SUMMER INTERNSHIP PROGRAM – 2009
A REPORT ON
operating procedure of material ““Standard “ Standard procurement, movement, accounting accounting,, Auditing Auditing and implication” ” their financial implication ” SUBMITTED BY: Nabin Kumar Shaw PGDM Batch 2008-10 Roll No. 30126
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Table of contents: Sl No 1 2 3 4 5 6 6.1 6.2 6.3 6.4 7 8 8.1 8.1.1 8.1.2 8.1.3 8.1.4 8.2 8.2.1 8.2.2 8.2.3 8.2.4 8.2.5 8.2.6 8.3 8.3.1 8.3.2 8.3.3 8.3.4 8.3.5 8.4 8.4.1 8.4.2 8.4.2.1
Particulars Executive Summary Preface Certificate of Authenticity Acknowledgement Objective Introduction of the Company Bhushan power & steel at Orissa….. Mission, Values & Their Commitments History of the Company Management (Board of Director) From the MD’s desk Job done in M/S Bhushan Power & steel Ltd Store Department Basic documents required in Store Department Process of Material Outward from the store Process of unloading of a TRUCK Auditing of books in stores Purchase Department Types of Purchase Process of Purchase (for Maintenance) Process of Purchase (for Consumables) List of few Suppliers List of few Materials for SMS-1 List of few Materials for SMS-2 Bill Passing Department Format of a Supplier’s Bill Format of Inward Security Pass Format of Materials Receipt Note Format of Raw Materials Analysis Report Format of Debit / Credit Note Audit Department Basic concept of Auditing Internal Auditing History of internal auditing 2
8.4.2.2 8.4.2.3 8.4.2.4.1 8.4.2.4.2 8.4.2.5 8.4.2.6 8.4.3 8.4.3.1 8.4.4 8.4.4.1 8.4.4.2 8.4.5 9. 9.1 9.2 9.3 9.4 9.5 9.5.1 9.5.2 9.5.3 9.5.4 9.5.5 9.5.6 9.5.7 9.5.8 9.5.9 9.5.10 10 10.1 10.2 10.3 10.4 10.5 10.6 11 12
Independence in Internal Audit Internal Audit and Internal Control Internal Audit in corporate governance Key Financial Associates Nature of the internal audit activity Reporting of critical findings Audit in M/S Bhushan Power & Steel Ltd Audit for Logistic Department Audit report submitted to the Management Final Audit Report for Iron Ore Final Audit Report for Coal Audit for Purchase Department Financial Analysis of M/S Bhushan Power & Steel Ltd. Significant Accounting Policies st P/L Account for the year ended 31 March 2008 st Balance sheet as at 31 March 2008 Details of Schedules maintained by the company Key Financial Indicators Gross Sales Export Sales Net Profit Cash Profit after Tax Net worth Debt Equity Ratio Current Ratio Interest Coverage Ratio Debt Service Coverage Ratio Earning per Share (EPS) Steel Manufacturing History of Steel Production Raw Materials for Steel Production Classification of Steel Heat Treatment of Steel Process of Steel Production World production of Steel Conclusions Bibliographies
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1.
Executive Summary
This project is intended to help those people who want to study the Standard operating procedure of material procurement, movement, accounting, Auditing Auditing and their financial implication of M/S Bhushan power & steel ltd. In this project I have tried to give some recommendation best of my knowledge so I have tried to cover almost all aspect of M/S Bhushan Power & steel Ltd. In this project I am using BPSL as the abbreviation of M/S Bhushan Power & steel Ltd. In this project I have h ave studied the following. 1. How under mentioned departments works: •
Store
•
Purchas
•
Bill passing
•
Logistic
•
Accounts
Audit Accounting of all the above (no. 1) mentioned departments departments Auditing of all the above (no. 1) mentioned departments departments Sources of earning Gross sale of BPSL in different years from 2004 to 2008 Cash Profit of BPSL in different years from 2004 to 2008 Net Profit of BPSL in different years from 2004 to to 2008 Different financial Indicator of BPSL in different years from 2004 to 2008 And many more •
2. 3. 4. 5. 6. 7. 8. 9.
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2.
Preface
In present scenario Steel and Power is an important aspect for the development of nation. So M/S Bhushan Power & steel Ltd is doing a great job by producing and supplying these two resources. Secondly in this context comparative study of M/S Bhushan Power & Steel Industry is a great opportunity for me to do as summer training.
Summer project is one of the essential parts towards the partial fulfillment of the requirement of two year full time PGDM programme. In this line I had an opportunity to undergo practical training of two months in M/S Bhushan Power & steel Ltd which is a steel manufacturing and Power generating Industry
This project was undertaken to study vital aspect of financial books of the company with physical verification and verification of the books. This project is divided in two parts. First I will discuss how I have studied the system of the organization and secondly I will discuss how I have investigated and verified the books of accounts which in other words known as Auditing.
I visited different sites of the Plant like Iron, Steel and Power sections. I visited all the departments of the organization and also sat at the gate in order to see the system and audited the books of accounts in order to get the practical knowledge.
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3. Certificate of Authenticity This is certify that the project work was done on “Standard operating procedure of material procurement, movement, accounting, Auditing and their financial implication’’ submitted to Accman Institute of Management, Greater Noida is in partial fulfillment the requirement for the award of Post Graduate diploma in Management, is a bonafide `work carried out by me at ‘M/S Bhushan Power & Steel Ltd’ at Jharsuguda in Orissa.
I declare that the form and the content of
the above mentioned project are original and have not been submitted in part or full, for any other degree or diploma of this or any other Organization/ Institute/ University.
Nabin Kumar Shaw PGDM 2008-10 Roll- 30126 Section- A
Date: 4th July, 2009
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4.
ACKNOWLEDGEMENT
Our prestigious organization Accman Institute of Management gave me a great opportunity to learn and experience the corporate world. The summer training programme was great experience for me. This project is the result of time, efforts and knowledge contributed by various members of the Organization .I pursued my summer training from M/S Bhushan Power & steel Ltd, a steel manufacturing and power generating Industry and I would like to extend my sincere gratitude to val uable opportunity Mr. V. R. R. Sharma (Joint Managing Director) to give me a valuable to work with such a renowned organization. I would like to extend my sincere thanks to Mr. B.M Sharma (VP Commercial) and Mr. Anil Kumar Singh (GM-Audit & Costing) for assigning me a project on ‘Standard operating procedure of material procurement, movement, accounting, Auditing and their financial implication’ of M/S Bhushan Power & Steel Ltd. They have been a source of guide and motivation for the completion of project. I would like to give credit for my successful completion of project to Mr D. R. Sharma
[Senior GM - Store]
Mr P. K. Chatterjee
[AVP - Materials]
Mr V. K. Sangar
[GM – Bill Passing]
Mr C. M Sharma
[Bill Passing Officer]
Mr Niranjan Tripathy
[Auditor]
Mr Rabindra Jena
[Auditor]
Mr Venugopal Sahu
[Auditor]
Mr Ranjan Soni
[Purchase Officer]
Mr Jogindra Behra
[Purchase Officer]
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Who were always available for my support and important guidance. They were source of Motivation and guidance for me. I sincerely thank for the help provided by my institute “Accman Institute of Management” which provided me necessary materials for completion of this project. I am also thankful to our sincere mentor in the college to Prof. S.C.Ghosh (Chief CRIC.) Prof. Dinesh Singh. (Finance Professor) Finally I am thankful to other members of my Organization and friends who supported me a lot and without their help this project would not have been completed.
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5.
Objective
Presently Steel and Power are two important pillars for the development of a nation. So M/S Bhushan Power & steel s teel Ltd is doing a great job by producing and supplying these two resources. This study has been developed for those of you who are keen to acquire some basic but key information about steel industry as an initial step towards becoming a more informed individual. I hope this module will act as a means of satisfying some of your initial queries on this industry.
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6.
Introduction of the Company
Bhushan Power & Steel Limited, a fully integrated 1.5 Million TPA Steel making Company with turnover of INR3873 Crores (USD 950 Million) and 7 World Class ISO 9000 Certified State of the Art Plants at Chandigarh, Derabassi, Kolkata and Orissa in India. A leading manufacturer of flat, rounds and long products including value added products with total steel value chain right from Coal Mining, Billets, HR Coils, Pig Iron, CR Coils, GP/GC, Precision Tubes, Black Pipe/GI Pipe, Cable Tapes, Tor Steel, Wire Rod and Special Alloy Steel. Successfully commissioned 1.5 Million TPA Greenfield Steel and Power Plant in Orissa with HR Coil making facility —First in Private Sector in the State of Orissa. For the Orissa plant, technology and equipments are procured from world-renowned companies like Lurgi from Germany, ABB Ltd., SMS Demag, Siemens etc. Bhushan is selling its Value added range of products in Secondary Steel through a large distribution network in India (comprising more than 35 sales offices) and Abroad. A rock-solid foundation combined with continuous upgradation and innovation has ensured that we have constantly surpassed our goals. Our end-to-end portfolio offers a wide spectrum of products with consistently superior quality. In addition to our export thrust, we supply to fast-growing sectors like automotive, white goods, construction, furniture, fasteners, telecommunication, etc.
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6.1
M/S Bhushan Power & Steel Ltd at Orissa…
The integrated power and steel proj ect at Orissa is a landmark in the nation’s infrastructure development. It combines our deep expertise with the be st technology that the world offers to integrate the entire steel manufacturing process – from mining to the production of value-added products. It also generates captive power using gases from the process. Features
• Proposed facilities in clos e proximity of two bulk inputs i.e. iron ore and coal to minimize input freight • Already been allotted two adjoining non-coking coal block s at nearby Jamkhani and Bijhan in Orissa, and has got one coki ng coal block at Rohne in Jharkhand, providing added logistic advanta ge in mining. Allotment of iron ore mines is under process. • Captive and inexpensive power generation using hot gases from sponge iron kilns and unusable coal • Operating synergy enhanced by captive coal washery that processes locally available coal to ensure uninterrupted supplies and lower costs • Captive limestone reduces cost further. • Use of Iron Ore fines in making sinter, for use in blast furnace. • With hot metal infusion into EAF, exothermic reactio n gives quicker steel production and enhances capacity without additional capex. • Captive coke oven plant to reduce import costs • The power consumption for EAF Steel melting reduces from around 800 units/pmt to about 400 units, providing cost efficienc y. • Large reduction in consumption of expens ive consumables like electrodes and refractories. • With added capacities for both lo ng and flat products, Bhushan Power & Steel will emerge as a completel y integrated, wider range player with a long term competitive edge. 11
6.2
Mission, Values & Their Commitments:
Their Mission is to achieve clear identity and leadership globally in Steel production and distribution by integration of complete chain of production starting from captive iron ore to end user Steel products. Their revolution in Steel production has helped us to carve a niche unique only to a market leader. Every year passes by with new value additions and more accolades from their customers - Locally and Globally. Their rising chart in respect of all-important parameters of production and finance is a testimony to their claim. In pursuing their mission, mission, we at M/S Bhushan Power & steel Ltd. are guided by the following values : Quality - To be the best in quality. We aim and achieve excellence. Technology - State of the art technology and product enrichment by continuous Research and Development. Customer Friendly - Their products are world class and more and more clients are appreciating and using their products. We also undertake customized products with values addition and enhancement. Corporate Governance - We comply with all applicable laws and regulations. We believe in maintaining clean environment and conservation of natural resources. We contribute towards betterment of their staff and provide them with best of facilities. Environment Protection and Practice - We are adopting and implementing pollution control measures as a matter of policy.All their efforts are in accordance with the laid down norms of Central Pollution Control Board for Industrial and Mixed use. Their Commitments: 12
•
•
•
•
•
•
To improve the quality of their products and complete integration of various stages of production. To be conscious towards quality and pricing of their products. We strive by continuous research and development to make their products world class, having distinct identity and uniqueness. Their customers get best value for their money. To run the company profitably year after year. A workforce motivated, skilled and well looked after. A workplace safe, secure and hygienic. To make their Environment Clean, Healthy and Hospitable.
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6.3 History of the Company Growing from strength to strength 1970 - Started with very small initial outlay for manufacturing Door Hinges & later on, Rail Track Fasteners. 1973 - Manufacturing facilities set up for Tor Steel and Wire Rod in Chandigarh. 1981 - Rolling Mill Project commissioned at Chandigarh for Round and Narrow Strips. 1985 - Backward Integration Project for Steel Melting facilities. 1986 - Upgrading of Mini Steel Plant with continuous casting and ladle furnace facilities. 1997 - Commissioning of Narrow Width Cold Rolling Project at Chandigarh. 1998 - Commissioning of Precision Pipe Project at Chandigarh.
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2001 - Commissioning of Cold Rolling & Galvanizing Complex at Kolkata. 2002 - Addition of narrow width Cold Rolling facilities at Kolkata. 2003 - Expansion of wide width Cold Rolling facilities, ERW Water Pipes & Tubes down stream facilities at Kolkata. 2004 - Further expansion of Cold Rolling facilities at Kolkata. 2005 - Commissioning of Orissa Project consisting of 4 DRI Kilns, Steel Making Facilities, Coal Washery and 100 MW Power Plant. 2007 - Commissioning of further expansion of Orissa Project consisting of HR Coil Mill, Steel making, Blast Furnance, Sinter plant, Coke oven plant, Oxygen plant and Lime & Calcining Plant. 2008 - Implementation of further expansion in Orissa Project in progress. Consisting of DRI Kilns, Coal Washery, Coal Mining, Power Plant & Steel Making facilities.
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6.4
Management
BOARD OF DIRECTORS
Sh. Sanjay Singal Chairman & Managing Director
Sh. V.R. Sharma Joint Managing Director
Ms Radhika Singal Whole Time Director (Admin)
Sh. R.P. Goyal Whole Time Director (Commercial)
Sh. H.C. Verma Whole Time Director (Marketing)
Sh. R.N. Yadav Whole Time Director (Technical)
Sh. R.D. Batra Director
Sh. Dinesh Kumar Behal Director
Sh. Jimmy Mahtani Director
Sh. Anil S. Supanekar Director
Sh. Aloke Sengupta Nominee Director of IDBI
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7.
From the MD’s desk
Dear Shareholders,
Once again it’s time for all of us to take a look at the previous year and yet look beyond! I would like to take this opportunity to greet all our esteemed shareholders and place on record my gratitude for their continued support and valued guidance. I am also pleased to present Your Company’s achievements in the last one year. The year 2007-08 has been one of winning challenges, setting standards and all-round growth. In Your Company’s performance, I perceive a new world focused on transforming India’s steel landscape through operational excellence, skill enhancement and competitive value additions. One of your Company’s achievements in the recent months stems from our aspirations to seize the opportunities and move closer to the growing market. It is often said that ‘to accomplish great things, we must not only act but also dream...’. Our dreams have finally come true with the commencement of Hot Rolled Coil production in the Orissa plant. This venture in line with the Company’s vision is a high point in our initiative, started years ago and now stands at the completion of 1.5 million tpa fully integrated steel & power project. The HR Coil plant is the country’s first plant in over a decade and of course the first-of-its-kind in the state of Orissa in private sector. It gives me great pleasure to say that we have made this possible. Little wonder, our vision has travelled that extra mile to bloom forth into a huge success! It has already given us a competitive edge and an impetus to combine our operational skills and resources to forge a robust performance. However, our challenge is to remain competitive. Confident of future growth, we are striving to double the present capacity in next two years and continuing our expansion drive. Integrating our best resources in manpower, machinery and technology to reach out and deliver sustainable value over a long term. I am sure that our achievements will pave the road to success and prepare us to prove our mettle in the coming years. 17
I am thankful to all our shareholders, bankers, financial institutions and everyone associated with us for their confidence and belief in our unwavering strength. I would like to take this opportunity to redefine our commitment to continuous improvement and high performance on a sustained basis. Let us together keep up the spirit! Regards Sanjay Singal Chairman & Managing Director
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8. Job done in M/S Bhushan Power & steel Ltd In the company my job has been divided in two parts Firstly I was asked to check the entire system of different department department physically: Store • •
Purchas
•
Bill passing
•
Marketing
•
Personnel
•
Accounts
Here I have mainly checked the system like: Loading and unloading of raw materials, Storing system Entry and exit of vehicle (Truck) inside the company premises Security system How to put a purchase order? How the final bills pass for payment? How to do marketing for the products? How does the personnel department work? And last but not least how does the accounts department work? Secondly I was asked to check the Accounting system, Costing and lastly I also involved myself in the job of Auditing.
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8.1 Store Department: There are two type of storage system in the company first one is Central Store and second one is Site. It can be shown as under:
Material Storing
Central Store
Site
Job Site
Project Site
Now in the central store they generally store those materials which are not going to be used immediately in other words they are going to be used in future. The Site storing mainly consists of two parts Job site storing and Project site storing. Now the Job site storing means storing of materials in the site where actually the manufacturing is going on. Project site is the site where manufacturing is not going on but the construction of a manufacturing plant or other thing is going on. In order to complete the construction some materials are required and those materials are stored in the project site.
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8.1.1 Basic documents required in Store Department: In order to get some practical knowledge about the document that is maintained in the store I sat at the gate along with the employee just to see how everything is working then I observed that there are basically two types of documents are being maintained at the gate. Material Inward and Material Outward, further Material Inward is been divided into three parts namely INWARD STORE (Iron ore), INWARD STORE (Coal), INWARD STORE (Miscellaneous). For more clarity of the concept one can see the picture as under:
Bhushan Power & Steel as the name suggest is the power generating and steel manufacturing plant and the two basic raw materials required is Coal and Iron Ore. These two materials are required in huge quantity. Almost thousands of trucks, carrying these two materials, come everyday so that is the reason they maintained a separate document INWARD STORE (coal) INWARD STORE (Iron Ore) for these two materials. And rests of the materials are recorded in INWARD STORE 21
(Misc). In case of materials or anything else which is going out of the plant gate has to be recorded in MATERIALS OUTWARD. The pictures of all these documents are given as under:
Format of INWARD STORE (COAL):
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Format of INWARD STORE (Iron Ore):
Format of INWARD STORE (Miscellaneous):
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After seeing the format of different INWARD STOREs documents now its time to discuss about the MATERIALS OUTWARD. It is the document which is also maintained at the store and it is mainly prepared at the gate of the plant. Any vehicles carrying any materials are going outside the plant gate have to show the relevant documents so that the officer at the gate can fill up the Materials Outward book. Now take an example of empty LPG Cylinders which had been used at the guest house going outside for refilling must have to be recorded in Materials Outward book. So we can see that whether the item is related to business or not, which was inside the plant premises (whole township), going outside should be properly recorded in the books. All the outgoing materials are divided into two parts: a. Returnable b. Non returnable (chargeable) Returnable items are those items which after going out will return back. For example empty LPG Cylinders, empty Oxygen Cylinders. And Non returnable items are those items which are going out but will not return back. Example Steel & Iron (end product), any rejected materials. Let’s see the format of materials outward.
Format of MATERIALS OUTWARD:
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Process Of Material outward From the store
8.1.2 Em t Truck
Loadin
Dispatch with….
Challan
Way Bill
Transport bill
OGP
Book entry at the gate
Recheck/Reweight
Truck allowed to go
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The above given diagram is showing showing the process of Material Outward from the store. That means how does the material go out from the store? The above given diagram is self explanatory. An empty truck comes into the store get the materials loaded and then the store keeper prepare four documents which are as under: • • • •
Challan Way bill Transport bill OGP (Outward Gate Pass)
After preparing all this documents the concerned authority give these documents to the driver of the truck. The truck driver carries those documents to the exit gate where some entries have been made. Out of these four documents the OGP has been kept at the gate for their record and later on this OGP is sent to store department for their record. Now after completing the process of documentation the materials in the vehicles are recheck or reweight and if it is found ok then the vehicles are allowed to exit.
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8.1.3 Process of unloading of a TRUCK: BHUSHAN POWER & STEEL, SAMBALPUR GATE EXIT
ENTRY T R U C K
PARKING SPACE TRUCKS WEIGH BRIDGE 4
WEIGH BRIDGE 1
WEIGH BRIDGE 3
WEIGH BRIDGE 2
T R U C K
T R U C K
T R U C K
T R U C K
CHECK POINT
T
R
U
C
K
UNLOADING POINT (SMS1)
T
R
U
C
K
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The above given picture is showing the process of unloading of trucks at the job site or the project site. Although the above given picture is looking a bit complicated but it is very easy to understand. Now in order to see the process practically I personally sat in a truck and saw the entire process. The process that I observed is a truck after submitting the required documents at the gate gets the entry and then the entire truck along with the material has to stand in the Weigh Bridge 1 in order to get the measurement (Truck + Materials). Here the measurement of materials is considered along with the truck weight. After that the measurement is taken second time in Weigh Bridge 2. The difference in weight up to ±50 kgs is acceptable. Now the truck unloads the materials at the concerned site and then it comes back. Now the empty truck is measured again twice (Weigh Bridge 3 & the Weigh Bridge 4). After that the weight of empty truck is deducted from the weight of truck along with materials and then they get the final weight of the materials. After the measurement of empty truck it has to wait in the parking space for further documentation. And if the document is ok then the truck is allowed to exit from the gate.
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8.1.4 Auditing of books in stores I went to the stores department where I got the opportunity to audit the books of accounts of the store. I verified one month’s books that are books of April 2009. Mainly I verified two types of documents- one is INWARD STORE MISCELLENEOUS and another one is OUTWARD GATE PASS (OGP). At the time of verifying the INWARD INWARD RECEIPT I have to verify it with the MATERIAL RECEIPT NOTE (MRN). If both INWARD RECEIPT and MRN get matched then we can say that the books are all right, if the two are not getting matched then we have to understand that there is a problem. Not only did I verify the books but also I made a physical verification of the stock in the store. While auditing the books I came up with certain problems like
On 1/4/09 there was an entry in the INWARD STORE (MISC) books but the same entry was not there in MRN. When I asked them about that entry I was told that it was a mistake done by them and later they searched it in the computer which was there in the database and made a printout of that copy and put that into the MRN.
On 14/4/09 the vehicle number which was written in the INWARD STORE RECEIPT was not matching with the one written in MRN. That was also a clerical mistake done by them and later I went to the record room where the concerned person searched the data and made the correction in the MRN books which was written wrongly. The record rooms are that room where all the documents when made finally are kept preserved there.
On 18/4/09 there were two items which were there in the INWARD STORE RECEIPT but were missing from the MRN. That entry was checked in the computer where I was showed that the two items which were missing from the MRN books had been entered correctly in the computer but that was a clerical mistake and so those were missing from the MRN books. The concerned person came up with a print out copy of that entry and put it in the MRN.
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On 25/4/09 there was a problem like this
F/WT E/WT N/WT
INWARD STORE BOOKS RS 37940 RS 10260 RS 27680
MRN RS 37930 RS 10250 RS 27680
Here by looking at these figures we can say that in the INWARD STORE BOOKS the F/Wt and E/wt is not matching with the figures written in MRN. But finally we can say that N/Wt is coming same. F/wt is the full weight of the loaded truck which comes with the materials. E/wt is the weight of the empty truck which is excluding the materials. N/wt is the net weight of the materials which is coming inside the plant. Finally we found that it was a clerical mistake.
On 25/4/09 I found that the challan quantity which was there in the INWARD STORE books was not matching with the MRN. Finally I found that it was not a mistake. Actually what happened was that the quantity of materials ordered to the supplier was less than it actually came. Suppose the quantity of materials ordered was 36000 kg. But the supplier by mistake sent 36120 kg. This excess 120 kg was not recorded in the books and the payment would be made according to the materials ordered. The payment for the excess quantity would not be made to the supplier.
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8.2 Purchase Department: After completing the work in store department I moved to Purchase department. It is also one of the busiest departments of the company. Even in this department I wanted to understand the entire process physically and then do it practically and then check its financial implication. According to my observation I found that the entire work of this department has been divided into three parts i.e. Purchase of materials relating to MAINTAINANCE, CONSUMABLE AND LUBRICNT. It can be shown with the help of diagram which is as under.
8.2.1 Types of Purchase: Purchase Process
Head office (Delhi, Kolkata
Iron ore Coal Dolomite Quartzite Limestone Coal Bridge
Plant
Project Materials Consumables Lubricant Maintenance Fabrication Civil Maintenance
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The purchase of Raw Materials and other materials are taken place either from the head office (Delhi, Kolkata) or from the plant itself. The core materials for steel and power generation is being ordered from the Head Office. The core materials are as under Iron ore Coal, Dolomite, Quartzite, Limestone and Coal Bridge. But the other materials which are Project Materials, Consumables, Lubricant, Maintenance, Fabrication, Civil Maintenance and others.
In plant the different job of purchase have been divided into different officers Mr. Rnjan Soni is taking taking care of ‘Maintenance Items’, Items’, Mr. J. Behera is taking taking care of ‘Consumable Items’ and Mr. Verma is accountable for the purchase of material related to ‘Lubricant Items’. Staying in this department and understanding the process is good experience for me. They all helped me a lot in understanding the process, which I will discuss in later topics, and gave me the format of all the required documents. They assign me some jobs in this department so that I can understand it practically.
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8.2.2 Process of Purchase (for Maintenance)
Requisition
Indent generation
Indent from Indenter (3copies)
K E P T by
Store
Purchase
Indenter
Enquiry to Suppliers
Quotations from Suppliers
Comparative Statement of uotations
Purchase order made
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As given the above flowchart, it refers to the process of purchase of the materials related to the maintenance. Firstly a purchase requisition of materials will come from the respective maintenance department then the head of the department will create an indent. The indent generating from the indenter consists of mainly three copies- one for the store department, next for the purchase department and the last one for the indenter itself. As the indent comes from the indenter it does not mean that the purchase department will approve the purchase requisition and will immediately set the purchase order. Before setting the purchase order a verification will be done from the purchase department in order to look in to the matter whether the materials set for order are truly required or not. In order to put the purchase order they have to check the following•
From which department the requisition came?
•
How much materials are required?
•
How much materials is been installed?
•
Are the materials present in the store?
•
If present in the store then how much materials are there in the store?
•
Are there any requisition previously made for the materials present in the store?
•
If yes then when to supply the materials in the store
•
The materials which are urgently required will be supplied first
After making all these verifications, the purchase department put an enquiry to the suppliers. They put the enquiry either through mail or through phone. After the enquiries are made, the suppliers send a list of quotations of materials to the purchase department either through through mail or through post. post. Then getting the quotations from different suppliers a comparative statement is been made where all the quotation price of the materials send by the suppliers s uppliers are put and which quality of materials they will supply are also been put. After that the price and the quality is compared and later on a decision is been taken whom to give the purchase order that is which supplier will get the purchase order. This whole process is the purchasing process of materials done by the purchase department. d epartment. (A format of an original o riginal purchase order is given in annexure – 1)
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8.2.3 Process of Purchase (for Consumables)
Daily Report of stock
Checking the Minimum Stock level in store
Enquiry To Suppliers
Quotations from Suppliers
Comparative Statement of Quotations
Purchase Order made 35
As given the above flowchart, it refers to the process of purchase of the materials related to the consumables. In case of purchase of consumable there is no need of indent generation. Here the purchase order is directly given by the purchase department. There is a completely different procedure in placing an order in compare to the process of purchase of materials related to maintenance. The process starts with the checking of daily d aily stock reports and then it has to compare with the minimum stock level which is available with the store. If it is found short to the minimum level then the purchase department sent the enquiry to the differ ent supplies. And they asked the suppliers to send the quotation. All the interested suppliers send their quotation either through e-mail or through the post. After getting all the quotations the purchase department has to prepare a comparative statement where all the quotations have to be compared. The comparison may be based on price, quality, time of delivery, time of credit cr edit period etc. After that the concerned authority takes the final decision and gives the purchase order. (A format of an original o riginal purchase order is given in Annexure – 1)
While doing the audit of the purchase department I came across the under given lists of few Suppliers and Raw Materials (SMS- I & II). [A complete list of suppliers along with their address and contact number of concerned person is given in Annexure – 2] [A photo copy of original “daily stock statement’’ of SMS- I & SMS- II as on 07/05/09 & 19/05/09 respectively are given along with their code number, EOQ, opening stock, receipt, issued, closing stock in Annexure – 3 & 4 respectively.]
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8.2.4.1
List of few Suppliers
Chhattisgarh Electricity Co. Ltd – Raipur Deepak Ferro Alloys Ltd – Raipur Shree Balaji Iron Pvt Ltd – Rourkela Modern India Con- Cost Limited – Kolkata Shiva Industries – Korba Brindavan Enterprises Pvt. Ltd – New Delhi Sarthak Metals Marketing Pvt. Ltd – Bhilai Team Ferro Alloys Pvt. Ltd – Delhi Jainson Labs – Meerut Minex Metallurgical Co. Pvt. Ltd – Nagpur Bansal Brothers – Jamshedpur Handa Alloy Steel Industries – Bilaspur Premier Alloys & Chemicals (P) Ltd – Hyderabad Electro Ferro Alloys Pvt. Ltd – Ahmedabad RNB Carbides & Ferro Alloys Pvt. Ltd – Chennai SMS Power Generation Ltd – Orissa Co-operative Ispat Alloys Ltd – Durgapur Harsh Alloys – Raipur Alok Ferro Alloys – Raipur Sova Ispat Alloys Limited – Durgapur Impex Ferro Tech Limited – Kolkata Satish & Company – Rourkela Krishna Metal & Alloys – Rourkela Kushal Chemicals – Bhilai Corporate Ispat Alloys Ltd – New Delhi Fine Chemical products – Kolkata Naman Alloys Pvt. Ltd – Raipur Shyam century Ferrous – Meghalaya Sarda Energy & Minerals Ltd – Raipur
37
8.2.4.2 Key Financial Associates:
i.
SMS Demag, Germany Supply of CSP Plant
ii.
Siemens, Germany Supply of Electrical, Automation & Spare parts Design
iii.
Waldrich Siegen, Germany Supply of Roll Grinding Machine and Design and Tr aining
iv.
Techint Tagliaferry, Italy Supply of Electric Arc Furnace, Ladle Furnace / Relevant Auxiliaries
v.
Beijing Sino–Steel & Group Corporation (SSIT), China Industry Supply of Blast furnace plant, Blower for furnace, Sinter Plant & Coke Oven Plant
vi.
IMS Messsysteme, Germany Supply of Compact Gauging System for CSP
vii.
Techint Italimpianti, Germany Supply of Roller Hearth Tunnel Furnace
viii.
Qualical AG, Switzerland Supplu of Lime & Dolomite Plant
ix.
Air Liquid Engineering, France Supply of Oxygen Plant
x.
Humbolt Wedag, Germany Coal Washery
xi.
Lurgi Technology , Germany Thyssen Krupp, Germany Ferry Capital, France Sponge Iron Kilns
xii.
Bolier- Isgec John Thompson, India Turbine- Simens Finspong, Germany Power Plant
xiii.
Mecon Ltd, India Technical Consultant
38
8.2.5
List of few Materials for SMS-1
Boric Acid Ferro aluminum Ferro Manganese Sodium silicate Met Coke Slide Plate Laddle Nozzle Collector Nozzle Porous Plug Mag. Carbon Bricks Asbestos sheet Asbestos Rope Lancing Pipe L.P.G. Cylinder Argon Cylinder Oxygen Cylinder Gear Oil Hydraulic Oil Rapseed oil Copper Mould Tube Tundish Board Sen Well Block Mono Block Stopper Casting Powder Mortar Cal. Pet coke Gr. Electrodes Castable- 90A1 Castable-90AH Castable-95H
39
8.2.6
List of few Materials for SMS-2
Aluminum Bar/ Ingots Ferro silicon lumps Nickel Plate Moly Metal Calcium silicon cord wire Ferro Boron cord wire Sulphur cord wire Ferro Titanium cord wire Graphite Electrodes Sulphur stick Met coke LPG Gas Argon gas cylinder Nitrogen gas cylinder Hard coke Lumps Synthetic slag Lancing pipe Asbestos hand gloves Cotton hand gloves Nose mask Melting goggles Salt Basic Gunning Mass Nozzle filling compound Jumbo bags Silico Manganese Ferro vanadium Alumix powder Kiln Lime EAF Hopper Kiln Lime LRF Hopper
40
8.3 Bill Passing Department: Bill passing is also one of the important departments of M/S Bhushan Power & Steel Ltd. It is basically a checking department and busy with the job of checking the different documents. The main job of this department is to tally the different figure of MRN (Materials Receipt Note), Bill of Supplier and Inward Security Pass with the figure of Purchase order. When everything found to be correct then after an entry has to be made into the computer and the bunch of documents is send to the Accounts Departments for making vouchers. A bunch of documents can contain the under mention documents.
Supplier’s Bill Inward Security Pass Weight Bill MRN Purchase Order (Photocopy) Comparative Statement of Quotation (Photocopy) (See an original copy in Annexure - 5)
Indent (Photocopy) Transporter’s Bill Raw Material Analysis Report Debit Note / Credit Note Shortage/Rejection Memo
41
8.3.1 Format of a Supplier’s Bill
42
8.3.2 Format of Inward Security Pass
43
8.3.3 Format of Materials Receipt Note
MATERIAL RECEIPT NOTE BPSLSupplierAccount ofTransporterBill of EntryVehicle NoSht. Memo No-
Date
Date Way bill no Rej. Memo No
MRN. No Format NoGE. No Date Challan. No Date Indent No Date PO. No Date GR. No Date Date Ext. Date
SL. Descp of unit PO Ch Reqd Rejd Sh Accpt Rate Amt Remarks No Materials No Qty Qty Qty Qty Qty
Wt SL No A: WB Wt A :
Wt SL No B : WB Wt B :
Wt SL No C : WB Wt C :
Inspection Note Prepared by
Inspected by
Inspection (Receipt section)
Wt SL No D : WB Wt D :
Charge HOD (Stores)
44
8.3.4 Format of Raw Materials Analysis Report:
BHUSHAN POWER & STEEL LIMITED BPSL/SMS-II/QC/03 Vill: Thelkoloi, The: Rengali Dist: Sambalpur(Orissa)
Format No:
RAW MATERIAL ANALYSIS REPORT Entry No Material Quantity Suppliers name
Dated Truck No Location
(Store In-charge)
Chemical composition (Specification) Chemical Composition (Observed) Material Accepted/Rejected
Remarks
Office use only Inspected by
Dept Head
General Manager
45
8.3.5 Format of Debit / Credit Note:
46
8.4 Audit Department: Before starting our basic discussion regarding this department at M/S Bhushan Power & Steel Ltd. we should s hould try to understand some basic concept of auditing.
8.4.1 Basic concept of Auditing: An audit is an evaluation of an organization, system, process, project or product. It is performed by a competent, independent, objective, and unbiased person or persons, known as auditors. auditors. The purpose is to verify that the subject of the audit was completed or operates according to approved and accepted standards, statutes, regulations, or practices. It also evaluates controls to determine if conformance will continue, and recommends necessary changes in policies, procedures or controls. Auditing is a part of some quality control certifications such as ISO 9000.Audits evaluate conformance now and into the future. An inspection evaluates conformance in the past. Both are important parts of management. There are so many types of auditing, for example
Financial Audit Statutory Audit Tax Audit Excise Audit External Audit Internal Audit Cost Audit Purchase Audit Logistic Audit Store Audit & ETC Here I am going to concentrate mainly on the Internal audit because I was the proud member of the Internal Auditing Team. Apart from this I will also discuss some of the above given types of audit. Let us begin with them
47
Financial Audit:
An important type of audit is the financial audit. It is designed to determine whether financial statements are fairly presented in accordance with Generally Accepted Accounting Principles (GAAP) & Accounting Standard as issued by ICAI. Financial audits are carried out for companies, registered charities and some government/public bodies etc. Government financial reports are not always audited by outside auditors. Some governments have elected or appointed auditors.
Statutory Auditing:
Every company registered in India has to get his accounts audited from a chartered accountant every year.
Tax Auditing:
Every assessee, whose turnover of a business exceeds Rs.40 Lakhs or total receipts from any profession exceeds Rs.10 Lakhs in any previous year, is required to get his accounts audited and report as per section 44AB of the income tax act.
8.4.2
Internal Auditing:
Internal auditing is a profession and activity involved in helping organizations organizations achieve their stated objectives. It does this by using a systematic methodology for analyzing business processes, procedures and activities with the goal of highlighting organizational problems and recommending solutions. Professionals called internal auditors are employed by organizations to perform the internal auditing activity. The scope of internal auditing within an organization is broad and may involve topics such as the efficacy of operations, the reliability of financial reporting, deterring and investigating fraud, safeguarding assets, and compliance with laws and regulations. Internal auditing frequently involves measuring compliance with the entity's policies and procedures. However, Internal auditors are not responsible for the execution of company activities; they advise management and the Board of Directors (or similar oversight body) regarding how to better b etter execute their
48
responsibilities. As a result of their broad scope of involvement, internal auditors may have a variety of higher educational and professional backgrounds. Publicly-traded corporations typically have an internal auditing department, led by a Chief Audit Executive ("CAE") who generally reports to t o the Audit Committee of the Board of Directors, with administrative reporting to the Chief Executive Officer.
8.4.2.1 History of internal auditing: The Internal Auditing profession evolved steadily with the progress of management science after World War II. It is conceptually similar in many ways to financial auditing by public accounting firms, quality assurance as surance and banking compliance activities. Much of the theory underlying internal auditing is derived from management consulting and public accounting professions. With t he implementation in the United States of the Sarbanes-Oxley Act of 2002, the profession's growth accelerated, as many internal auditors possess the skills required to help companies meet the requirements of the law
8.4.2.2 Independence in Internal Audit
To perform their role effectively, internal auditors require organizational independence from management, to enable unrestricted evaluation of management activities and personnel. Although internal auditors are part of company management and paid by the company, the primary customer of internal audit activity is the entity charged with oversight of management's activities. This is typically the Audit Committee, a sub-committee of the Board of Directors. To provide independence, most Chief Audit Executives report to the Chairperson of the Audit Committee and can only be replaced with the concurrence of that individual.
49
8.4.2.3 Internal Audit and Internal Control: Internal auditing activity is primarily directed at improving internal control. Internal control is broadly defined as a process, effected by an entity's board of directors, management, and other personnel, designed to provide reasonable assurance regarding the achievement of objectives in the following internal control categories: •
•
•
Effectiveness and efficiency of operations. Reliability of financial reporting. Compliance with laws and regulations. r egulations.
Management is responsible for internal control. Managers establish policies and processes to help the organization achieve specific objectives in each of these categories. Internal auditors perform audits to evaluate whether the policies and processes are designed and operating effectively and provide recommendations for improvement.
8.4.2.4 Internal Audit in corporate governance Internal auditing activity as it relates to corporate governance is generally informal, accomplished primarily through participation in meetings and discussions with members of the Board of Directors. Corporate governance is a combination of processes and organizational structures implemented by the Board of Directors to inform, direct, manage, and monitor the organization's resources, strategies and policies towards the achievement of the organizations objectives. The internal auditor is often considered one of the "four pillars" of corporate governance, the other pillars being the Board of Directors, management, and the external auditor. A primary focus area of internal auditing as it relates to corporate governance is helping the Audit Committee of the Board of Directors (or equivalent) perform its responsibilities effectively. This may include reporting r eporting critical internal control problems, informing the Committee privately on the capabilities of key managers, suggesting questions or topics for the Audit Committee's meeting agendas, and coordinating carefully with the external auditor and management to ensure the Committee receives effective information.
50
8.4.2.5 Nature of the internal audit activity: Based on a risk assessment of the organization, internal auditors, management and oversight Boards determine where to focus internal auditing efforts. Internal auditing activity is generally conducted as one or more discrete projects. A typical internal audit project involves the following steps: i. ii.
iii. iv. v. vi. vii.
Establish and communicate the scope and objectives for the audit to appropriate management. Develop an understanding of the business area under review. This includes objectives, measurements, and key transaction types. This involves review of documents and interviews. Flowcharts and narratives may be created if necessary. Describe the key risks facing the business b usiness activities within the scope of the audit. Identify control procedures used to ensure each key k ey risk and transaction type is properly controlled and monitored. Develop and execute a risk-based sampling and testing approach to determine whether the most important controls are operating as intended. Report problems identified and negotiate action plans with management to address the problems. Follow-up on reported findings at appropriate intervals. Internal audit departments maintain a follow-up database for this purpose.
Project length varies based on the complexity of the activity being audited and 48Internal Audit resources available. Many of the above steps are iterative and may not all occur in the sequence indicated.
8.4.2.6 Reporting of critical findings: The Chief Audit Executive (CAE) typically reports the most critical issues to the Audit Committee quarterly, along with management's progress towards resolving them. Critical issues typically have a reasonable likelihood of causing substantial financial or reputational damage to the company. For particularly complex issues, the responsible manager may participate in the discussion. Such reporting is critical to ensure the function is respected, r espected, that the proper "tone at the top" exists in the organization, and to expedite resolution of such issues. It is a matter of considerable judgment to select appropriate issues for the Audit Committee's attention and to describe them in the proper context. 51
8.4.3 Audit in M/S Bhushan Power & Steel Ltd. This is the newly established department in the company. Since the entire company is in a project mode so it is optional for the company to audit the books or o r system. But thanks to the management for setting up an exclusively independent internal audit system. Here audit department mainly consists of Cost audit, Logistic audit, Excise audit, Store audit, Purchase Audit and ETC. Before establishing this department auditor from the Head Office (which is in Chandigarh) or corporate office (which is in Delhi) comes to the plant and audit randomly. But establishing this internal audit department in the plant is itself a good move which will help in keeping a good control over the entire system. In my two month SIP Programme at M/S Bhushan Power & Steel Ltd I spent almost 20 days in this department. Basically I manage to audit for two departments which was Logistic department and purchase department. Now I will discuss separately what exactly I d id and what exactly I found in these two departments one by one. Apart from this I will also discuss what audit report did I submit to the management.
8.4.3.1 Audit for Logistic Department: Logistic department is mainly deals in receiving of the raw materials that they have ordered for. Volume of work is very high here. In a power and steel plant a huge quantity of coal and iron ore is required so almost thousands of trucks carrying Coal and Iron Ore come to the factory every day. This department is a 24x7 department that means this department works for 24 hours a day, 7 days a week and 365 days in a year it is because the steel plant can not stop for a single minute, if it does so then it will cost crores of rupees to restart it. In this department I was given total 7 items for audit they are as under: i. ii. iii. iv. v. vi. vii.
Coal Iron Ore Dolomite Manganese Quartz Lime Stone Coal Bridge
In this department I was mainly checking the MRN (Material ( Material Receipt Note) quantity with weight slip, delivery challan and transporter’s freight slip. Since the 52
volume of work was very high so I along with my another colleague of the institute checked almost 15000 (Fifteen thousands) MRNs. After completing the audit of coal and iron ore we submitted the under given report to the management.
8.4.4 Audit Report submitted to the Management: 8.4.4.1 Final Audit Report for Iron Ore:
53
54
55
8.4.4.2 Final Audit Report for Coal:
56
8.4.5 Audit for Purchase Department: I also got the opportunity to audit the books of the purchase department. In other words I can say that I have done a purchase audit. When I started auditing I got a file which contains various documents related to purchase of materials. There was a copy of the purchase order, indenters copy, Enquiries copy, Quotations copy sent by the suppliers, and lastly a comparative statement. In order to check these documents my work was to first check the indenters copy where the specific description of the materials were stated which the indenter require. After that enquiries copy were to be checked in order to see whether correct enquiries have been sent to the suppliers by the purchase officer about the material. Next I have to read the quotation of that supplier very minutely who got the order to supply the material. The terms and conditions mentioned in the quotation of that supplier should match with that in the purchase order. If by any chance there is a mismatch of conditions mentioned in quotations with that in the purchase order then there is a mistake. I also have to check the comparative statement very carefully. In the Comparative statement different prices of the suppliers have been quoted. I have to check whether the supplier who quoted the least landed price for the material got the order or not. There were some cases where the least landed price quoted supplier did not get the order. In that case when I asked the purchase officer about that case then he told me that sometimes they also have to look into the quality of materials and not price. So some of the suppliers are there who charges a higher price in comparison with other suppliers but the quality of materials which the supply is better.
57
9.Financial Analysis of M/S Bhushan Power & Steel Ltd. In this section I am going to make a financial analysis of M/S Bhushan Power & Steel Ltd. Here I am going to discuss their Accounting Policies, Balance Sheet, Profit & Loss Account, 15 Schedules and different Financial Indicators.
9.1 Significant Accounting Policies: I.
BASIS FOR PREPARATION OF ACCOUNTS
The Financial Statements have been prepared under historical cost convention on accrual basis in accordance with generally accepted accounting principles and applicable Accounting Standards issued by The Institute of Chartered Accountants of India and the provisions of Companies Act, 1956. II.
FIXED ASSETS
Fixed Assets are stated at cost, net of VAT/ MODVAT/ CENVAT, less accumulated depreciation. All costs including borrowing costs till commencement of commercial production and adjustment arising from exchange rate variations relating to borrowings attributable to the fixed assets are capitalized. Capital expenditure on assets by company is reflected in capital work in progress account till the period of completion and thereafter in the fixed assets. Machinery spares that can be used only in connection with an item of fixed asset and their use is expected to be irregular are capitalized. Replacement of such spares is charged to revenue.
58
III.
INTANGIBLE ASSETS
In accordance with the Accounting Standard (AS) 26 relating to intangible assets, all costs incurred on technical know-how / license fee relating to production process are charged to revenue in the year of incurrence. Costs incurred on technical know-how / license fee relating to process design / plants / facilities are capitalized at the time of capitalization of the said plant / facility and amortized on pro-rata basis over a period of five years. Computer software is capitalized on the date of installation and is amortized over a period of five years. IV.
IMPAIRMENT OF ASSETS
Carrying amount of cash generating units/assets is reviewed for impairment. Impairment, if any, is recognized where the carrying amount exceeds the recoverable amount being the higher of net realizable price and value in use. V.
EXPENDITURE ON NEW PROJECTS AND SUBSTANTIAL EXPANSION
Expenditure directly relating to construction activity including trial run production expenses (net of income, if any) is capitalized. Indirect expenditure incurred during construction period is capitalized as part of the indirect construction cost to the extent to which the expenditure is indirectly related to construction or is incidental thereto. Other indirect expenditure (including borrowing costs) incurred during the construction period which is not related to the construction activity nor is incidental thereto, is charged to the Profit & Loss Account. VI.
DEPRECIATION
Depreciation on fixed assets is provided on straight line method at the rates and in the manner prescribed in Schedule-XIV to the Companies Act, 1956. 59
On incremental/decremental cost arising on account of translation of foreign currency liabilities for acquisition of fixed assets, depreciation has been provided as aforesaid over the residual life of the respective plants. Premium of leasehold land is amortized over the period of lease except leasehold land acquired on lease of ninety years or more. Depreciation on fixed assets costing up to Rs. 5000/- is charged @ 100% on pro-rata basis. Assets not owned by the company are amortized on pro-rata basis over a period of five years from the year in which such assets are commissioned. VII.
FOREIGN CURRENCY TRANSACTIONS
Transactions denominated in foreign currencies are normally recorded at the exchange rate prevailing at the date of the transaction. Monetary items denominated in foreign currencies outstanding at the year-end are translated at exchange rate applicable as on that date. Non monetary items are valued at the exchange rate prevailing on the date of transaction. Any income or expense on account of exchange difference either on settlement or on translation is recognized in the profit and loss account except in cases where these relate to the acquisition of fixed assets. Exchange differences arising on liabilities incurred on repayment of borrowings in foreign currency for acquisition of fixed assets are adjusted in the carrying cost except borrowing utilized for acquisition of assets within India on or after 1st April 2004 in which case these are recognized in the Profit & Loss Account. VIII.
INVESTMENTS
Investments are classified into current and long-term investments. Current investments are stated at the lower of cost and quoted/ fair value. Long term investments are stated at cost less any provision for permanent diminution in value. 60
IX.
DIVIDEND INCOME
Dividend on investments is accounted for in the year of receipt. X.
SALES
Sales are inclusive of trial run sales, excise duty and net of sales tax/ vat. XI.
INVENTORY VALUATIONS
Inventories are valued at lower of cost or net realizable value except scrap which is valued at net realizable value. The cost is determined by using first-in-first-out (FIFO) method. Finished goods and work-in progress include costs of conversion and other costs incurred in bringing the inventories to their present location and condition. Excise duty on closing stock of finished goods and scrap are accounted for on the basis of payments made in respect of goods cleared as also provision made for goods lying in the factory and included in the value of such stocks. XII.
INCOME TAX
Provision for current income tax is made after taking credit for allowances and exemptions. In case of matters under appeal, due to disallowance or otherwise, provision is made when the said liabilities are accepted by the company. In accordance with the Accounting Standard 22-Accounting for Taxes on income issued by Institute of Chartered Accountants of India, the deferred tax for timing differences between the book & tax profit for the period is accounted for using the tax rates and the tax laws that have been enacted or substantively enacted as of the balance sheet date. Deferred tax assets arising from temporary timing difference are recognized to the extent there is virtual certainty that the asset will be realized in future. Provision for fringe benefit tax is made on fringe benefits taxable under the Income Tax Act, 1961. 61
XIII.
BORROWING COST
Borrowing costs that are attributable to the acquisition or the construction of qualifying assets are capitalized as part of cost of such assets. A qualifying asset is one that necessarily takes substantial period of time to get ready for intended use. All other borrowing costs are charged to revenue. XIV.
MODVAT / CENVAT / VAT
Modvat/ Cenvat/ VAT claimed on capital assets are credited to assets / capital work in progress account. Modvat / Cenvat/ VAT on purchase of raw materials and other materials are deducted from the cost of such materials. XV.
CLAIMS
Claims receivable are accounted for depending on the certainty of receipt and claims payable are accounted at the time of acceptance. XVI.
PROPOSED DIVIDEND
Dividend as proposed by the Board of Directors is provided for in the books of account, pending approval at the Annual General Meeting. XVII.
i.
ii.
RETIREMENT/POST RETIREMENT BENEFITS
Short term employee benefits are recognized as an expense at the undiscounted amount in the year in which related service is rendered. The company has defined contribution plan for post retirement benefits, namely Employees Provident Fund scheme administered through provident fund commissioner. The company’s contribution is charged to revenue every year. 62
iii. Company’s contribution to state plans namely Employees State Insurance Fund is charged to revenue every year. iv.
The Company has defined benefits plans namely Leave encashment / Compensated absence and Gratuity, the liability for which is determined on the basis of Actuarial valuation at the end of the year. Gratuity Trust is administered through “Life Insurance Corporation of India”.
v.
Termination benefits are recognized as an expense immediately.
vi.
Gain or Loss arising out of actuarial valuation are recognized immediately in the profit and loss account as income or expense.
XVIII.
PROVISIONS AND CONTINGENT LIABILITIES
Show cause notices issued by various government authorities are not considered as obligation. When the demand notice are raised against such show cause notice and are disputed by the company then these are classified as possible obligations. Provisions involving substantial degree of estimation in measurement are recognized when there is a present obligation as a result of past events and it is probable that there will be an outflow of resources. Contingent liabilities are not recognized but are disclosed in notes. XIX.
FINANCIAL DERIVATIVE TRANSACTION
In respect of the Financial derivative contracts the premium /interest paid and profit/ loss on settlement is charged to Profit & Loss account. The contracts entered into are marked to market at year end and the resultant profit/ loss is charged to Profit & Loss account except where these relate to fixed assets in which case it is adjusted to the cost of fixed assets.
63
9.2 Profit or Loss Account for the year ended 31st March 2008 SCHEDULE
2008
2007
12
3,87,349.07
3,01,786.23
39691.06
30015.56
3,47,658.01
2,71,770.67
5039.29
1121.47
3,52,697.30
2,72,892.14
2,79,944.82
2,26,475.53
72752.48
46416.61
17303.69
10605.85
Profit Before Depreciation & Tax
55448.79
35810.76
Depreciation
16712.74
10438.47
Profit Before Tax
38736.05
25372.29
INCOME Sale of Products Less Excise Duty Net Sales Other Income EXPENDITURE Manufacturing & Other Expenses
13
Profit Before Interest, Depreciation and Tax Interest & Financial Charges
14
Less: Income Tax Expense ; - Current Tax
4400.00
2850.00
- Mat Adjustment
4400.00
2350.00
0.00
500.00
6077.16
4500.00
6077.16
5000.00
110.00
77.00
6187.16
5077.00
- Earlier years
-2.65
183.93
- Wealth Tax
10.50
- Deferred Tax - Fringe Benefit Tax
6195.01
8.21
5,269.14
Profit After Tax
32541.04
20103.15
Balance Brought Forward from Previous Year
29562.97
27098.96
Impact of Transitional Provision of Employee Benefits as per AS -15
32.71 —
64
Profit Available for Appropriation
62136.72
47202.11
20000.00
10000.00
—
7567.00
Proposed Dividend
68.03
61.66
Dividend Tax
11.56
10.48
42057.13
29562.97
62136.72
47202.11
Basic earning per share
23.92
16.30
Diluted earning per share
23.73
16.30
Nominal value of Equity Shares in (Rs.)
10.00
10.00
APPROPRIATIONS General Reserve Transferred to Debenture Redemption Reserve
Balance Carried to Balance Sheet
Significant Accounting Policies
15
Notes forming part of Accounts
16
65
9.3 Balance sheet as at 31 st March 2008 SOURCES OF FUNDS
SCHEDULE
2008
2007
13605.17
13605.17
Shareholders’ Funds Share Capital
1
Advance Received for Share Capital Reserves and Surplus
15000.00 2
--
1,46,024.59 1,13,530.43 1,74,629.76 1,27,135.60
Loan Funds
3
Secured Loans
5,00,514.54 3,49,052.66
Unsecured Loans
1,04,531.09
46766.99
6,05,045.63 3,95,819.65 Deferred Tax Liability (Net)
19600.00
13506.00
7,99,275.39 5,36,461.25 APPLICATION OF FUNDS Fixed Assets
4
Gross Block
3,71,649.18 1,91,804.42
Less: Depreciation
62734.58
46377.63
Net Block
3,08,914.60 1,45,426.79
Capital Work in Progress
3,26,381.70 3,07,733.86 6,35,296.30 4,53,160.65
Investment
--
5
10823.11
Inventories
6
94917.71
48869.65
Sundry Debtors
7
76832.79
54285.52
Cash & Bank Balances
8
11090.80
2648.15
Loans & Advances
9
44394.75
43671.15
Current Assets, Loans & Advances
2,27,236.05 1,49,474.47 Less: Current Liabilities & Provisions Current Liabilities
10
73262.88
65492.89
Provisions
11
817.19
680.98
74080.07
66173.87
1,53,155.98
83300.60
Net Current Assets
7,99,275.39 5,36,461.25 Significant Accounting Policies
15
Notes forming part of Accounts
16
66
9.4 Details of Schedules maintained by the company: (Rs in Lacs) 2008
2007
SCHEDULE-1 SHARE CAPITAL Authorized
20,00,00,000, Equity Shares of Rs.10/- each
20000.00
20000.00
20000.00
20000.00
13605.17
13605.17
13605.17
13605.17
13605.17
13605.17
13605.17
13605.17
Issued
13,60,51,665 Equity Shares of Rs.10/- each Subscribed & Paid Up
13,60,51,665, Equity Shares of Rs.10/- each fully paid up. Above includes 3,51,52,240 Equity Shares of Rs. 10/- each fully paid up issued pursuant to the scheme of Amalgamation of Bhushan Industries Ltd., Bhushan Metallics Ltd. and Decor Steel Ltd with the company.
SCHEDULE-2 RESERVES AND SURPLUS
(Rs in Lacs)
Capital Reserve Capital Redemption Reserve
1.00
1.00
13.50
13.50
Debenture Redemption Reserve As Per Last Balance Sheet Add : Transferred from Profit and Loss Account Less : Transferred To General Reserve
8167.00
3100.00
--
7567.00
8167.00
-- 10667.00
8167.00
2500.00
43285.96
7682.39
--
43285.96 35603.57
8167.00
Securities Premium Account
As Per Last Balance Sheet Add : Received during the year
43285.96
67
General Reserve
As Per Last Balance Sheet
32500.00
20000.00
Add : Transferred from Profit & Loss Account
20000.00
10000.00
Add : Transferred from Debenture Redemption Reserve
8167.00
Profit & Loss Account
SCHEDULE-3 LOAN FUNDS
60667.00
2500.00
32500.00
42057.13
29562.97
1,46,024.59
1,13,530.43
(Rs in Lacs)
SECURED LOANS
Debentures -NIL (Previous Year 100), 9% Redeemable Non Convertible
--
667.00
--
15000.00
67168.46
49984.80
5795.65
--
3,65,628.61
2,25,794.54
57151.11
50242.15
2425.00
5240.00
2345.71
1038.37
--
1085.80
5,00,514.54
3,49,052.66
Debentures of Rs.10,00,000/-each -NIL (Previous Year 1500), G-Sec Redeemable Non-Convertible Debentures of Rs.10,00,000/each Working Capital Loans from * - Banks - Rupee Loan - Foreign Currency Loan Term Loans From ** - Banks - Rupee Loan - Foreign currency Loan - Financial Institutions - Rupee Loan Deferred Credits from *** - Banks Loans From Banks Against F.D.R
68
SCHEDULE-4 FIXED ASSETS
(Rs in Lacs)
GROSS BLOCK
DEPRECIATION
NET BLOCK
DESCRIPTI ON OF FIXED ASSETS
Cost As At 01.04.0 7
Addition s during the Year
Sale / Adjus ts durin g the Year
Freehold Land
3493.99
2593.78
—
6087.77
—
—
—
—
—
6087.77 3493.99
Leasehold Land
3540.18
4.18
—
3544.36
—
—
—
—
—
3544.36 3540.18
Building
30783.2 9
6524.74
669.8 7
36638.1 6
4048.1 7
2173.3 1
642.28
3.38
5575.82
31062.3 4
26735.1 2
Railway Siding
2136.62
544.04
—
2680.66
78.66
119.9
—
—
198.56
2482.10
2057.96
Plant & Machinery
1,46,74 8.44
1,70,855 .96
794.7 2
3,16,809 .68
40649. 41
14582. 84
196.40
335.3 8
54700.4 7
2,62,109 .21
1,06,099 .03
Furniture & Fixture
1071.67
288.49
72.45
1287.71
135.07
125.41
44.90
6.43
209.15
1078.56
936.60
Vehicles
1935.61
664.28
93.67
2506.22
638.02
206.35
30.42
10.60
803.35
1702.87
1297.59
Cost As At 31.03.20 08
As At 01.04. 07
For the year
Adjustm ent during the year
Writt en Total As At back upto 31.03.20 durin 31.03.20 08 g the 08 year
As At 31.03.20 07
Intangible Assets Technical Knowhow
127.64
—
—
127.64
29.18
25.53
—
—
54.71
72.93
98.46
Assets Not Owned by the Company
1966.98
—
—
1966.98
799.12
393.4
—
—
1192.52
774.46
1167.86
Total
1,91,804. 42
1,81,475 .47
1630. 71
3,71,649 .18
46377. 63
17626. 74
914.00
355.7 9
62734.5 8
3,08,914 .60
1,45,426 .79
Previous Year
1,50,518. 18
42189.9 7
903.7 3
1,91,804 .42
36029. 64
11177. 59
739.12
90.48
46377.6 3
Capital Work in progress
3,26,381 .70
3,07,733 .86
Total
6,35,296 .30
4,53,160 .65
69
I. Capital work in progress includes expenditure incurred during construction period, capital stores, advances amounting to Rs. 18,681.18 Lacs ( Previous year Rs. 13,962.36 lacs) paid against capital expenditure (unsecured, considered good) II.
Addition & capital work in progress include loss of Rs. 2,731.90 Lacs (Previous year loss of Rs. 2,104.77 Lacs ) adjustment on account of exchange difference.
III.
No write off has been done for lease hold land since acquired on lease of 90 years & above.
IV.
Sales / Adjustment and Depreciation for the year include Rs. 914.00 Lacs (Previous year Rs. 714.57 Lacs) charged to capital work in progress Rs. Nil (Previous year Rs. 24.55 Lacs) charged to trial run expenses and Rs. 16,712.74 Lacs (Previous year Rs.10,438.47 Lacs) charged to profit & loss account.
V.
Sale/ Adjustment includes land Rs. Nil (Previous year Rs. 6.00 lacs) being the amount of land of rehabilitation colony transferred to various persons.
VI.
The intangible assets have been amortized on pro-rata basis over a period of five years.
70
2008
2007
SCHEDULE-5 INVESTMENT Long Term, Trade, Unquoted, At Cost ATMA RAM HOUSE INVESTMENT (P) LTD.
1,020 (Previous Year NIL) Equity Shares of Rs.100/-each Fully Paid Up
10723.11
--
100.00
--
10823.11
--
Current, Non-Trade, Quoted INDUSIND BANK
10 (Previous Year NIL) Unsecured, Non Convertible Bond of Rs. 10 Lacs each, Fully Paid Up (Market Value of quoted Investment Rs. 100 Lacs)
2008
2007
SCHEDULE-6 INVENTORIES (As taken, valued and certified by the Management)
Raw Material
53153.65
31672.93
Finished Goods
29255.78
12597.42
4291.03
449.54
657.58
145.2
Stores & Spares
3106.14
2556.31
Material-in-Transit
4453.53
1448.25
94917.71
48869.65
Work-in-Progress Scrap
71
2008
2007
SCHEDULE-7 SUNDRY DEBTORS (Unsecured) - Outstanding for a period exceeding six months - Considered good
2200.24
1691.39
357.54
223.23
2557.78
1914.62
357.54
223.23
2200.24
1691.39
74632.55
52594.13
76832.79
54285.52
- Considered doubtful Less : Provision made for doubtful debts Others - Considered good
2008
2007
SCHEDULE-8 CASH AND BANK BALANCES Cash in Hand (including cheques-in-hand Rs. 50.00 lacs Previous Year Rs. NIL)
151.85
60.41
- In Current Accounts
4758.14
707.01
- In Fixed Deposit Accounts (Including Interest Accrued)
6180.80
1880.73
11090.80
2648.15
Balances with Scheduled Banks :
Under Lien amounting to Rs. 960.23 lacs (Previous Year Rs. 1461.63 lacs)
72
2008
2007
SCHEDULE-9 LOANS AND ADVANCES (Unsecured, Considered Good) Advances recoverable in cash or in kind or for value to be received*
17442.19
8921.95
Inter Corporate Deposits
3775.55
15462.34
11.25
35.75
16411.14
16901.11
6750.00
2350.00
4.62
--
44394.75
43671.15
Balance with Excise Authorities Balance of Modvat / Cenvat / Service Tax/ Vat Mat Recoverable Advance Tax (Net)
2008
2007
SCHEDULE-10 CURRENT LIABILITIES Sundry Creditors Creditors For Capital Goods/Expenditures Interest accrued but not due on loans Due to Directors
62677.19
43884.00
9757.71
21192.77
826.74
415.18
1.24
0.94
73262.88
65492.89
2008
2007
SCHEDULE-11 PROVISIONS Proposed Dividend
68.03
61.66
Dividend Tax
11.56
10.48
737.60
577.68
--
31.16
817.19
680.98
Retirement Benefits Provision For Tax (Net)
73
SCHEDULE-12 SALE OF PRODUCTS & OTHER INCOME 2008 Sales including Excise Duty
Commission *
2007
3,87,349.07 3,01,734.62 --
51.61
3,87,349.07 3,01,786.23 Other Income
Interest (other than investments) **
689.74
1061.02
Misc. Income
122.57
57.10
Exchange Fluctuation
775.75
--
3432.98
--
14.83
--
3.42
--
--
3.35
5039.29
1121.47
Profit on Treasury Operations Profit on Sale of Investment Dividend (on Short term, Current and Non Trade Investment ) Profit on sale of Fixed Assets (Net) * Tax Deducted at Source Rs.NIL (Previous Year Rs. 8.69 Lacs) ** Tax Deducted at source Rs.96.26 Lacs (Previous Year Rs.219.58 Lacs)and Interest includes Rs.314.22 Lacs (Previous Year Rs.417.96 Lacs) on Inter CorporateDeposits, Rs.185.06 Lacs (Previous Year Rs.542.13 Lacs) on Fixed Deposits with banks,Rs. 5.23 Lacs (Previous Year Rs. NIL) on bonds of Bank.
74
2008
2007
SCHEDULE-13 MANUFACTURING & OTHER EXPENSES Raw Material Consumed
2,32,913.78
1,83,433.47
Purchase of Goods traded
18515.92
13267.39
8342.27
4208.86
17366.04
14310.00
8073.79
5903.23
Contribution to PF & Other Funds
220.60
129.54
Staff Benefits
436.33
251.54
2904.81
-145.41
Rates and Taxes
243.56
182.67
Legal & Professional Charges
298.17
176.01
Insurance
50.92
67.24
Auditors’ Remuneration
34.96
31.95
825.85
625.82
Advertisement & Sales Promotion
73.21
51.19
Postage, Telegrams & Telephone
303.04
297.32
Utility & Facility
407.66
433.94
Rebate and Discount
1578.55
1205.50
Selling and Distribution Expenses
9882.42
9239.40
178.85
277.38
16.64
30.04
2569.60
2226.11
458.10
373.63
20.11
18.61
Other Administrative Expenses
296.83
259.72
Provision for doubtful debts
134.30
97.97
Loss on Sale of Assets (Net)
27.23
--
9.55
--
Loss on forward / options / swaps
--
936.56
Exchange Fluctuation
--
104.05
Bad Debts
--
33.38
3,06,183.09
2,38,027.11
Stores Consumed Power & Fuel Salary, Wages & Bonus
Excise Duty Provided on Stock (Net)
Travelling & Conveyance
Selling Commission Repair and Maintenance - Building - Machinery - Vehicle Lease Rent
Loss of Assets By Fire
75
(INCREASE) /DECREASE IN INVENTORIES Opening Stock
Finished Goods Work-In-Progress Scrap
12597.42
9124.44
449.54
2328.09
145.2
137.6
13192.16
11590.13
29255.78
12597.42
4291.03
449.54
657.58
145.20
34204.39
13192.16
-21012.23
-1602.03
2,85,170.86
2,36,425.08
4692.59
9146.31
533.45
803.24
2,79,944.82
2,26,475.53
Closing Stock
Finished Goods Work-In-Progress Scrap Net (Increase)/Decrease in Inventory Less : -Transferred to Projects Commissioned /Under Commissioning /Trial Run - Cost of Material Transferred to Project
2008
2007
SCHEDULE-14 INTEREST & FINANCIAL CHARGES Interest - On Debentures
335.93
1057.59
42413.37
23388.23
- On Others
7251.22
4471.22
Commission & Bank Charges
2277.53
1483.22
Exchange Fluctuation
2752.16
1536.01
55030.21
31936.27
37726.52
21330.42
17303.69
10605.85
- On Term Loans
Less : -Transferred to Projects Commissioned /Under Commissioning /Trial Run
76
9.5 Key Financial Indicators: 2004
2005
2006
2007
Gross Sales (Rs in Crore)
1503.00
2030.00
2419.00
3018.00
3873.00
Export Sales (Rs in Crore)
325.00
543.00
580.00
655.00
756.00
PBDITA (Rs in Crore)
192.00
249.00
347.00
464.00
728.00
Net Profit (Rs in Crore)
71.00
96.00
170.00
201.00
325.00
130.00
176.00
256.00
350.00
553.00
35.00
81.00
111.00
136.00
136.00
Net Worth (Rs in Crore)
371.00
549.00
780.00
1406.00
2142.00
Gross Block (Rs in Crore)
862.00
1652.00
3118.00
4995.00
6980.00
14.09
13.30
15.92
17.08
20.93
Debt Equity Ratio
0.99
1.56
2.08
1.91
2.21
Total Debt to Equity
1.23
1.78
2.82
2.81
2.71
TOL/TNW
1.84
2.51
3.51
3.28
3.05
Current Ratio
1.41
1.34
1.36
1.36
1.34
FACR
1.74
1.54
1.46
1.69
1.62
DSCR
1.78
1.69
1.79
1.58
1.68
Interest Coverage Ratio
3.52
3.98
4.79
4.38
4.20
23.00
13.00
16.00
16.00
24.00
106.00
68.00
70.00
103.00
143.00
Cash Profit After Tax (Rs in Crore) Equity (Rs in Crore)
EBIDTA to Net Sales
EPS (Rs.) Book Value (Rs.)
2008
77
9.5.1 Gross Sales: Gross Sales (Rs (Rs in Crore) 3873
3018 2419 2030 1503
2004 2005 2006 2007 2008
Gross sale is a sale before deducting the excise duty but including the export sale. As the above diagram is showing that the gross sale has increased from fr om Rs 1503 crore in 2004 to Rs 3873 crore in 2008. From 2004 to 2005, 2005 to 2006, 2006 to 2007 and 2007 to 2008 it increased by 35.06%, 19.16%, 24.76%, and 28.33% respectively. In average we can say that there is a 26.83% growth in the gross sale in last four years.
78
9.5.2 Export Sales:
Export Sales (Rs (Rs in Lakh) CRORES 756 800
580
700
655
543
600
500
325 32 5 400
300
200
100
0 2004
2 0 05
2 0 06
20 07
2008
As the above diagram is showing that the export sale has increased from Rs 325 crore in 2004 to Rs 756 crore in 2008. From 2004 to 2005, 2005 to 2006, 2006 to 2007 and 2007 to 2008 it increased by 67%, 6.81%, 12.93%, and 15.41% respectively. In average we can say that there is a 25.54% growth in the export sale in last four years.
79
9.5.3 Net Profit:
As above we have seen that the gross g ross sales and the export sales is increasing year after year so the net profit is also increasing. As the above diagram is showing that the Net Profit has increased from Rs 71 crore in 2004 to Rs 325 crore in 2008. From 2004 to 2005, 2005 to 2006, 2006 to 2007 and 2007 to 2008 it increased by 35.21%, 77.08%, 18.24%, and 61.69% respectively. In average we can say that there is a 48% growth in the export sale in last four years.
80
9.5.4 Cash Profit after Tax:
Cash Profit Profit after tax (Rs in crore) 553 600
500
350 400
256 300
200
130
176
100
0 2 00 4
2005
2 00 6
2 00 7
2 008
As the above diagram is showing that the export sale has increased from Rs 36 crore in 2004 to Rs 350 crore in 2008. From 2004 to 2005, 2005 to 2006, 2006 to 2007 and 2007 to 2008 it increased by 261%, 35%, 45.45%, and 36% respectively. In average we can say that there is a 94% growth in the Cash Profit in last four years.
81
9.5.5 Net worth: (Rs in crore)
Net worth includes Shareholders’ equity capital plus reserves and s urplus. As the above diagram is showing that the Net worth has increased from f rom Rs 371 crore in 2004 to Rs 2142 crore in 2008. From 2004 to 2005, 2005 to 2006, 2006 to 2007 and 2007 to 2008 it increased to 48%, 42%, 80%, and 52.34% respectively. In average we can say that there is an 55.50% growth in the Net worth in last four years.
82
9.5.6 Debt Equity Ratio:
Debt-Equity ratio reflects relative contributions of creditors and owners to finance the business. Debt-Equity ratio = Debt Equity The desirable/ ideal proportion of the two components (high or low r atio) varies from industry to industry. As the above diagram is showing that the Debt Equity has increased from .99 in 2004 to 2.21 in 2008. From 2004 to 2005, 2005 to 2006, 2007 to 2008 it increased by 57.57%, 33.33%, 15.70%, respectively and a decrease in the year 20 06-2007 by 8.17%. In average we can say that there is a 24.45% growth in the Debt Equity Ratio in last four years. Ideally I deally the debt equity ratio should be 2:1 that means the debt should be double of equity. So from the above diagram we can say that the debt equity ratio is ideal in year 2006 and 2007.
83
9.5.7 Current Ratio:
The current ratio measures the ability of the firm to meet its current liabilities l iabilities from the current assets. Higher the current ratio, greater the short-term solvency (i.e. larger is the amount of rupees available per rupee of liability).As the above diagram is showing that the export sale has decreased from f rom 1.41 in 2004 to 1.34 in 2008. From 2004 to 2005, there is a decrease of 5%, from 2005 to 2006 there is an increase of 1.50%, from 2006 to 2007 there is no change and from 2007 to 2008 there is a decrease of 1.5%. In average we can say that there is a decrease of 1.25%%.
84
9.5.8 Interest Coverage Ratio:
Interest Coverage ratio = Earnings Before Interest and Taxes Interest Higher the interest coverage ratio better is the firm’s ability to meet its interest burden. The lenders use this ratio to assess debt servicing capacity of a firm. fi rm. As the above diagram is showing that the Interest coverage ratio has increased from 3.52 in 2004 to 4.2 in 2008. From 2004 to 2005, 2005 to 2006 there is an increase of 13% and 20.35% respectively, from 2006 to 2007 and from 2007 to 2008 there is a decrease of 8% and 4% respectively In average we can say that there is a 5.33% growth in the Interest Coverage Ratio in last four years.
85
9.5.9 Debt Service Coverage Ratio:
Debt Service Coverage Ratio (DSCR) is a more comprehensive and apt to compute debt service capacity of a firm. Financial Fin ancial institutions calculate the average DSCR for the period during which the term loan for the project is repayable. The Debt Service Coverage Ratio is defined as follows: Profit after tax+ Depreciation+ other Non cash Items+ Interest on term loan Interest on term loan+ repayment of term loan
In the above diagram we can see that there is an Increase/ Decrease in the debt service coverage ratio. From 2004 to 2005 it has decreased by 0.09 then it has increased by 0.1 in 2006. Again it Ha decreased by 0.21and at the year of 2008 it has increased by 0.1.
86
9.5.10 Earning per Share (EPS):
24
23 25
20
16
16
13
15
10
5
0 2 00 4
20 05
20 0 6
2 00 7
20 08
Earnings per Share measures the profit available to the equity shareholders per share, that is, the amount that they can get g et on every share held. It is calculated by dividing the profits available to the shareholders by number of outstanding shares. The profits available to the ordinary shareholders are ar e arrived at by net profits after taxes and preference dividend. It indicates the value of equity in the market.
EPS =
Net profit . Number of Ordinary Shares Outs ding As the above diagram is showing that the EPS is 24 in the year 2004 which reduces to 13 in the year 2005 again it rises to 16 in the year 2006 which remains in stagnant in the year 2007 and it increases to 24 in the year 2008. 2 008.
87
10.
Steel Manufacturing: Manufacturing:
Since I have got the opportunity to do my SIP in a steel and power generating company so I manage to accumulate some information regarding the steel manufacturing process after visiting the steel plant. Now before discussing the process of steel production let us discuss some other aspect of the steel.
10.1 History of Steel Production: The exact date at which people discovered the technique of smelting s melting iron ore to produce usable metal is not known. The earliest iron implements discovered by archaeologists in Egypt date from about 3000 BC, and iron ornaments were used even earlier; the comparatively advanced technique of hardening iron weapons by heat treatment was known to the Greeks about 1000 BC. The alloys produced by early iron workers and, and , indeed, all the iron alloys made until about the 14th century AD would be classified today as wrought iron. They were made by heating a mass of iron ore and charcoal in a forge or furnace having a forced draught. Under this treatment the ore was reduced to a spongy mass of metallic iron filled with a slag composed of metallic impurities and charcoal ash. This sponge of iron was removed from the furnace while still incandescent and beaten with heavy sledgehammers to drive out the slag and to weld and consolidate the iron. The iron produced under these conditions usually contained about 3 per cent of slag particles and 0.1 per cent of other impurities. Occasionally this technique of iron making produced, by accident, a true steel rather r ather than wrought iron. Ironworkers learned to make steel by b y heating wrought iron and charcoal in clay boxes for a period of several days. By this process the iron absorbed enough carbon to become a true steel. After the 12th century the furnaces used in smelting were increased in size, and increased draught was used to force the combustion gases through the “charge”, the mixture of raw materials. In these larger furnaces the iron ore in the upper part of the furnace was first f irst reduced to metallic iron and then took on more carbon as a result of the gases forced through it by the blast. The product of these furnaces was pig iron, an alloy that melts at a lower temperature than steel or wrought iron. Pig iron (so called because it was usually cast in stubby blocks fed from a central centr al 88
runner, reminiscent of piglets suckling from a sow) was then further refined to make wrought iron. Modern steel making employs blast furnaces that are refinements r efinements of the furnaces used by the old ironworkers, but which are much taller, use superheated air, and operate at much higher pressures, yielding a hundredfold increase in production. The process of refining r efining molten iron with blasts of air was accomplished by the British inventor Henry Bessemer, who developed the Bessemer furnace, or converter, in 1855. Since the 1960s, several so-called mini mills have been producing steel from scrap metal in electric furnaces. The giant steel mills remain essential for the production of steel from iron ore
Bessemer Steel Production
In order to convert molten pig iron (crude iron) into steel with a Bessemer furnace, air must be blown through it to burn away impurities. This engraving of a steel factory illustrates the process developed by Sir Henry Bessemer in 1855 and used until the 1950s.
89
10.2 Raw Materials for Steel Production: The ores used in making iron and steel are iron oxides, which are compounds of iron and oxygen. The major iron oxide ores are hematite, which is the most plentiful, limonite, also called brown ore, taconite, and magnetite, a black ore. Magnetite is named for its magnetic property and has the highest iron content. Taconite, named for the Taconic Mountains in the northeastern United States, is a low-grade, but important ore, which contains both magnetite and hematite. Iron making furnaces require at least a 50% iron content ore for efficient operation. Also, the cost of shipping iron ores from the mine to the smelter can be greatly reduced if the unwanted rock and other impurities can be removed prior to shipment. This requires that the ores undergo several processes called "beneficiation." These processes include crushing, screening, s creening, tumbling, floatation, and magnetic separation. The refined ore is enriched to over 60% iron by these processes and is often formed for med into pellets before shipping. Taconite ore powder, after beneficiation, is mixed with coal dust and a binder and rolled into small balls in a drum pelletizer where it is then baked to hardness. About two tons of unwanted material is removed for each ton of taconite pellets shipped. The three raw materials used in making pig iron (which is the raw material needed to make steel) are the processed iron ore, coke (residue left after heating coal in the absence of air, generally containing up to 90% carbon) and limestone (CaCO 3) or burnt lime (CaO), which are added to the blast furnace at intervals, making the process continuous. The limestone or burnt lime is used as a fluxing material that forms a slag on top of the liquid metal. This has an oxidizing effect on the liquid metal underneath which helps to remove impurities. Approximately two tons of ore, one ton of coke, and a half ton of limestone are required to produce one ton of iron. There are several basic elements which can be found in all commercial steels. Carbon is a very important element in steel s teel since it allows the steel to be hardened by heat treatment. Only a small amount of carbon is needed to produce steel: up to 0.25% for low carbon steel, 0.25-0.50% for medium carbon steel, and 0.50-1.25% for high carbon steel. Steel can contain up to 2% carbon, but over that amount it is considered to be cast iron, in which the excess carbon forms graphite. The metal 90
manganese is used in small amounts (0.03-1.0%) to remove unwanted oxygen and to control sulfur. Sulfur is difficult to remove from steel and the form it takes in steel (iron sulfide, s ulfide, FeS) allows the steel to become brittle, or hot-short , when forged or rolled at elevated temperatures. Sulfur content in commercial steels is usually kept below 0.05%. A small quantity of phosphorus (usually below 0.04%) is present, which tends to dissolve in the iron, slightly increasing the strength and hardness. Phosphorus in larger quantities reduces the ductility or formability of steel and can cause the material to crack when cold worked in a rolling mill, making it cold-short . Silicon is another element present in steel, usually between 0.5-0.3%. The silicon dissolves in the iron and increases the strength and toughness of the steel without greatly reducing ductility. The silicon also deoxidizes the molten steel through the formation of silicon dioxide (SiO 2), which makes for stronger, less porous castings. Another element that plays an important part in the processing of steel is oxygen. Some large steel mills have installed their own oxygen plants, which are located near basic oxygen furnaces. Oxygen injected into the mix or furnace "charge" improves and speeds s peeds up steel production. Steel can be given many different and useful us eful properties by alloying the iron with other metals such as chromium, molybdenum, molybdenum, nickel, aluminum, aluminum, cobalt, tungsten, vanadium, and titanium, and with nonmetals such as boron and silicon.
91
10.3 Classification of Steel: Steels are grouped into five main classifications.
i.
Carbon Steels
More than 90 per cent of o f all steels are carbon steels. They contain varying amounts of carbon. Steels to make sheet s heet for car bodies, domestic appliances, cans, and so on have very low carbon contents, typically 0.04 per cent or less. Structural steels and steels for engineering applications have carbon levels up to about 0.8 per cent, while very hard steels for applications such as hand-working tools may have carbon contents up to 1.4 per cent. Other elements present are: manganese at not more than 1.65 per cent, 0.60 per cent silicon, and small amounts of sulphur and phosphorus. In steels made from 100 per cent scrap there are also significant levels of copper and tin, which are detrimental to their properties. Machines, car bodies, most structural steel for buildings, ship hulls, bedsprings, and hairgrips are among the products made of carbon steels.
ii.
Alloy Steels
These steels have a specified composition, and contain, in addition to carbon, specific quantities of alloy additions such as vanadium, molybdenum, or other elements, as well as larger amounts of manganese, silicon, and copper than do the regular carbon steels. Vehicle gears and axles, roller skates, and carving knives are some of the many things that are made of alloy steels.
iii.
High-Strength Low-Alloy Steels
These, called HSLA steels, are the newest n ewest of the five chief families f amilies of steels. They cost less than the regular alloy steels s teels because they contain only small amounts of the expensive alloying elements. They have been specially processed, however, to have much more strength than carbon steels of the same weight. For example, railway freight wagons made of HSLA steels can carry larger loads because their walls are thinner than would be necessary with carbon steel of equal strength; also, because an HSLA wagon is lighter than an ordinary one, it is less of a load for the 92
engine to pull. Numerous buildings are now being constructed with frameworks of HSLA steels. Girders can be made thinner without sacrificing their strength, so that additional interior space is left in the building.
iv.
Stainless Steels
Stainless steels contain chromium, or a combination of chromium and nickel, as well as significant amounts of other alloy additions such as molybdenum. molybdenum. The chromium content is generally greater than 12 per cent, and it is this alloy element that chiefly keeps the steel bright and rust resistant in spite of moisture or the action of corrosive acids and gases. The presence of nickel further improves corrosion resistance, as does molybdenum. When the nickel content is above about 8 per cent, the crystal cr ystal structure of the steel changes, imparting properties that make it suitable for very-low-temperature (cryogenic) applications. Also, nickelcontaining steels are non-ferromagnetic, which is important for such applications as components for geophysical surveying equipment and full-body X-ray scanners where magnetic steels would distort the X-ray paths. Some stainless steels are very hard; some have unusual strength and will retain that strength for long periods at extremely high or low temperatures. Because of their lustrous surfaces, architects often use them for decorative purposes. Stainless steels are used for the pipes and tanks of petroleum refineries and chemical plants, for jet planes, and for space capsules. Surgical instruments and equipment are made from these steels, and they are also used to patch or replace broken bones because the steels can withstand the action of body fluids. In kitchens and in workplaces where food is prepared, handling equipment is often made of stainless steel because it does not taint the food and can easily be cleaned.
v.
Tool Steels
These steels are made into many types of tools for use in powered machinery such as drills, lathes, milling machines, and metal-cutting saws, where friction during use causes the temperature of the tool to rise as high as 500° C (930° F). They contain tungsten, molybdenum, and other alloying elements that give them extra strength, hardness, and resistance to wear at high temperatures.
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10.4 Heat Treatment of Steel: The basic process of hardening steel by heat treatment consists of heating the metal to a temperature a little above that at which all the ferrite is transformed transf ormed into austenite, usually about 760° to 870° C (1400° to 1600° F), the precise value depending on the carbon content of the steel. The steel is then held for a time to take all of the cementite into solution, then rapidly cooled (quenched) in water or oil. Such hardening treatments, which form martensite, set up large internal stresses in the metal, and these are relieved by tempering, which consists of reheating the steel to a temperature below that at which austenite forms. Tempering results in a decrease in hardness and strength and an increase in ductility and toughness. The primary purpose of the heat-treating process is to control the amount, size, shape, and distribution of the cementite particles in the ferrite, which in turn determines the physical properties of the steel. Many variations of the basic process are practised. Metallurgists have discovered that the change from austenite to martensite occurs during the latter part p art of the cooling period and that this change is accompanied by a change in volume that may crack the metal if the cooling is too swift. Three comparatively new processes have been developed to avoid cracking. In time-quenching the steel is withdrawn from the quenching bath when it has reached the temperature t emperature at which the martensite begins to form, and is then cooled slowly in air. In martempering the steel is withdrawn from the quench at the same point, and is then placed in a constant-temperature bath until it attains a uniform temperature throughout its cross-section. The steel is then allowed to cool in air through the temperature range of martensite formation, which for most steels is the range from about 288° C (550° F) to room r oom temperature. In austempering the steel is quenched in a bath of metal or salt maintained at the constant temperature at which the desired s tructural change occurs, and is held in this bath until the change is complete, before being subjected to the final cooling. Other methods of heat-treating steel to harden it are used. In case hardening a finished piece of steel is given an extremely hard surface by heating it with carbon or nitrogen compounds. These compounds react with the steel, either raising the carbon content or forming nitrides in its surface layer. In carburizing the piece is heated in a fine carbon-rich powder containing an activator or in carbonaceous gases such as methane or carbon monoxide. Cyaniding consists of hardening steel 94
in a bath of molten cyanide salt to form both carbides and nitrides, though this method is less common today because of the expense involved in safely disposing of the used salts. In nitriding steels of special composition are hardened by heating them in ammonia gas, or in a plasma produced by striking an arc in the presence of argon and a nitriding gas, to form alloy nitrides.
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10.5 Process of Steel Production:
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In the above picture I am a m trying to show how exactly the steel is being produced and how from the alloy steel different finished product is being made. At first iron ore and lime l ime stone are put into the blast furnace and get it melt after passing through the converter it goes to the Ladle. On the other hand pig iron, sponge iron or scrap is put into the Electronic Arc Furnace to get g et it melt. After getting melt the entire liquid thing goes to the ladle furnace and fi nally goes to the Ladle. Then the entire liquid that has been accumulated in the ladle l adle poured into the ‘continuous casting’ from where the liquid stuff is converted into the Billets. the billets again passes through the reheating furnace, rolling mills, finishing units and from where it can be put into different items e.g., wire rod, nails, bar and rods etc.
10.6 World production of Steel: World production of crude steel in March 2009 fell f ell by 23.5% to 91.7 million tones, although this was a higher monthly total than the previous 4 months. The total of the 3 months to date was 263.7 million tones, 22.8% lower than the January to March period in 2008. However, excluding China, the total for the quarter was 37% less than Q1 2008, with the monthly total down 37.6%. All regions show a fall in crude steel production in both March and the year to date. Crude steel production in the European Union 27 fell by 45.3% in March to 10.3 million tones compared to March 2008, and was 43.8% down in the th e quarter at 30.2 million tones. German steel production was 50% down in March and 39.4% down in the three months to 7.3 million tones. Italian production decreased by 42.7% in March, and by 40.9% in the quarter to 4.9 million tones. French steel production dropped by 36.7% in March, bringing the year to date total down 39.7% to 2.9 million tones. Spanish steel production decreased by 41.2% in March, and by 42.7% in the three months to 2.8 million tones. UK steel s teel production showed a drop of 43% in March, and 43.7% in the year to date to 2.1 million tones. Romania showed the largest fall at 67.8% in the month and 66.3% in the quarter; with Belgian production down 60.2% in the month, and 72% in the quarter. Outside the European Union, Turkish production decreased by 24.5% in March, and by 20.6% in the three months to 5.5 million tones. First quarter production in Switzerland fell 30.3% to 256 thousand tones, and in Serbia it fell by 61% to 193 thousand tones compared to Q1 2008. According to ACEA, the European vehicle manufacturers association, car 97
registrations in the 28 European countries monitored fell by 9% in March, and by 17.2% in the first three months of 2009 compared to 2008. In Germany, presumably due to the car scrapping incentive scheme, there was an increase in registrations of 40% in March, pushing the three t hree month totals up 18% to 868 thousand units. Italian registrations were flat in March, with the quarter total down by 19% to 539 thousand units. French registrations showed an increase of 8% in the month, although the year to date total was down by 3.9% to 505 thousand units. UK registrations dropped by 30.5% in March, bringing the year to date total down 29.7% to 480 thousand units. In Spain registrations r egistrations showed a large drop of 38.7% in March, bringing the quarter total down 43% to 198 thousand units. In Poland, the largest of the East European countries, registrations rose by 2.5% in March and by 1.3% in the three months to 88 thousand units. However, Romania's three month total was down 60.7%. In the former USSR, Russia showed a decrease in steel production of 30.9% in the month and 33% in the quarter to 12.9 million tones. In the Ukraine production fell by 38.5% in March, and by 37.9% in the quarter to 6.8 million tones. Production in Kazakhstan showed a 22.6% drop in March, with the three th ree months total down by 20% to 865 thousand tones. While exports from both Russia and Ukraine in the first two months of 2009 were down, 19.2% for Russia and 24.7% for the Ukraine, monthly exports have actually picked up from the low point in November 2008. Semis accounted for just under half of Russia's exports in 2009, and just over half of Ukraine's exports. Crude steel production in the USA was just 4.1 4 .1 million tones in March, a decrease of 52.7%, bringing the first quarter total up 52.5% to 12.1 million tones. Mexican production fell by 51.2% in the month, with the three months total down 49.1% to 2.4 million tones. Canadian steel production dropped by 55% in March and by 55.4% in the year to date to 1.9 million tones. US imports of steel in February dropped to their lowest level since October 1995 at just under 1.5 million tones. Seamless and welded tubes in particular showed a sharp drop compared to recent months. Imports of semis have also dropped off of f markedly. US exports have also fallen significantly, down 34% to 613 thousand tones compared to February 2008, and the lowest monthly export total since September 2004. 74% of exports went to Canada and Mexico with a further 10% going to other Central and South American countries, which is a similar percentage as in previous years. South America is dominated by Brazil where steel production decreased by 41.5% in March with the year to date down 42% at 5.0 million tones. In Argentina production was 49.5% down in the month bringing the year to date to 798 thousand tones, a fall of 41.7% on the first quarter of 2008. Venezuelan steel production, on the other hand, 98
actually rose by 63% in March, and by 19.6% in the three months to over 1.1 million tones. In Africa, the South African three month total fell by 26.9% to 1.6 million tones, while the Egyptian total fell 26.2% to 1.3 million tones. In the Middle East Iranian steel production rose by 14% in March, bringing b ringing the first quarter total up 17.9% to 2.9 million tones, while Saudi Arabian steel production decreased by 5.3% in March, bringing the three months total down 26.5% to 938 thousand tones. The five major Asian countries for which monthly crude steel production data are available showed increased production in both March and the year to date except for China. Chinese steel production was very slightly down in March at 45.1 million tones, while the three months total rose by 1.4% to 127.4 million tones, 48% of the world total in 2009. Japan's production fell by 46.7% in March, with first quarter production down 42.9% to 17.6 million tones. Indian steel production in March was 7.5% lower, with the three months total down 7.9% to 13.2 million tones. Production in South Korea decreased by 21.2% in March, with the year to date total down 22.9% to 10.5 million tones. Taiwanese production fell by 21% in the month, bringing the first quarter total to 4.2 million tones, a drop of 23.2% on January to March 2008. Chinese exports of steel actually rose slightly in March to 1.6 million tones, although this was still below the January total of 1.9 million tones. Imports, however, jumped to over 1.7 million tones, the highest monthly total since March 2006, and making China's balance of trade negative for the first time since November 2005. The large rise in imports was due in part to the jump in the imports of semis, 465 thousand tones, which was almost double the amount imported in the whole of 2008. Some 900 thousand tones of semis were imported in the first three months of 2009 of which 91% were low carbon car bon billets and slabs. They came primarily from Russia, Taiwan, South Korea and Mexico, which together accounted for 80% of the total. Most Chinese imports rose in March compared to February, with CR at 318 thousand tones and HR wide coil at 287 thousand tones. Japanese exports in March 2009 jumped by 38% to 2.5 million tones compared to February 2009, although they were still a third down on the same month in 2008.
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11 Conclusion: Flowchart for Materials Procurement and Movement Indent Raised
Check in stores
Not there in stores?
Security check at the Gate
Materials reach to the company gate
Weigh Bridge1 & 2
Fabrication Area
Bill Clearance of supplier by Bill Passing Dptmt
Bill sent to Accounts Dptmt
Request to purchase
Suppliers Supply Materials
Weigh Bridge3 & 4
Materials Sent To Store
Indenters copy to Purchase Dptmt
Purchase Order issued by Purchase Dptmt
Stores Documentation
Laboratory testing of materials
Voucher prepared by Accounts Dptmt
Accounting Entries made by Accounts Dptmt
Payment to Supplier
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In the above figure we can see the whole process of material procurement by the company and how these things are being done by the individual departments of the organization. Firstly a material is procured on demand of the indenter. So the Indent is being raised by the Indenter in order to purchase the material. After the indent is being raised it is not that the material will be purchased immediately. It will be checked in the store whether that material is available in the store or not. If it is available in the store then the material will be issued from the store if not available in the store then further proceedings will be done. The purchase department will send an enquiry to the suppliers through mail in order to send their Quotations of the material. The suppliers send the Quotations either through mail or post. Based on the Quotations send by the suppliers a Comparative statement is been prepared. The supplier who quotes the least price gets the order of material to supply. So after deciding which supplier to get the order a Purchase Order is been issued by the purchase department to the supplier. Now after the purchase order is been issued it is time for the suppliers to supply the materials. When the materials reach the Company a security check is been done at the gate and after that the material is allowed to enter inside the factory. Then as the material loaded truck enters there are two Weigh Bridges where weight of the material is measured. After that the truck reaches the fabrication area to unload the materials. While returning from the unloading point again the empty truck is being weighed by another two Weigh Bridges. After the materials are supplied by the supplier it is not used immediately. A sample of material is been sent to the Laboratory in order to have a Lab Test. After testing the material it is been sent to the store. The Bill Clearance is been done by the Bill passing department and the bill is been sent to the Accounts department where the vouchers are being prepared and the accounting entries are made. After the entries are made the Accounts Department makes payment to the supplier.
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12 Bibliography:
www.bpsl.net
www.scribd.com
Information collected from the representative of individual departments.
Microsoft Encarta Encyclopedia.
www.nseindia.com (capital market module)
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