed asset should comprise those costs that relate directly to the specific asset and those that are attributable to the construction activity in general and can be allocated to the specific asset. When a fixed asset is acquired in exchange or in part exchange for another asset, the cost of the asset acquired should be recorded either a fair market value or at the net book value of the asset given up, adjusted for any balancing payment or receipt of cash or other consideration. For these purposes fair market value may
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be determined by reference either to the asset given up or to the asset acquired, whichever is more clearly evident. Fixed asset acquired in exchange for shares or other securities in the enterprise should be recorded at its fair market value, or the fair market value of the securities issued, whichever is more clearly evident. Subsequent expenditure related to an item of fixed asset should be added to its book value only if it increases the future benefits from the existing asset beyond its previously assessed standard of performance.
Material items retired from active use and held for disposal should be stated at the lower of their net book value and net realizable value and shown separately in the financial statements. Fixed asset should be eliminated from the financial statements on disposal or when no further benefit is expected from its use and disposal. Losses arising from the retirement or gains or losses arising from disposal of fixed asset which is carried at cost should be recognized in the profit and loss statement. Fixed asset is revalued in financial statements, an entire class of assets should be revalued, or the selection of assets for revaluation should be made on a systematic basis. This basis should be disclosed. The revaluation in financial statements of a class of assets should not result in the net book value of that class being greater than the recoverable amount of assets of that class. Fixed asset is revalued upwards any accumulated depreciation existing at the date of the revaluation should not be credited to the profit and loss statement. An increase in net book value arising on revaluation of fixed assets should be credited directly to owners interests under the head of revaluation reserve, except that, to the extent that such increase is related to and not greater than a decrease arising on revaluation previously recorded as a charge to the profit and loss statement, it may be credited to the profit and loss statement. A decrease in net book value arising on revaluation of fixed asset should be charged directly to the profit and loss statement
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except that to the extent that such a decrease is related to an increase which was previously recorded as a credit to revaluation reserve and which has not been subsequently reversed or utilized, it may be charged directly to that account.
On disposal of a previously revalued item of fixed asset; the difference between net disposal proceeds and the net book value should be charged or credited to the profit and loss statement except that to the extent that such a loss is related to an increase which was previously recorded as a credit to revaluation reserve and which has not been subsequently reversed or utilized, it may be charged directly to that account.
Fixed assets acquired on hire purchase terms should be recorded at their cash value, which, if not readily available, should be calculated by assuming an appropriate rate of interest. They should be shown in the Balance Sheet with an appropriate narration to indicate that the enterprise does not have full ownership thereof. In the case of fixed assets owned by the enterprise jointly with others, the extent of the enterprises share in such assets, and the proportion of the original cost, accumulated depreciation and written-down value should be stated in the Balance Sheet. Alternatively, the pro rata cost of such jointly owned assets may be grouped together with similar fully-owned assets with an appropriate disclosure thereof. Where several fixed assets are purchased for a consolidated price, the consideration should be apportioned to the various assets on a fair basis as determined by competent values. Goodwill should be recorded in the books only when some consideration in money or moneys worth has been paid for it. Whenever a business is acquired for a price (payable in cash or in shares or otherwise) which is in excess of the value of the net assets of the business taken over, the excess should be termed as goodwill.
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The direct costs incurred in developing the patent should be capitalized and written-off over their legal term of validity or over their working life, whichever is shorter. Amount paid for know-how for the plans, layout and designs of buildings and/or design of the machinery should be capitalized under the relevant asset heads, such as buildings, plants and machinery etc. Depreciation should be calculated on the total cost of those assets, including the cost of the know-how capitalized. Where the amount paid for know-how is a composite sum in respect of the manufacturing process as well as plans, drawings and designs for buildings, plants and machinery, etc., the management should apportion such consideration into two parts on a reasonable basis. DISCLOSURE The following information should be disclosed in the financial statements: 1) Gross and net book values of fixed assets at the beginning and end of an accounting period, showing additions, disposals, acquisitions and other movements; 2) Expenditure incurred on account of fixed assets in the course of construction or acquisition; and 3) Revalued amount substituted for historical costs of fixed assets, the method adopted to compute the revalued amounts, the nature of indices used, the year of any appraisal made, and whether an external value was involved, in case where fixed assets are stated at revalued amount.
ACCOUNTING UNDER INDIAN GAAP SCOPE AS-10 was issued in November, 1985. It became mandatory from accounting periods commencing on or after April 1, 1991 for: Companies governed by the Companies Act, 1956.
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Entities other than sole proprietary concerns/individuals, partnership firms, societies registered under Societies Registration Act, trusts, Hindu undivided families and associations of persons. AS-10 became mandatory for all entities for accounting periods commencing on or after April 1, 1993. However, it is not applicable to: Forests, plantations and similar regenerative natural resources Wasting fixed assets including mineral rights, expenditure on the exploration for or the extraction of minerals, oil, natural gas and similar non-regenerative resources. Expenditure on real estate development. ` AS-10 does not deal with intangible fixed assets. Expenditure on individual items of fixed assets used to develop or maintain activities covered in the given cases but separable from those activities is accounted for in accordance with AS-10.
NATURE OF FIXED ASSETS
IDENTIFICATION OF FIXED ASSETS The Standard gives a definition of fixed asset, but does not prescribe specific criteria for the classification of assets as fixed. Therefore, an enterprise applies judgment in deciding which assets should be classified as fixed assets, after taking into consideration its nature of business and specific circumstances.
The Standard permits aggregation of individually insignificant items. Similarly, it permits an enterprise to expense an item which would otherwise be classified as fixed assets, because the amount of the expenditure is not material.
STAND BY EQUIPMENT AND SERVICING EQUIPMENT Stand-by equipment and servicing equipment are fixed assets in their own right.
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For example, a stand-by generator is a separate item of fixed assets.
INSURANCE SPARES Machinery spares which are used only in connection with an item of fixed asset and which are expected to be irregularly used are fixed assets. On the other hand, machinery spares, which are in regular use, form part of inventory. They are charged to profit and loss account for the period in which they are consumed. Accounting Standards Interpretation (ASI)-2 explains that whether or not to capitalize machinery spares depends on the facts and circumstances of each case. For example, a special pump (which can be used only in specific equipment) should not be classified as inventory if its use is irregular. Entities purchase certain critical spares along with sophisticated equipment to minimize idle time due to breakdown. Those spares are usually proprietary items and are available only with the manufacturer of the equipment. They cannot be used with any other equipment and their use is irregular. These spares are known as insurance spares.
COMPONENT ACCOUNTING Where several fixed assets are purchased for a consolidated price, the consideration should be apportioned to various assets on a fair basis, as determined by competent valuers. Similarly, separable components of an asset should be recognized separately if; Their useful lives are different They provide benefits to the entity in a different pattern. Examples of this are the separate recognition of an aircraft and its engine, or the separate recognition of components of a ropeway. For the former, the useful life of the engine is usually different from the useful life of the aircraft; therefore, separate recognition of the engine and the aircraft improves the estimate of depreciation. Appropriate accounting for the replacement of a component of a fixed asset is to write off
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the written down value of the components and to capitalize costs of the new component. This requires the determination of the value of the component to be replaced. This information is available only if the old component had a separate identity and was recognized separately from the principal asset. Thus, component accounting improves accounting for the replacement of components. Total cost of acquisition is allocated to components and the principal asset on an equitable basis.
LAND AND BUILDING, AND COST OF LAND DEVELOPMENT Land and building are recognized separately in financial statements. Therefore, composite cost of land and building is allocated to land and building on some equitable basis. The accounting for land development expenditure depends on the status of land ownership. The cost of land development that provides enduring benefit to the business is capitalized. In case of owned or leasehold land the development expenditure instead of being shown separately, should be added to the cost of the land. The net cost of leasehold land should be amortized if the lease agreement provides for recovery of development expenditure from the lesser on termination of the lease. The net cost is the cost of land development minus the recoverable amount, if any. Land development expenditure, which does not provide enduring benefit, should be written off in the year in which it is incurred. In case the amount is too large, the entity may treat such expenditure as deferred revenue expenditure and write it off over a period of three years or so. INITIAL RECOGNITION AS-10 does not specify the conditions that should be met for the recognition of an item of tangible fixed assets. However, as a general accounting principle, an asset should be recognized only if: It is probable that the future economic benefits associated with the asset will flow to the entity
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The enterprise has control over the asset The cost of the assets or its fair value can be measured reliably
(AS-26) Intangible Asset, stipulates the conditions for recognition of an intangible asset. The same principle should be applied in recognizing tangible fixed assets. (AS-10) requires that a fixed asset should initially be recognized at historical cost. The cost of a fixed asset comprises
Its purchase price, including stamp duty Import duties and other non-refundable taxes or levies Any cost attributable to bringing the asset to working condition
AS-10 does not specifically stipulate whether the cost of bringing the fixed asset to the location of its intended use should be included in its cost. However, it is implicit that the same should form a part of the cost of the fixed asset. For example, voyage expenses incurred in the maiden voyage of a dredger acquired in a foreign country for use in India should be included in its cost. (EAC opinion in CA. November, 2002).
Examples of costs that are directly attributable to the acquisition of fixed asset are: Costs of site preparation Initial delivery and handling costs Installation cost, such as special foundations for plant Professional fees Costs of knowhow related to plans, designs and drawings of buildings or plant and machinery Borrowing costs, subject to certain conditions stipulated in AS-16.
THE COST OF SELF-CONSTRUCTED FIXED ASSET
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The cost of a self-constructed fixed asset comprises: Costs that relate to the construction of the specific fixed asset directly Costs that are attributable to the construction activity in general and that may be allocated to the specific fixed asset The cost does not include administration and general overhead cost and abnormal waste/loss. For example, excessive indirect cost (like idle capacity cost) should be charged to the profit and loss account instead of being included in the cost of construction. Internal profits are eliminated in arriving at the cost of construction.
EXPENDITURE DURING CONSTRUCTION PERIOD Expenditure incurred during the construction period of a new project is usually incurred to construct new facilities. A large part of the expenditure is directly attributable to fixed assets constructed during that period. Therefore, expenditure incurred during construction period (except those which cannot be attributed to construction activities) is allocated to fixed assets constructed during that period.
Expenditures that are capitalized include: General administration and office expenditure Expenditure on running of vehicles Expenditure in connection with temporary structure and service facilities Depreciation of fixed assets used The general principles are: Preliminary stage costs should be expensed Pre-acquisition costs should be capitalized only if they are attributable to a specific fixed asset.
EXCHANGE OF FIXED ASSET
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(AS-10) stipulates that when a fixed asset is acquired in exchange of another fixed asset, its cost is usually determined by reference to the fair market value of the consideration given (asset given), adjusted for cash or cash equivalent transferred. It may be appropriate to consider the fair market value of the fixed asset acquired if this is more evident. As-10 as an alternative permits recording the fixed asset acquired at the net book value of the fixed asset given up. Although it is stipulated in the AS-10, as a matter of practice an enterprise uses the alternative accounting method only in a rare situation when the enterprise is unable to reliably estimate the fair value of either of the fixed assets exchanged. An entity may acquire a fixed asset in exchange for shares or other securities. In that case, the entity records the asset at the fair market value of the securities issued or the fair market value of the fixed asset acquired, whichever is more evident. AS-10 stipulates the same accounting principles for transactions involving the exchange of dissimilar and similar assets.
DEMOLITION COSTS Demolition costs should be charged to the profit and loss account for the period in which they are incurred. However, they should be capitalized only if they were contemplated as a part of the acquisition. For example, if a piece of land with a dilapidated building is acquired, the cost of demolishing the building should be capitalized because at the time of purchase the demolition was contemplated. Similarly, the cost of treating acquired property with a known asbestos problem should be capitalized. These costs should be capitalized as a part of the land or the new building depending on the nature of the cost.
ASSET RETIREMENT OBLIGATION An entity acquires constructs or operates assets it often incurs obligations other than those unavoidably related to the acquisition of the asset. An example of such an obligation is Asset Retirement Obligations (ARO). An example of ARO is the obligation to dismantle and remove the asset and restore the site. AS-10 does not
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specifically deal with ARO. AS-29, Provisions, Contingent Liabilities and contingent assets, refers to the accounting for ARO. However, the accounting principles for ARO are given by IAS-16, and US GAAP. AS-29, Provisions, Contingent Liabilities and Contingent Assets, given the following conditions for the recognition of a provision: The entity has a present obligation as a result of a past event It is probable that economic benefits will outflow from the entity to settle the obligation The amount of the obligation can be estimated reliably AS-29 further provides that the amount recognized as provision should be the best estimate of the management. The best estimate should take into account the risk and uncertainties surrounding the obligation. Therefore, ARO should be recognized only if these conditions are met. AS-29 does not recognize constructive obligation. Therefore, ARO should be recognized only if it arises from a contract or by the operation of law. The cost of the asset should include the amount of the provision for ARO. AS 6: DEPRECIATION ACCOUNTING Meaning of Depreciation:Depreciation is a measure of the wearing out, consumption or other loss of value of a depreciable asset arising from use, passage of time or obsolescence through technology and market changes. Depreciation is nothing but distribution of the total cost of a depreciable asset over its useful life. Depreciable assets Depreciable assets are those which 1. Are expected to be used during more than one accounting period;
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2. Have a limited useful life; 3. Are held by an enterprise for use in the production or supply of goods and services
Depreciable amount Depreciable amount of a depreciable asset is its historical cost, or other amount substituted for historical cost less the estimated residual value.
Applicability of the Accounting standard: This accounting standard is not applied on the following items. Forests and plantations Wasting assets Research and development expenditure Goodwill Live stock
There are two method of depreciation: 1. Straight Line Method (SLM) 2. Written Down Value Method (WDVM) Note: A combination of more than one method may be used. Selection of appropriate method of depreciation depends upon the factors such as type of asset, nature of use of such asset and circumstances prevailing in the business Selected method of depreciation should be applied from period to period, consistently. Calculation of depreciation: The amount of depreciation is calculated as under using
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Historical cost or revalued amount Estimated useful life of depreciable asset Estimated scrap value of depreciable asset
Therefore depreciation under straight line method is calculated as follows:
Depreciation =Cost Scrap value at the end of useful life Estimated useful life in No. of years
Procedure to be followed in case of change in the method of depreciation: Step 1: Compute depreciation by applying the new method from the date of its acquisition/installation up to the date of change in the method. Step 2: Compute the difference between depreciation calculated under step 1 and accumulated depreciation under old method. Step 3: The resultant figure may be surplus or deficit. Surplus is credited to P&L A/c under the head Depreciation written back. Deficit is debited (charged) to P&L A/c. Step 4: Such change in the method of depreciation should be treated as change in the accounting policy and its effect must be quantified and disclosed.
AS 12: ACCOUNTING FOR GOVERNMENT GRANTS Government Grants Government grants are assistance by the Government in the form of cash or kind to an enterprise in return for past or future compliance with certain conditions. They are also called as subsidies, cash incentives etc., Government grants do not include Government assistance other than in the form of Government grants AND Government participation
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Government assistance which cannot be valued reasonably is excluded from Government grants. Recognition of Government grants Government Grants should be recognized where there is a reasonable assurance that The enterprise sill comply with the conditions attached to them, and The grants will be received. Kinds of Government grants There are two types of Government grants namely, a. Non-monetary grants: Grants received in kind like assets such as Land, Plant & Machinery etc., b. Monetary grants: Grants in the form of Cash with respect to a depreciable or non asset. Government grants may be received in following ways. A. Grants related to acquisition of fixed assets B. Grants related to revenue C. Grants related to promoters contribution D. Grants related to compensation for expenses. Disclosures: 1. The accounting policy adopted for accounting for Government Grants, including the method of presentation in the financial statements. 2. The nature and extent of Government Grants recognized in the financial statements, including grant of non-monetary assets given at the concessional rates or free of cost. 3. A. Accounting treatment W.R.T grant related to acquisition of fixed asset:
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1. For receipt of Non-monetary grants: a. If the grant is given at concessional rate, then such asset is recorded at cost of b. acquisition applicable for the organization. c. If the grant is given free of cost, then such asset is recorded at nominal value. 2. For receipt of monetary grants: a. Related to depreciable fixed asset there are two types of accounting treatment 1. If the grant received is treated as capital receipt - the asset is recorded at Gross Value less Grant received, if the Grant received is less than the cost of the fixed asset. The asset is recorded at nominal value. 2. If the Grant received is more than or equal to the cost of the fixed asset. OR 3. If the grant received is treated as deferred income. The deferred income is recognized in the Profit & Loss A/c on a systematic basis over the useful life of the asset. The balance of the un-appropriated deferred income is shown under Reserves & Surplus on the liabilities side of the balance sheet as Deferred Government Grant.
Grants related to non-depreciable fixed asset The asset is recorded at Gross Value less Grant received, if the Grant received is less than the cost of the fixed asset. The asset is recorded at nominal value, if the Grant received is more than or equal to the cost of the fixed asset. B. Accounting treatment W.R.T grants related to revenue Government grants related to revenue should be recognized on a systematic basis in the profit and loss account over the periods necessary to match with the related costs, which they are intended to compensate. Such grants should either be shown as Other Income or be deducted from the related expenses.
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C. Accounting treatment W.R.T grants in Nature of Promoters Contribution Grants should be credited to capital reserve and it should form part of the shareholders fund. D. Accounting treatment W.R.T grants related to compensation for expenses Government grants receivable as compensation for expenses or losses (with no further costs) should be recognized as an income in the year of receivable as an Extra-ordinary item. Refund of Government Grants: Government grants become refundable because certain conditions are not fulfilled. The grant refundable is treated as an extraordinary item. Refund of grants may relate to I. Revenue II. Specific asset III. Grants in the nature of Promoters Contribution Example: Governments grant treatment.
BALACHANDRAN ELECTRONICSLTD. TREATMENT OF GOVERNMENT GRANT AND ITSIMOACTONVALUTATION OF FIXED ASSET. BALACHANDRAN ELECTRONICSLTD ACQUIRES A .Machine whose total costcomestoRs.315lacs.the co., received a grant of Rs.35lakhs from the central govt. against the machine. Determine its book value the two alternatives.Useful life of the machine is 5yrs.depreciation will be apportioned in equal trenches @20% over 5 years. Determine depreciation under the 2alternatives and show the grant will be treated in thefinancial statements.
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SOLUTION First alternative: Amount (Rs.) Cost of the machine 3,15,00,000 Less: Government Grant 35,00,000 Book value 2,80,00,000 Depreciation in this case will be applied to 2, 80, 00,000 that is Rs.56, 00,000 every year. Second alternative: Book value of the machine under the second alternative: Rs.3, 15, 00,000. Depreciation in this case will Rs.63, 00,000 every year. Grant of Rs.35, 00,000 will be treated as deferred income and allowed to income over the periods, and, in the proportions in which depreciation on machine is charged. Since the machine has a useful life of 5yrs and thus depreciation @20% p.a. as above, the following will be treated of grant. Year 1 Year 2 Year 3 Year 4 Year 5 Rs. Rs. Rs. Rs. Rs. BALANCE SHEET
Source of funds:
Reserves and surplus
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(Source: Financial management accounting, Ambharish Gupta) Deferred Govt.grants 35,00,0 00 28,00,0 00 21,00,0 00 14,00,0 00 7,00,00 0 Less: Transferred to profit and loss Account @ 20% of the grant received 7,00,00 0 7,00,00 0 7,00,00 0 7,00,00 0 7,00,00 0 Added to source of funds 28,00,0 00 21,00,0 00 14,00,0 00 7,00,00 0 Nil Secured loans
PROFITAN D LOSS ACCOUNT
Expenses
depreciation
63,00,0 00 63,00,0 00 63,00,0 00 63,00,0 00 63,00,0 00 Income: Governmen t Grants 7,00,00 0 7,00,00 0 7,00,00 0 7,00,00 0 7,00,00 0 Net expense charge to profit and loss account. 56,00,0 00 56,00,0 00 56,00,0 00 56,00,0 00 56,00,0 00
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AS-16: BORROWING COSTS Meaning Borrowing Cost Interest and other costs incurred by an enterprise in connection with borrowing of funds are termed as borrowing costs. Borrowing cost may include: i. Interest and commitment charges on borrowings (long-term or short-term) ii. Amortization of discounts or premiums relating to borrowings iii. Amortization of ancillary costs incurred in connection with the arrangement of borrowings iv. Financial charges in respect of assets acquired under finance lease or under other similar arrangements v. Exchange difference arising from borrowings to the extent it amounts to interest costs. Qualifying asset An asset which takes substantial period of time to get ready for its intended use or sale, is called qualifying asset.
Example: Any tangible fixed assets, which are in construction process or acquired tangible fixed assets, which are not ready for use or resale. (Plant and machinery, Building etc.,) Any intangible assets, which are in development phase or acquired but nit ready for use or resale. (Patents, copyright etc.,) Investment property Inventories that require a substantial period to bring them to a saleable condition.(may be more than one year) A. Recognition:
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The borrowing costs which directly relates to the acquisition, construction or Production of qualifying assets should be capitalized. The following conditions should be satisfied for capitalization of borrowing costs as a Part of the cost of the qualifying asset The borrowing costs should directly relate to the acquisition, construction or Production of qualifying assets and the cost can be measured reliably. The qualifying asset should result in future economic benefits to the enterprises. Any other borrowing costs should be recognized as an expense in the period in which they are incurred. B. Borrowing cost eligible for capitalization Specific Borrowings Funds borrowed specifically for the purpose of obtaining a qualifying asset is called specific borrowings. Amount of borrowing cost eligible for capitalization = Actual borrowing cost less any income on temporary investment of those borrowings. General Borrowings Funds borrowed generally (not specifically for the purpose of obtaining a qualifying asset) is called general borrowings. Amount of borrowing cost eligible for capitalization should be determined by applying a capitalization rate to the expenditure on that asset. Amount of borrowing cost eligible for capitalization = Expenditure on the asset Capitalization rate. The capitalization rate should be weighted average of the borrowing costs applicable to the general borrowings of the enterprises outstanding during the period. Capitalization Rate = Weighted average borrowing cost Weighted average borrowing cost =Total borrowing cost x100 Total average outstanding borrowings
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The amount of borrowing cost capitalized during a period should not exceed the amount of borrowing cost incurred during that period.
C. Commencement of capitalization of borrowing cost (When to start capitalization of borrowing cost) The following conditions must be satisfied for commencement of capitalization of borrowing cost a. Expenditure for acquisition, construction or production of a qualifying asset is being incurred; b. Borrowing cost is incurred; c. Activities which are necessary to prepare the asset for its intended use or sale are in progress. Expenditure on a qualifying asset includes payment of cash, transfer or other asset or assumption of interest bearing liabilities. Any progressive payments received or grants received towards the cost incurred should be deducted from the expenditure. D. Suspension of capitalization of borrowing cost (Stop capitalization for a short period) Capitalization of borrowing cost should be suspended period in which active development is interrupted. Capitalization of borrowing cost is not suspended when a temporary delay is a necessary part of the process of getting an asset ready for its intended use or sale.
E. Cessation of capitalization of borrowing cost (Stop capitalization) Capitalization of borrowing cost should cease when substantially all the activities necessary to prepare the qualifying asset for its intended use or sale are completed.
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When the construction of a qualifying asset is completed in parts and a completed part is capable of being used while construction continues of other parts, capitalization of borrowing costs in relation to a part should cease when substantially all the activities necessary to prepare that part for its intended use or sale are completed.
Disclosure: a. The Accounting Policies adopted for borrowing costs. b. The amount of borrowing costs capitalized during the period.
Chapter -2 RESEARCH DESIGN
TITLE OF THE STUDY: A Study on Fixed Assets Management at Versabyte Data Systems Pvt.Ltd.
PROBLEM OF THE STUDY:- Every organization faces the problem of fixed assets management start from purchasing
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to disposal of an asset. That is finance problem (borrowing cost), maintenance problem (repairs & maintenance), depreciation problem, Man power to maintain it (technical staff), other things regarding fixed asset. Fixed asset management is a process of management accounting. This process tracks for such purposes as theft protection, financial accounting, and preventive measures. It is quite a big problem for many companies and organizations to detect condition, location, status and other parameters of their fixed assets. A popular method of fixed asset management supposes the usage of asset tag with serial number. Such tags can also contain bar code for comfortable reading and understanding. The project studied regarding all the above problems.
OBJECTIVES OF THE STUDY:- To study and have an overview of in Versabyte Data Systems Pvt.ltd(VDS) managing fixed assets. To study various risk involved VDS Company. To study working, mechanism and benefits of fixed assets management. To study whether the method and the sales of the depreciation for the fixed assets is appropriate as per the companies act 1956. To study the scope and coverage of (AS-10) on valuation of fixed assets.
To know application of (AS-11) government grant. To study the borrowing cost problem facing by the company (AS-16) SCOPE OF THE STUDY The study mainly concentrates on the fixed assets management, fixed assets utilization and risk-return dynamics of assets by the VDS Company. Borrowing cost problem, and also on the measuring the efficiency of fixes assets of and the impact of extent of utilization of fixed assets on sales and operating profits of VDS.This will help us to know fixed assets utilization and their credit to profits which helps to the growth of the company. And also which fixed assets are not in active use or idle or which are stated at
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the lower of their net book value. Review of Fixed Asset Management Systems Article (By isaac m. O'bannon, technology editor on nov 29, 2010) Here in this article he has studied that ,For those with many fixed assets, the ability to perform mass actions is essential, as are asset location and tracking capabilities, particularly for organizations with multiple locations. Strategic and effective asset management is somewhat of a combination of knowledge of tax law and the art of structuring variable depreciation methods into beneficial and legal treatments that help a business take the greatest advantage of offsets to their tax liabilities, and to plan for future investment. As a tax and accounting professional, you are the artist. And a fixed asset management program and knowledge of tax law are some of the tools of your trade. Books D.S.Rawat, accounting standards explained about accounting standards. S.P.Jain ,K.I.Narang,advanced accounting explained about accounting related to fixed assets R.K.agarwal,GAAP explained about the Indian GAAP R.K.Agarwal,Accounting standards explained about the accounting standards relating to Indian accounting standards( IICA) Ambharish Gupta, Financial accounting for management explained about the overall assets valuation methods Simplified material of accounting standards by Rachan kumar explained in short the all accounting standards Journals Oorja international journal of management of IT, (A study on efficiency and financing fixed assets) by Dr.M.Sekar,M.Gowr,A.G.Ramya . used trend analysis to measure the efficiency of fixed assets performance in the organization.
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Operational definition of concepts Primary and secondary sources. Primary data refers to the data that one has collected using his or her own efforts. Primary data, by contrast, are collected by the investigator conducting the research. Secondary data on the other hand refers to data that has been collected by another party. Secondary data can usually be accessed through published or electronic form. . Common sources of secondary data for social science include censuses, organizational records and data collected through qualitative methodologies or qualitative research. SOURCES OF DATA:- The data required for the study would be collected from both primary and secondary sources. The primary data pertains to data collection from interviews and observations. The secondary data relates to data collection from the websites, articles, journals, reference books, and annual reports of the company, etc. Data was also collected through personal visits to persons. The data has been analyzed statistical tools. Data has been presented with the help of bar graph and line graph. SAMPLE DESIGN: Only the fixed assets of VDS Company.
METHODOLOGY:- To address the objectives underlying the study, the primary data would be collected through questionnaires and interviews. The observations are analyzed using various statistical tools and trends.
TYPES OF RESEARCH PLUS TOOLS FOR DATA COLLECTION. 1. www.google.com. 2. Journals 3. Company information as hard and soft copy.
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4. Ratio analysis 5. Reference books PLAN OF ANALYSIS Classification and tabulation is made for the information which is collected through company .Results is highlighted by preparing the tables for information collected through primary data. Percentage will be calculated and different graphs are prepared.
LIMITATIONS OF STUDY:- The study curtails comparison as it is within the preview of only one organization. The study can only be used as a preview to entire range of problems. The information provided by the organization was limited to a far extent due the company rules and secrecy purpose. The reference period is taken as 5 years. Time factor as a period of one month for gathering data
CHAPTER SCHEME
CHAPTER 1: INTRODUCTION: This chapter views the theory part of Fixed Assets Management and its importance, usefulness, status and why the study is needed.
CHAPTER 2: RESEARCH DESIGN This chapter views the methodology of the study, the research design, and sources of data, sampling plan, field work, data processing and plan of analysis.
CHAPTER 3: INDUSTRY & COMPANY PROFILE This chapter views the origin & growth of VSD, its objectives, Mission, Developmental
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activities & profile of company in general, etc. CHAPTER 4: DATA ANALYSIS & INTERPRETATION In this chapter data collected is complied, tabulated, processed &analyzed and interpreted with the help of graph to present data analysis.
CHAPTER 5: FINDINGS, SUGGESTIONSAND CONCLUSION This Chapter deals in providing summary of findings through Data analysis and interpretations from the previous chapters, and gives suitable suggestions based on the study made from this project, and This chapter contains the summary providing an overall study of the project.
Chapter -3 company profile ABOUT INDUSTRY Power supply units A power supply unit (PSU) converts mains AC to low-voltage regulated DC power for the internal components of a computer. Modern personal computers universally use a switched-mode power supply. Some power supplies have a manual selector for input voltage, while others automatically adapt to the supply voltage.
EVOLUTION Address by Frank Toich, Sales Manager, at Kepco's 50th Anniversary Celebration1926 Ad for Motorola Battery Eliminator. The power supply industry dates back to the early
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1920s, when crude devices were first developed to serve as "B" battery eliminators to power radios in both the commercial and consumer markets. The market for separate power supplies evaporated around 1929, when most radios manufactured included a built-in power supply. The need for stand-alone power supplies remained relatively small in the 1930s and into the 1940s. The dominant technology during this period consisted of vacuum tube linear regulators. Power supplies used vacuum tubes for both the power and control elements. Typically, a voltage regulator (VR) tube, the predecessor to today's zener diodes, was used to produce a stable reference. Control was pretty much limited to the manual twisting of knobs. In those days we did not care too much about dissipation. Under normal circumstances, vacuum tubes ran pretty hot -- and unless the plate of the tubes glowed red, or glass started to melt, no one worried much about it.In the mid 1940s, three companies set up shop in a relatively obscure community in Queens, New York A milestone in the industry occurred in the 1950s when semiconductors were first introduced into the power supply design In the 1970s, an energy crisis, which affected the entire industrial world, provided the switching power supply with an opportunity to re-surface and establish a significant position in the electronic marketplace. The big breakthrough in the 1970s was the development of low loss ferrite (transformer core material), coupled with the readily available, higher speed silicon transistors that made possible the practical reality of high frequency products which could operate above 20KHz where they were inaudible. The 1980s saw many new start-up companies enter the market producing switch-mode products. Many of these new companies were based in the Pacific Rim, first in Japan, and eventually shifting to Taiwan and Hong Kong. Inception The idea of establishing versa byte data systems pvt.ltd is started by 4 members who are active players and share holders and the directors too.
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Previously many products were like IT products, telecommunication products (message Account terminals, telegraphic terminals) were importing from Russia. so the idea clicked to manufacture the same products in our own country and can supply to other countries including India too. Like this versa byte data systems running now after crossing many pitfalls, at good position. Company history Versa byte data systems private limited (VDS) started operations in the year 1987 addressing the requirements of defence, telecommunition and other general industries in the area of power supplies and microprocessor based products. Over the years, it has provided customized solutions to various satisfied customers and continues to do so even today. Over the years we have pioneered in successfully meeting the challenges of producing Hi reliability custom built products for defense services.
VDS specializes in design and development of MIL standards power supplies for Indian defence Establishments. The products have been fully designed in house to suit the customers requirement. These products have found good standing amongst the users because they are import substitutes and low priced. All these products are MIL standard satisfying stringent quality requirements like dimensions, size and special features. These are approved by defence authorities like CRI, CRE, ALISDA, ASIEO, DLRA, and RCMA. Density power supplies for submarine applications are approved by NSTL and WE. Our products are qualification approved by defense quality approving authorizes. We extend life time support to our products delivered.
VDS has the capacity to provide any technical skill in power electronics field by selecting appropriate technology and suitable personnel because of years of cumulated experience directors of the company. Best of the public sector undertakings and other units who meet the defence requirement
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government of India are the satisfied customers of the company. The strength of the company is a experienced design team supported by qualified engineers and dedicated administrative staff. We stand unique in the power projects because of our technical capability and selection of products. Objectives of the company To carry on the business as: manufacturers,assemblers,buyers,sellers,indentors,hirers,repairers,importers,system engineers,systemanalystsandconsultantsofalltypesofcomputersandmicroprocessorsbaseds ystems,mainframesystems,personelcomputers,wordprocessors,computerised power systems and othercomputerizedandmicroprocessorbasedsystemsandothercomputerizedandmicroproces sorbasedsystemsforcommunication,medical,business,commercial,industrial,environmenta l,processcontrol,instrumentsandperipherals,acecssories,apparatus and all things used there with or in the manufacture,maintenance,repair and working thereof To carry on the business as: manufacturers,buyers,sellers,indentors,hirers,repairers,importers,exporters,promoters,age nts.representatives and consultants of all kinds of peripherals and associated equipments such as printers,disk,drivers,video display units, line printers, magnetic tape drivers, hard disk controllers and inter faces instruments. Logic analyzers and control equipments including data acquition systems,analog,A to D and D to A converters.line receivers,paging and data acquisition systems. To function as consultants and advisers to individuals, firms, bodies, corporation, local authorities and government departments in business,industry,management,engineering technological and research fields. Vision Serve nation by quality products to navy, army, and airforce. Mission You can get in touch with us with an idea and we will make it a reality
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Nature: The Company is engaged in the manufacturing and research and development of power supply units at present Versa byte data systems Board of directors Mr.P.S.Reddy Mr.Narahari.C.N Mr.Rajesh.P.Reddy
Achievements in the year 2008-09 One of the companiess reputed customer to whom power supply units were supplied in earlier years had placed orders for design, development and supply of 1 to 3 phase of power converters. These are successfully designed, manufactured and supplied to customers to their entire satisfaction. We had orders worth orders Rs.1457.80lakhs as on 1 st April 2008 and received about Rs.717.19 lakhs worth orders during the year. After executing the orders worth Rs.1173.62 (Basic cost), we had about Rs.1001.37 confirmed orders in hand as on the closure of the year 2008-09. Achievements in the year 2010-11 Company had received developmental order from a reputed sector unit for the development and supply of EPC (electronic power controller) for MPM (microwave power module)and succeeded in delivering SIX(6) such units during first phase for approval. We had orders worth orders Rs.584.84lakhs as on 1 st April 2010 and received about Rs.849.34 lakhs worth orders during the year. After executing the orders worth Rs.684.85 (Basic cost), we had about Rs.749.33lakhs confirmed orders in hand as on the closure of the year 2010-11. Achievements in the year 2011-12 Company had received an order for the development and supply of electronic power control distribution unit for 270V DC a project from a defense unit of government of
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India, Bangalore and have delivered 4 units during the year. We had orders worth orders Rs.749.33lakhs as on 1 st April 2011 and received about Rs.231.69 lakhs worth orders during the year. After executing the orders worth Rs.660.82 (Basic cost), we had about Rs.2996.20lakhs confirmed orders in hand as on the closure of the year 2011-2012. Achievements in the year 2012-13 Company had received an order for one of project for the development and supply of MULTI OUTPUT DC DC POWER SUPPLY WITH CBIT FACILITY QTY-12 NOS value Rs.171.42lakhs from a defense unit of government of India, Bangalore and the work is in progress. We had orders worth orders Rs.2499.90lakhs as on 1 st April 2012 and received about Rs.917.96lakhs worth orders during the year. After executing the orders worth Rs.943.76 (Basic cost), we had about Rs.2474.10lakhs are in hand as on the close of the year 2012- 2013.
Future plan 2012-13 For the year 2012-13 work is in progress for the designing and development of a product being name high Endurance Astra power supply units which we developed during the year and will be delivered in current year. Development of a new product by the name ANTENNA LRU PSU for one of the defence unit of government of India is in progress. Company had received an order of Rs.1692.96lakhs from a reputed public sector unit for the repair of transmitters. The delivery of the units is spread over for 3 years. For the year 2013-14 development of a new product being name ANTENNA LRU PSU for one of the defence unit of government of India,which is in progress and during the year it will be delivered in current year. Company has successfully executed 1 st year of contract order of Rs.402.48lakhs out of 1692.96lakhsfrom a reputed public sector unit for the repair of transmitters. The contract is spread over for 3 years. Company is having plans to complete the development activities for the orders received
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from defence R & D units and to settle for the production supplies during the next year. The company has go allotted half acre of industrial land by KSSIC at Somapura industrial estate, dabaspet, nelamangala TQ for future expansion and the possession certificate has been received.
Company strength 1) PCB design multi layers -12 layers and testing. 2) High voltage planar transformers fabrication/assembly. 3) High voltage design upto20KV 4) In house designing and testing facility 5) Embedded software development for digital control and communication. 6) Experience of handling and testing of any microwave tubes solid state amplifiers and passive components. 7) EMI/EMC compliances of the product. 8) Registered DGQA and CEMILAC approved design house. 9) Very strong research and development background across a range of power solutions. 10) Developed and productionised 18 different type approved units 11) Presently 8 units under development for type approval. 12) Designing products qualifying standards required by air force, navy, army and civil aircraft. 13) Vast experience ensures delivery of the right product with the right economics at the right time 14) Knowledge on NAVMAT P4855-1A guidelines for ESS and design.
Facilities 1) Equipments like spectrum analyzer oscilloscope arbitrary wave form generator available with us. 2) Vacuum potting and packing facility available in house
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a. Rapid temp cycling chambers with humidity test facilities b. Dry heart chambers c. Vibration shaker 2000kgs f 3) High precision mechanical fabrication, aluminium casting /dip brazing facility for chassis fabrication. 4) In house CNC machine.
Our products meet the following standards We have in house capability of testing the products to meet a. MIL-STD-810: environmental test methods and engineering guidelines. b. MIL-STD-2164: environmental stress screening process for electronic equipments. c. MIL-STD-461E: EMI/EMC compatibility (we have capabilities to check at lab level conducted EMI and radiated EMI). d. MIL-STD-1389: design requirements for standard electronic modules.
Mechanical design aspect of electronic equipment We have capability of designing of enclosures, chassis, heat sink, cold plate and other parts taking into consideration ruggedisation and light weight for military application in particular airborne application. Our designs safeguards electronic components, devices and PCB from large displacement and high temperature caused by vibration and thermal environment specified by MIL STD specified by customer. A virtual prototype is build before the fabrication of the product, in the computer in which the parts are created and assembled to sort out the problems like interference, clearance and accessibility. The product thus visualized through virtual prototype is set for communication with various discipline for alteration and modification etc. The design parameter like stress, strain natural frequency and temperature, vital for
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functioning of the equipment, is evaluated and corrected in the computer with the help of CAE software. A proto-type of product is build with appropriate manufacturing process like machining, casting welding and sheet metal operation and tested its strength in vibration and thermal lab according to MIL spec. The product function is checked measuring design parameter like stress, natural frequency, temperature airflow volume and velocity using appropriate measuring techniques and instruments. Action taken for production of product after the prototype passes the required tests specified by customer.
CERTIICATION Prominent test houses who had certified versabyte products : 1. CEMILAC 2. RCMA 3. ALISDA
4. DGAQA 5. QAE (N)
APPORVED We are CEMILAC approved design firm for Design and development of airborne power supply units. Design and development of airborne electronic units, microprocessor based units. Rebuilding airborne electrical machines through modifications and reverse engineering.
Test facility available Measurement of current ,voltage,resitence
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Wave form analysis/ measurement EMI/EMC High voltage Temperature measurement Frequency converter
AWARDS Best entrepreneur from bank of Baroda. Industry appreciation award from Naval Science and Technological laboratory, vishakapatanam on 15th February 2007.
PRODUCTS LIST
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Chapter 4 - Analysis and Interpretation
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Analysis The above table shows that the fixed asset turnover ratio when compare to the year 2008-09 was 25.63, year 2009-10 is decreased to 6.59 and further its increased to 6.73 in the year 2010-11.But decreased to 3.92 in the year 2011-12.and finally in the year 2012-13 it has been increased to 5.46. This indicates about the fixed assets turnover ratios are fluctuating in each year.
GRAPH 1: REPRESENTING FIXED ASSETS TURNOVER RATIO
Fixed assets turnover ratio: This ratio measures the productivity of the fixed assets in the firm.
Fixed assets turnover ratio= Sales Fixed assets
TABLE 1: SHOWING FIXED ASSETS TURNOVER RATIO
YEAR SALES FIXED ASSETS RATIO 2008-09 150,047,200
5,854,121 25.63 2009-10 68,537,345
10,392,685 6.59 2010-11 77,279,471
11,481,663 6.73 2011-12 75,260,705
19,184,555 3.92 2012-13 111,933,860
20,514,846 5.46
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Interpretation
The above graph indicates that the fixed assets turnover ratio when compared to the year 2008-09 to year 2009-10 is decreased and further it increased in the year 2010-11,and decreased in the year 2011-12. And at the year 2012-13 it has been considerably increased. This indicates about the fixed assets turnover ratio fluctuating in each year. The ratio shows increase of fixed assets than increase in sales it causes to decrease in the turnover ratio of the firm.
Fixed assets to net worth ratio: This ratio measures the portion of share capital and reserves used to finance fixed assets.
Fixed assets to net worth ratio= Fixed assets Net worth 0.00 5.00 10.00 15.00 20.00 25.00 30.00 2008-09 2009-10 2010-11 2011-12 2012-13 25.63 6.59 6.73 3.92 5.46 RATIO
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TABLE 2: SHOWING FIXED ASSETS TO NET WORTH RATIO
YEAR FIXED ASSETS NET WORTH RATIO 2008-09 5,854,121 46,389,137 0.13 2009-10 10,392,685 52,669,559 0.20 2010-11 11,481,663 56,857,327 0.20 2011-12 19,184,555 60,270,350 0.32 2012-13 20,514,846 69,152,208 0.30
Analysis
This table shows that fixed assets to net worth ratio when compared to year 2008-09 was 0.13, year 2009-10 is increased to 0.20 and remains constant at 0.20 in the year 2010-11 ,and it again increased to 0.32 in 2011-12.and finally declined to 0.30 in 2012-13. This indicates about fixed assets to net worth ratio have been gradually fluctuating in each year.
GRAPH 2: REPRESENTING FIXED ASSETS TO NET WORTH RATIO
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Interpretation: The above Graph indicates that the fixed assets to net worth ratio when compared to year 2008-09 to year 2009-10 is increased and further remains constant in the year 2010-11, in 2011-12 it has been increased and decreased in 2012-13. This indicates about long term financial soundness of the company.
Fixed assets to Long term funds ratio: This ratio measures the proportion of long term funds used for fixed assets.
Fixed assets to Long term funds ratio = Fixed assets Long term funds 0.13 0.20 0.20 0.32 0.30 0.00 0.05 0.10 0.15 0.20 0.25 0.30 0.35 2008-09 2009-10 2010-11 2011-12 2012-13 FIXED ASSETS TO NET WORTH RATIO RATIO
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TABLE 3: SHOWING FIXED ASSETS TO LONG TERM FUNDS RATIO
YEAR FIXED ASSETS LONG TERM FUNDS RATIO 2008-09 5,854,121
13,377,435 0.44 2009-10 10,392,685
7,866,055 1.32 2010-11 11,481,663
13,791,073 0.83 2011-12 19,184,555
3,739,962 5.13 2012-13 20,514,846
4,451,905 4.61
Analysis
This table shows that fixed assets to long term funds was in 2008-09 is 0.44 and in the year 2009-10 increased to 1.32 at 2 times and further decreased to 0.83 in the year 2010- 11,tremendously increased to 5.13 that is by 6times ,but finally decreased to 4.61 in the year 2012-13.
GRAPH 3: REPRESENTING FIXED ASSETS TO LONG TERM FUNDS RATIO
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Interpretation:
The above graph indicates that fixed assets to long term funds. In the year 2008-09 got more, remaining all the years were less. Fixed assets and long term funds are not so utilized effectively in the business and it affects the profitability of the company.
Total assets turnover ratio: This ratio measures the productivity of the total assets of the firm.
Total assets turnover ratio= Net sale 2008-09 2009-10 2010-11 2011-12 2012-13 0.44 1.32 0.83 5.13 4.61 FIXED ASSETS TO LONG TERM FUNDS RATIO RATIO
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Total assets TABLE 4: SHOWING TOTAL ASSETS TURNOVER RATIO
Analysis
This table shows that sales to total assets was in 2008-09 is 2.05 and in the year 2009-10 decreased to 1.06 and further decreased to 0.86 in the year 2010-11,tremendously decreased to 0.53,but finally increased to 0.79 in the year 2012-13. This indicates about sales to total assets ratio have been gradually fluctuating in each year.
GRAPH 4: REPRESENTING TOTAL ASSETS TURNOVER RATIO
YEAR SALES TOTAL ASSETS RATIO 2008-09
150,047,200
73,157,987 2.05 2009-10
68,537,345
64,964,047 1.06 2010-11
77,279,471
89,850,482 0.86 2011-12
75,260,705
141,438,562 0.53 2012-13
111,933,860
141,270,599 0.79
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Interpretation
The above graph represents the total assets turnover ratio. As the graph indicates that the total assets turnover ratio is more in 2008-09 when compared to rest of the years as the sales are more. Then due to decline in sales it has been come down.
Current assets to fixed asset ratio: This ratio measures the how many current assets are bought or utilized through fixed assets. There is no specific ratio for this. It measures the proportion between the fixed assets and current assets the company as acquired.
2008-09 39% 2009-10 20% 2010-11 16% 2011-12 10% 2012-13 15% TOTAL ASSETS TURNOVER RATIO
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Current assets to Fixed assets ratio= Current assets Fixed assets
TABLE 5: SHOWING CURRENT ASSETS TO FIXED ASSETS RATIO
YEAR CURRENT ASSETS FIXED ASSETS RATIO 2008-09
67,303,866
5,854,121 11.50 2009-10
54,571,362
10,392,685 5.25 2010-11
78,368,819
11,481,663 6.83 2011-12
122,254,007
19,184,555 6.37 2012-13
120,755,753
20,514,846 5.89
Analysis
This table shows that the Current assets to Fixed assets ratio. In the year 2008-09, it was 11.50 and it has decreased to 5.25 in 2009-10.and increased to 6.83 in 2010-11 .Gradually decreased to 6.37 and 5.89 in 2011-12 and 2012-13 respectively. The Current assets to fixed assets ratio have been gradually fluctuating in each year.
GRAPH 5: REPRESENTING CURRENT ASSETS TO FIXED ASSETS RATIO
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Interpretation
The above Graph explains about the current assets and fixed assets. There is fluctuation in the figures over the period of time. The fixed assets are increasing and current assets are not so gradually fluctuating so the company financial position quite good.
Return on Fixed assets: This ratio measures the productivity of the fixed assets in the company.
11.50 5.25 6.83 6.37 5.89 2008-09 2009-10 2010-11 2011-12 2012-13 CURRENT ASSETS TO FIXED ASSETS RATIO RATIO
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Return on Fixed assets = Net profit/loss *100 Fixed Assets
TABLE 6: SHOWING RETURN ON FIXED ASSETS RATIO
YEAR NET PROFIT AFTER TAX FIXED ASSETS RATIO 2008-09 12,636,170 5,854,121 215.85 2009-10 6,280,422 10,392,685 60.43 2010-11 4,187,768 11,481,663 36.47 2011-12 3,413,023 19,184,555 17.79 2012-13 8,881,858 20,514,846 43.29
Analysis
This table shows that the Return on Fixed assets. The year 2008-09 is 215.85% it is double to fixed assets and compared to this 2009-10,2010-11,2011-12 all are at the declining rate at 60.43,36.47,17.79 respectively. And in the year 2012-13 bit increased to 43.29,. Returns on Fixed assets ratio have been gradually decreasing in each year It shows a negative sign of the company.
GRAPH 6: REPRESENTING RETURN ON FIXED ASSETS RATIO
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Interpretation
The Above Graph indicates about the return on fixed assets. When compared to the year 2008-2009. In the succeeding years the ratio of fixed assets turnover ratio is tremendously decreased so it shows the cash outflow and negative effect to the company.
Gross profit to fixed assets ratio: This ratio measures the gross profit out of fixed assets during the year in the company.
Gross profit to fixed assets ratio =Gross profit * 100 Fixed Assets 2008-09 2009-10 2010-11 2011-12 2012-13 215.85 60.43 36.47 17.79 43.29 RETURN ON FIXED ASSETS RATIO RATIO
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TABLE 7: SHOWING GROSS PROFIT ON FIXED ASSETS RATIO
YEAR GROSS PROFIT FIXED ASSETS RATIO
2008-09
19,683,300
5,854,121 336.23
2009-10
9,030,422
10,392,685 86.89
2010-11
5,756,918
11,481,663 50.14
2011-12
5,125,230
19,184,555 26.72
2012-13
13,701,083
20,514,846 66.79
Analysis
The above table shows that the gross profit charges to fixed assets ratio when compared to the year 2008-09 is 336.23, year 2009-10 is 86.89 ,year 2010-11 50.14,and for year 2011-12 it is 26.72.finally at the last year 66.79.so the Gross profit to fixed assets ratio has been fluctuating in each year.
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GRAPH 7: REPRESENTING GROSS PROFIT ON FIXED ASSETS RATIO
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Interpretation The above graph indicates about the gross profit charges on the fixed assets done by the companies. In the year 2008-09 gross profit to fixed assets ratio is very high when compare to rest of the years.2009-10, 2010-11 ,2011-12 gross profit to fixed assets ratio is at decreasing rate .2012-13 gross profit as been increased by2 times of previous year. 2011-12. The gross profit of the company is decreasing so the company profit position is not well and good . It shows cash outflow of the company
Net worth or proprietary ratio: These ratio measures the proportion of equity funds utilized to finance total assets.
Net worth or proprietary ratio= Equity funds Total assets
2008-09 2009-10 2010-11 2011-12 2012-13 336.23 86.89 50.14 26.72 66.79 GROSS PROFIT ON FIXED ASSETS RATIO RATIO
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TABLE 8: SHOWING NET WORTH OR PROPRIETARY RATIO
YEAR EQUITY FUNDS TOTAL ASSETS RATIO
2008-09
46,389,137
73,157,987 0.63
2009-10
52,669,559
64,964,047 0.81
2010-11
56,857,327
89,850,482 0.63
2011-12
60,270,350
141,438,562 0.43
2012-13
69,152,208
141,270,599 0.49
Analysis
This table shows that the equity funds to total assets ratio. In the year 2008-09, it was 0.63 and it has increased to 0.81 in 2009-10. It gradually decreased to 0.63 and 0.43 in 2010-11, 2011-12 respectively. Finally in the year 2012-13 it as increased to 0.49. The equity funds to total assets ratio gradually fluctuating in each year.
GRAPH 8: REPRESENTING NET WORTH OR PROPRIETARY RATIO
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Interpretation
The Above Graph indicates about the equity funds to total assets ratio. When compared to the year 2009-2010. In the preceding and succeeding years the ratio of equity funds to total assets ratio is tremendously decreased so it shows that the proportion of equity funds were not effectively used to finance total assets.
Current asset ratio: These ratio measures the firms ability to pay short term liabilities by using short term assets.
Current asset ratio= Current assets Current liabilities 2008-09 21% 2009-10 27% 2010-11 21% 2011-12 14% 2012-13 17% NET WORTH OR PROPRIETARY RATIO
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TABLE 9: SHOWING CURRENT ASSET RATIO
YEAR CURRENT ASSETS CURRENT LIABILITIES RATIO 2008-09
67,303,866
13,396,415 5.02 2009-10
54,571,362
4,433,433 12.31 2010-11
78,368,819
19,207,082 4.08 2011-12
122,254,007
77,664,081 1.57 2012-13
120,755,753
67,496,593 1.79
Analysis
This table shows that current asset to Current liabilities ratio. In 2008-09 is 5.02 and in the year 2009-10 increased to 12.31 at 2 times and further decreased to 4.08, 1.57, in the year 2010-11, 2011 respectively. But finally increased to 1.79 in the year 2012-13. The current asset ratio is highly fluctuating in each year.
GRAPH 9: REPRESENTING CURRENT ASSET RATIO
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Interpretation
The Above Graph indicates about current asset ratio. When compared to the year 2009- 2010. In the preceding and succeeding years the ratio of current assets ratio is tremendously decreased so it shows that the proportion of current assets are more sufficient to meet the current liabilities of a company.
Liquid ratio: Liquid ratio measures the firms ability to use quick money to pay quick assets
Quick assets= Current asset- (stock & prepaid expenses)
Quick liabilities= Current liabilities-bank overdraft
2008-09 2009-10 2010-11 2011-12 2012-13 5.02 12.31 4.08 1.57 1.79 CURRENT ASSET RATIO RATIO
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Liquid ratio= Quick assets Quick liabilities
TABLE 10: SHOWING LIQUID/QUICK RATIO
YEAR QUICK ASSETS QUICK LIABILITIES RATIO 2008-09
58,999,128
13,396,415 4.40 2009-10
38,071,629
4,433,433 8.59 2010-11
51,646,785
19,207,082 2.69 2011-12
75,155,922
77,664,081 0.97 2012-13
69,736,389
67,496,593 1.03
Analysis
The above table shows that the liquid/quick ratio. in the year 2008-09 is 4.40 and increased to 8.59 in the year 2009-10,then decreased to 2.69,0.97 in the year 2010-11 ,2011-12 respectively. At the year 2012-13 it was increased by bit that is 1.03.So the liquid/quick ratio shows that the quick assets are more enough to meet the quick liabilities of the company. Because the ratio should be at 2:1.
GRAPH 10: REPRESENTING LIQUID/QUICK RATIO
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Interpretation
The Above Graph indicates about the current assets ratio. When compared to the year 2009-2010. In the preceding and succeeding years the ratio of quick assets to quick liabilities is at decreasing rate. The liquid/quick ratio shows that the quick assets are more enough to meet the quick liabilities of the company. Because the ratio should be at 2:1.
Net profit ratio: This ratio measures the overall efficiency of the firm.
Net profit ratio= Net profit Sales
TABLE 11: SHOWING NET PROFIT RATIO 2008-09, 4.40 2009-10, 8.59 2010-11, 2.69 2011-12, 0.97 2012-13, 1.03 LIQUIDITY/QUICK RATIO RATIO
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YEAR NET PROFIT SALES RATIO 2008-09
12,636,170
150,047,200 8.42 2009-10
6,280,422
68,537,345 9.16 2010-11
4,187,768
77,279,471 5.42 2011-12
3,413,023
75,260,705 4.53 2012-13
8,881,858
111,933,860 7.93
Analysis
The above table shows that the net profit ratio. In the year 2008-09 is 8.42%,then increased to 9.16 in the year 2009-10and gradually decreased to 5.42 and 4.53 respectively in the year 2010-11 and 2011-12..finally increased to 7.93% in the year 2012-13..So the net profit ratio has been fluctuating in each year.
GRAPH 11: REPRESENTING NET PROFIT RATIO
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Interpretation The above graph representing the net profit ratio. In the year 2009-10 it has the highest profit than rest of the years it has been fluctuating due to sales are fluctuation in every year as the .net profit is dragged by sales.
Return on equity fund ratio: This ratio measure the return on equity fund invested by the shareholders in the company.
Return on equity fund ratio= PAT-preference dividend Equity funds
2008-09 2009-10 2010-11 2011-12 2012-13 8.42 9.16 5.42 4.53 7.93 NET PROFIT RATIO RATIO
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TABLE 12: SHOWING RETURN ON EQUITY FUND RATIO
YEAR PROFIT AFTER TAX EQUITY FUNDS RATIO 2008-09
12,636,170
46,389,137 0.27 2009-10
6,280,422
52,669,559 0.12 2010-11
4,187,768
56,857,327 0.07 2011-12
3,413,023
60,270,350 0.06 2012-13
8,881,858
69,152,208 0.13
Analysis
Above the table shows the return on equity funds ratio. Only in the year 2008-09 the returns are high at 0.27 but in the succeeding years like 2009-10, 2010-11, 2011-12 the returns are at decreasing rate that is at 0.12, 0.07, and 0.06 respectively. From these we can observe that the returns are very low on equity funds.
GRAPH 12: REPRESENTING RETURN ON EQUITY FUND RATIO
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Interpretation
The Above Graph indicates about the return on equity funds. When compared to the year 2008-2009. In the succeeding years the ratio of return on equity funds ratio is tremendously decreased. So it shows the decrease in profit level even though the equity funds are increasing yearly. It reflects negative effect to the company.
Interest coverage ratio: This ratio measures the availability of profits to pay interest
Interest coverage ratio= PAT + Interest Interest
TABLE 13: SHOWING INTEREST COVERAGE RATIO 2008-09 2009-10 2010-11 2011-12 2012-13 0.27 0.12 0.07 0.06 0.13 RETURN ON EQUITY FUND RATIO RATIO
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YEAR PROFIT AFTER TAX INTEREST RATIO INTEREST 2008-09
16,178,163
3,541,993 4.57 2009-10
8,285,664
2,005,242 4.13 2010-11
5,067,432
879,664 5.76 2011-12
7,543,973
4,130,950 1.83 2012-13
14,312,191
5,430,333 2.64
Analysis
The above table states the interest coverage ratio. In the year 2008-09 the ratio is 4.57 then decreased by bit to 4.13 in the year 2009-10.further increased to 5.76 and decreased to 1.83 in the year 2010-11 and 2011-12 respectively. At the last year it has increased to 2.64.we can notice that the interest coverage ratio is continuously fluctuating in every year.
GRAPH 13: REPRESENTING INTEREST COVERGE RATIO
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Interpretation The Above Graph indicates about the interest coverage ratio. When compared to 2008-09 the ability to pay the interest from the profits of the company is considerably fluctuating to due to the decrease in the profit rates also. So it symbolizes the negativity of the company.
Earnings per share ratio: This ratio measures the earnings per share invested by equity share holders of the company.
Earnings per share ratio= PAT preference dividends Number of equity shares
0.00 4.57 4.13 5.76 1.83 2.64 2008-09 2009-10 2010-11 2011-12 2012-13 INTEREST COVERGE RATIO RATIO
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TABLE 14: SHOWING EARNINGS PER SHARE RATIO
YEAR PROFIT AFTER TAX EQUITY SHARES RATIO 2008-09 12,636,170 30,000 421.21 2009-10 6,280,422 30,000 209.35 2010-11 4,187,768 30,000 139.59 2011-12 3,413,023 30,000 113.77 2012-13 8,881,858 30,000 296.06
Analysis
Above the table shows the earnings per share ratio . Only in the year 2008-09 the returns are at very high that is 421.21. But in the succeeding years like 2009-10, 2010-11, 2011- 12 the earnings per share are at decreasing level that is at209.35,139.59and 113.77 respectively. And finally in the year 2012-13 it has move towards positively that is to 296.06. From these we can observe that the earnings are often fluctuating..
GRAPH 14: REPRESENTING EARNINGS PER SHARE RATIO
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Interpretation
The Above graph indicates about the earnings per share ratio. Here all the years number of shares are same but the earnings on it are at fluctuating due to the low profits of the company. Only in the year 2008-09 and 2012-13 it has a good returns .
Debt equity ratio: It represents the proportion of debt in the capital structure of the company Debt= interest bearing long term liabilities.
2008-09 2009-10 2010-11 2011-12 2012-13 421.21 209.35 139.59 113.77 296.06 EARNINGS PER SHARE RATIO RATIO
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Debt equity ratio= Debt Equity
TABLE 15: SHOWING DEBT EQUITY RATIO
YEAR LONG TERM FUNDS EQUITY FUNDS RATI O 2008-09
13,377,435 46,389,137 0.29 2009-10
7,866,055 52,669,559 0.15 2010-11
13,791,073 56,857,327 0.24 2011-12
3,739,962 60,270,350 0.06 2012-13
4,451,905 69,152,208 0.06
Analysis
The table states the debt equity ratio. The year 2008-09 has 0.29 and the very next year decreased to 0.15 that is in 2009-10.but in the year 2010-11 again increased to 0.24.next after two assessment years also the ratio remains the same in 2011-12 and 2012-13.this shows that the equity is more utilized than debt. This is not good for the company as the ratio should at 1.5:1.
GRAPH 15: REPRESENTING DEBT EQUITY RATIO
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Interpretation
The Above Graph indicates about the debt equity ratio. The company is utilizing more equity funds than the debt which has to be avoided as there is more risk involved in equity than debt. Because the ratio should be at1.5:1 that is debt1.5 means equity at 1 ratio. This can be observed in the graph.
Depreciation ratio: This ratio measures the depreciation charged on the fixed assets of the company. Depreciation is calculated on written down value method.
Depreciation ratio = Gross block of fixed assets 36% 18% 30% 8% 8% DEBT EQUITY RATIO 2008-09 2009-10 2010-11 2011-12 2012-13
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Depreciation
TABLE 16: SHOWING DEPRECIATION RATIO
YEAR GROSS BLOCK OF DEPRECIATION RATIO FIXED ASSETS 2008-09 18,361,527 1,017,210 18.05 2009-10 24,212,575 1,312,484 18.45 2010-11 26,928,470 1,649,556 16.32 2011-12 36,594,062 2,246,522 16.29 2012-13 40,948,366 3,024,013 13.54
Analysis
The above table states the depreciation ratio. In the year 2008-09 the depreciation ratio is 18.05 then increased by bit to 18.45 in 2009-10.Next in the coming years decreased to 16.32, 16.29 and13.54 in 2010-11, 2011-12 and 2012-13 respectively. These shows that fixed assets are decreasing in the company only than the depreciation is decreased.
GRAPH 16: REPRESENTING DEPRECIATION RATIO
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Interpretation The Above Graph indicates about the depreciation ratio. The depreciation is more in the year 2009-10 this shows more fixed assets presence and in the rest of the years fixed assets are less so the depreciation is also less .The reason for this is that the fixed assets are sold and decreased
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Sales are fluctuating from 2008-09 to 2012-13 in these years 2008-09 have highest sales and 2009-10 has the lowest sales. But after it keeps on increasing in the year 2012-13 it has second highest sales when compared to 5 years. Depreciation has been provided on written down value method at ht rates specified in schedule xiv of the companies act,1956. In the case assets acquired durig the year,pro-rata depreciation for the period for which the sset is used is provided. Company is not dealing with or trading I share, securities, debentures and other investments. Accordingly clause4 (xiv) of the order not applicable. The term loans have been applied for the purpose for which they were raised. No funds raised on short term basis have been utilized for long term investment. No long term funds used to finance short term assets. The company has not made any preferential allotment of shares.accordignly clause 4 (xviii) of the order not applicable. The company has not issued any debentures.accordinglyclause 4 (xix) of the order is not applicable. The company has not raised any money by public issue during the year. Accordingly clause 4 (xx )of the order is not applicable. Fixed assets are stated at cost less depreciation. Costs comprise the purchase price and any attributable costs of bringing the asset to working condition for its intended use. Sales are reported net after adjustments and return. They are accounted only after the dispatch of goods and are inclusive of excise duty and sales tax. As per requirement of the company act 1956 all the expenses and revenues are accounted on accrual basis except interest on investments (national saving certificates),which will be accounted on cash basis. Bank of Baroda has financed for various fixed assets with interest to VDS. Plant and machinery are considerably increasing in the year 2008-2013 without any scrap. Furnitures and fixtures are also increasing at higher rate in the 5 years without any scrap.
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Office equipments are also increasing at higher rate from 2009-2013 without any scarp. Vehicles are sold and also purchased in between the 5 years. Buildings were highly increased from 2008-2013 that is from 10lakh to 1crore. Computers are also increasing at higher rate from 2008-2013 without any scarp. No government grant has been provided for the VDS co., on fixed assets. Valuation fixed assets includes cost of asset, installation charges, taxes, etc. Recently the deletions of fixed assets were less other than vehicles. Maintenance cost of plant and machinery is high when compared to other fixed assets. As the company is involved in Research & Development and Manufacturing. Plant and machinery and computers are more utilized in production as both are need for manufacture of products They are the original manufacturers and their products cannot be manufactured by others as they are certified by the concerned authority. VDS co., has no competition as they produce customized products and not the commercial products. If any minor problems in plant and machinery will be done by staff itself as all the employees are well educated with B.E. and diploma in engineering. The most advantageous thing is that the same plant and machinery can be utilized for the production of some different types of power supply units (products). All the accounting transactions related to the company are maintained till date upto the time without fail. All the books of accounts related to various aspects of the company are cleanly maintained. The company is also neatly maintained with sufficient staff and in good environment. The company has granted no loans and advances on the basis of security by way of pledge of shares debentures and other securities.
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No adequate place for assets due to environment reason as the area surrounding the company is residential area. Rent has to been paid for the asset kept outside factory. Sometimes the usage of plant and machinery remains ideal due to the products variation, i.e.each product require separate machine. Without security no finance is provided to fixed assets from bank. From government they get only the orders but no other facilities like govt.grant, subsidies, and tax benefits. Here the products are produced according to the customers specifications no own designed products are manufacturing is restricted. So it restricts the usage of machine. The production of the product is up to the requirement or required quantity only if any extra may be wasted.
SUGGESTIONS It is suggested to issue their shares to public, the public shares creates more inflow of cash as capital.
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Instead of borrowing loan from banks the public shares amount can be used to finance fixed assets. The financial risk can be reduced by this. It is suggested to innovate more new products by Research & development. Ti is suggested to concentrate on their sales as it is gradually decreasing. Net profit should be increased so the Earnings per share will be more to them as all are Equity share holders. It suggested to maintain always liquid ratio at 2:1 ratio which is good for a company. Fixed assets turnover ratio is also to be maintained and concentrate to improve sales. Avoiding constant borrowing from bank because profit is less to cover the interest rate It is suggested to reduce the maintenance cost on plant and machinery as it is yearly increasing by proper timely services to it.
CONCLUSION
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In financial accounting, an asset is an economic resource. Anything tangible or intangible that is capable of being owned or controlled to produce value and that is held to have positive economic value is considered an asset. Fixed assets are long lived assets in the sense that they provide enduring benefits to the entity. An enterprise holds a fixed asset (property, plant and equipment, or intangible assets) for use in production and supply of goods or services, for rental or for administrative purposes on a continuing basis. Fixed assets management is an accounting process that seeks to track fixed assets for the purposes of financial accounting, preventive maintenance, and theft deterrence. Fixed asset management is a part of asset management that involves asset management software also. By analyzing we can conclude that the fixed assets are main part of revenue generating to the company if they were fails to utilize those assets many factors in the company will be affected. This leads to many pitfalls of the company. So the fixed assets have to taken proper care to run the company at high level.
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