financial savings through fixed assets-copy

7/30/2019 Financial Savings Through Fixed Assets-Copy

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A

SUMMER TRAINING PROJECT REPORT

ON

FINANCIAL SAVINGS THROUGH FIXED ASSETS

MANAGEMENT

ISPAT INDUSTRIES LTD.

Submitted in partial fulfillment of the requirementFor the award of degree of

MASTERS OF MANAGEMENT STUDIES (MMS)(2010-2011)

SUBMITTED BY:MR. ROHAN SUNIL SHIRDHANKAR

UNDER THE GUIDANCE OF

MS. SADHNA OGALE

SARASWATI EDUCATION SOCIETYSSARASWATI COLLEGE OF ENGINEERING (MMS)PLOT NO. 46, SECTOR 6, NEAR UTSAV CHOWK,

KHARGHAR, NAVI MUMBAI-410210


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ISPAT INDUSTRIES LIMITED

There is something about steel

There is something about ISPAT


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Company certificate


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Institute Certificate


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DECLARATION

I, Rohan S Shirdhankar, student of MMS IIInd semester, studying at Saraswati College

of Engineerings Department of Master of Management Studies Kharghar, hereby

declare that the summer training report on FINANCIAL SAVINGS THROUGH

MANAGEMENT OF FIXED ASSETS submitted to Mumbai University, Mumbai in

partial fulfillment of degree of Masters of Management Studies is the original work

conducted by me.

The information and data given in the report is authentic to the best of my knowledge.

This summer training report is not being submitted to any other university for award of

any other degree, diploma and fellowship.

(Rohan Sunil Shirdhankar)


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ACKNOWLEDGEMENT

It is my pleasure to be indebted to various people, who directly or

indirectly contributed in the development of this work and who influenced my thinking,

behavior, and acts during the course of study.

I express my sincere gratitude to Dr.J.G.Kori worthy Principal for

providing me an opportunity to undergo summer training.

I am thankful to Mr.Pravin More our H.O.D for his support, cooperation,

and motivation provided to me during the training for constant inspiration, presenceand blessings.

I also extend my sincere appreciation to Mr. Sunil K Garg VP (Accounts)

who provided his/her valuable suggestions and precious time in accomplishing my

project report.

Lastly, I would like to thank the almighty and my parents for their moral

support and my friends with whom I shared my day-to-day experience and received lots

of suggestions that improved my quality of work.

(Rohan Sunil Shirdhankar)


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FINANCIAL SAVINGS THROUGH FIXED ASSETS MANAGEMENT

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ABSTRACT

The project Financial Savings Through Fixed Assets Management is defined as the

selling of the assets which are Idle or which are not in the production use. It refers to removing of the

assets from the Fixed Asset Register which are not in use or which are costing high on repairs and

maintenance cost. It mainly focuses on financial saving through discarding the obsolete and used assets.

Purpose of the project:

To review the assets which can be physically disposed off in the fiscal year 2010 - 11. To study the accounting of Fixed Assets as per AS- 10, Accounting of the Depreciation on Fixed

Assets AS- 6 and the accounting of Impairment losses as per AS-28.

To check whether the method of depreciation for the FIXED ASSETS is appropriate as per theCompanies Act,1956.

To review the Fixed Asset Register and to check for any errors in the register . To provide the information regarding the procedure of disposal of particular fixed assets and give

information about the different methods through which disposal can be done. For Example: sale

by public tender, sale though company agent, donating, etc


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EXECUTIVE SUMMARY

In few years Steel is vital to the development of any modern economy and is considered to be the

backbone of the human civilization. The level of per capita consumption of steel is treated as one of the

important indicators of socio-economic development and living standard of the people in any country. It

is a product of a large and technologically complex industry having strong forward and backward

linkages in terms of material flow and income generation. All major industrial economies are

characterized by the existence of a strong steel industry and the growth of many of these economies has

been largely shaped by the strength of their steel industries in their initial stages of development.

This Project gave me a great learning experience and at the same time it gave me enough scope

to implement my analytical ability. The analysis and advice presented in this Project Report entitled as

Financial Savings Through Disposal of Idle Fixed Assets is based on the research analysis done and

also having a survey of the fixed asset in the company premises.

The project report comprises of identification of those fixed asset, which are idle and not used in

the production process as they are in broken condition or there installation cost is very high. The report

also gives knowledge about those fixed assets, which are costing high on maintenance and repairs and

are frequently in the maintenance department.This Project as a whole can be divided into two parts.

The first part gives an insight about the different Fixed Assets and the accounting of the fixed

assets. The need and procedure for the disposal of fixed assets is also mentioned in this project. The

project helps us to understand how to make Financial Savings through proper Management of the Fixed

Assets. The proper management includes acqusition of fixed assets, its replacement and disposal after a

stipulated period. The financial savings can be made by reducting the costs inrelation to the fixed assets

such as depreciation, repairs and maintenance, operating cost, etc. The project also talks about the

accounting standards by ICAI namely AS-10 accounting of Fixed Assets and AS-28 Impairment of the

Fixed Assets.

The second part of the Project consists of research and analysis to find out whether there is any

need to dispose off the fixed assets and investigation to find out which fixed assets can be disposed and


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which need a replacement. The project report also gives us an idea about the total amount of fixed assets

that are depreciated to there 95% of acquisition value. It also concentrates on physical investigation of

the Fixed Assets situated in the Dolvi Plant to verify whether they are in working condition.


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TABLE OF CONTENTS

SR.

No

CHAPTER

NO

PARTICULARS PAGE NO

1. DECLARATION V

2. ACKNOWLEDGEMENT VI

3. ABSTRACT VII

4. EXECUTIVE SUMMARY VIII

5. 1. INDUSTRY OVERVIEW AND COMPANYPROFILE 1 - 9

1.1

1.2

OVERVIEW OF THE INDUSTRYA) STEEL INDUSTRY IN WORLDB) STEEL INDUSTRY IN INDIA

COMPANY PROFILEA) ABOUT ISPAT INDUSTRIES LTD.B) VALUES OF IILC) VISION AND MISSION OF IILD) PROCESSES OF IILE) PRODUCTSF) QUALITY PROCESSESG) CSR ACTIVITYH) ACHIEVEMENTS

1 - 41 22 4

4 94 56 66 6

6 67 99 99 99 - 9

6. 2. OBJECTIVES AND SCOPE OF THE STUDY 10 11

7. 3 INTRODUCTION OF THE TOPIC 12 - 14

8. 4 FIXED ASSETS AND ACCOUNTING OFFIXED ASSETS

15 - 31

4.14.24.34.4

FIXED ASSETS (DEFINITION AND CLASSIFICATION):ACCOUNTING FOR FIXED ASSETS (AS- 10 by ICAI)FIXED ASSETS REGISTERDEPRECIATION (DEFINITION AND ITS METHODS)

15 17

17 22

22 25

25 31


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9. 5 FIXED ASSET DISPOSAL AT IIL 32 - 37

10. 6 SAVINGS THROUGH FIXED ASSETS

MANAGEMENT

38 - 57

6.1

6.26.3

HOW FINANCIAL SAVINGS CAN BE DONE THROUGHDISPOSAL OR REPLACEMENT OF FIXED ASSETSIMPAIRMENT OF THE FIXED ASSETS (AS 28 by ICAI)FIXED ASSET DISPOSAL PROCEDURE

41 - 52

46 - 52

52 - 57

11. 7 RESEARCH METHODOLOGY 58 - 59

12. 8 DATA ANALYSIS AND INTERPRETATION 60 72

10.110.2

ANALYSIS OF THE COMPANYCOMPETITOR ANALYSIS (COMPARISON WITH INDUSTRYAVERAGES)

60 6767 - 72

13. 9 RESULTS AND FINDINGS 73 - 75

14. 10 CONCLUSIONS 76 - 76

15. 11 LIMITATIONS OF THE STUDY 77 - 77

16. 12 SUGGESTIONS AND RECOMMENDATIONS 78 - 79

17. 13 GLOSSARY 80 - 80

18. REFERENCES 81 - 81

19. ANNEXURE IX - XI


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CHAPTER 1- OVERVIEW OF THE INDUSTRY AND COMPANY

PROFILE

1.1 OVERVIEW OF THE INDUSTRY

Steel is vital to the development of any modern economy and is considered to be the backbone

of the human civilization. The level of per capita consumption of steel is treated as one of the important

indicators of socio-economic development and living standard of the people in any country. It is a

product of a large and technologically complex industry having strong forward and backward linkages in

terms of material flow and income generation. All major industrial economies are characterized by the

existence of a strong steel industry and the growth of many of these economies has been largely shapedby the strength of their steel industries in their initial stages of development.

A.)STEEL INDUSTRY IN WORLDSteel, a recycled product is one of the top products of the manufacturing sector. Steel industry is

booming industry in the world. The Infrastructure industry, Automobile industry, Construction industry

and Oil and Gas Industry generate the increasing demand of steel. After the adoption of liberalization

policies all over the world, the world steel industry is growing very fast. Among the top steel producersin the world, China ranked 1st followed by Japan, United States. Russia and South Korea. China, as the

worlds major producer and consumer, and has a considerable influence on the industry globally, but

more sharply in Asia The Indian scenario has changed due to 2 major Merger and Acquisition and one is

Mittal steel acquired Arcelor steel and became worlds largest steel producer named Arcelor- Mittal and

the other is Tata Steel of India or TISCO has acquired the world's fifth largest steel company, Corus,

with the highest ever stock price.

The Indian steel industry has made a rapid progress on strong fundamentals over the recent few

years. The industry is getting all essential ingredients required for dynamic growth. The government is

backing the industry through favorable industrial reforms, while the private sector is supporting it with

investments worth billions of dollars. Even in the tough times of economic slowdown, the industry

succeeded to sustain its positive growth


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momentum on the strong fundamentals of domestic demand from construction, automobile and

infrastructure sectors and due to strong global demand. With an impressive track record, the country has

become a reputed name in the world steel industry. Global steel giants from all over the world have

shown interest in the industry because of its phenomenal performance.

CONTRIBUTION OF THE COUNTRIES TO GLOBAL STEEL INDUSTRY

The countries like China, Japan, India and South Korea are in the top of the above in steel

production in Asian countries. China accounts for one third of total production i.e. 419m ton, Japan

accounts for 9% i.e. 118m ton, India accounts for 53m ton and South Korea is accounted for 49m ton,

which all totally becomes more than 50% of global production. Apart from this USA, BRAZIL, UK

accounts for the major chunk of the whole growth. The steel industry has been witnessing robust growth

in both domestic as well as international markets.

B.)STEEL INDUSTRY IN INDIAGLOBAL RANKING OF INDIAN STEEL:

Global crude steel production reached 1220 million tonne in 2009.China was the largestcrude steel producer in the world with production reaching 567.8 million tonne, a growth of 13.5 per

cent over 2008. India once again emerged as the fifth largest producer in 2009 and recorded a growth of

2.7 per cent as compared to 2008, the only other country in the top 10 brackets to register a positive

growth during 2009. India also emerged as the

37%

4%

18% 8% 3%9%

8%

13%

Steel Production in world

China

India

Europe

USA

Brazil

Japan

CIS

Others


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largest sponge iron producing country in the world in 2009, a rank it has held on since 2002. If proposed

expansions plans are implemented as per schedule, India may become the second largest crude steel

producer in the world by 2015-16.

STEEL SECTOR TRENDS

India emerged as the fourth largest steel producer in the world and is expected to become the 2ndlargest producer of crude steel in the world by 2015.

India also maintained its lead position as the world's largest producer of direct reduced iron(DRI) or sponge iron. Sponge iron production for sale was 20.8 million tonnes in 2008-09, which

was higher by 2.1% over 2007-08.

The country is likely to achieve a crude steel production capacity of 124 million tonnes by theyear 2012.

222 Memorandum of Understanding (MoUs) have been signed by the investors with variousState Governments for setting up additional 276 million tones of steel capacity in the country.

Public sector undertakings in steel Industry:

Steel Authority of India Ltd., (SAIL), New Delhi Kudremukh Iron Ore Company Ltd. (KIOCL), Bangalore. National Mineral Development Corporation Ltd. (NMDC), Hyderabad. Hindustan Steelworks Construction Ltd. (HSCL), Kolkata. MECON Ltd., Ranchi. Manganese Ore (India) Ltd. (MOIL), Nagpur. Sponge Iron India Ltd. (SIIL), Hyderabad. Bharat Refractories Ltd. (BRL), Bokaro. Rashtriya Ispat Nigam Ltd. (RINL), Visakhapatnam. MSTC Ltd., Kolkata. Ferro Scrap Nigam Ltd. (FSNL), Bhilai, (A subsidiary of MSTC Ltd.).

Other Public Sector Undertakings (PSUs):


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KudremukhIronOre Company Limited (KIOCL) National Mineral Development Corporation Ltd. (NMDC) Hindustan Steelworks Construction Limited (HSCL) MECON Limited Bharat Refractories Ltd. (BRL) Manganese Ore (India) Ltd. (MOIL) Sponge Iron India Ltd. (SIIL) Rashtriya Ispat Nigam Ltd. (RINL) MSTC Ltd. Ferro Scrap Nigam Limited (FSNL)

Private Sector:

Tata Steel Ltd. Essar Steel Ltd. JSW Steel Ltd.Jindal Steel & Power Ltd.(JSPL) Ispat Industries Ltd. (IIL) Bhushan Power & Steel Ltd. Monnet Ispat & Energy Ltd.

1.2 OVERVIEW OF THE COMPANY PROFILE

A) ABOUT ISPAT INDUSTRIES LIMITEDIspat Industries Limited was set up as Nippon Denro Ispat Limited in May 1984 by founding

Chairman Mr M L Mittal, is one of the leading integrated steel makers. It mainly operates in steel, iron,

minning, energy and infrastructure. Ispat Industries Limited (IIL) is one of the leading integrated steel

makers and the largest private sector producer of hot rolled coils in India., a corporate powerhouse with

operations in iron, steel, mining, energy and infrastructure. The company's core competency is the

production of high quality steel, for which it employs cutting edge technologies and stringent quality


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standards. It produces world-class sponge iron, galvanized sheets and cold rolled coils, in addition to hot

rolled

coils, through its two state-of-the art integrated steel plants, located at Dolvi and Kalmeshwar in the state

of Maharashtra.

To better provide steel solutions to an increasingly sophisticated marketplace, IIL had sets

up a highly advanced cold rolling reversing mill during the year 1988, in collaboration with Hitachi of

Japan, to manufacture a wide range of cold rolled carbon steel strips. In the same year, the company

installed a color coating line, the first of its kind in India for the manufacture of pre -painted color steel

sheets. During the year 1994, Business interests within the Ispat Group are demarcated. The eldest son,

Mr. L N Mittal continues to manage the international operations while Mr.Pramod Mittal and Mr. VinodMittal, the younger brothers focused on steel and other businesses in India. In the identical year 1994, it

commissioned the world's largest gas-based single mega module plant for manufacturing direct reduced

iron (sponge iron), at its Maharashtra-based Dolvi plant. Within three months, the plant exceeds its

capacity of 1 million tonnes per annum (MTPA) of high quality DRI. The company came out with a

Euro-issue of 125-mln fully convertible bonds in 1994 to part-finance the expansion of its hot strip mill

(HSM) capacity to 2.50 lakhs TPA.

The Company aims to consolidate its market leadership in the national specialty steel market by

capitalizing on the proximity of its manufacturing facilities to major consumers of flat steel products in

Maharashtra, while increasing its presence in international markets by using its convenient port location.

In the short span of time since its inception, Ispat Industries has steadily raised the bar - in terms of its

relentless pursuit of technological advancement, unwavering focus on innovation, strident emphasis on

quality products and its constant initiatives aimed at ensuring customer satisfaction. It has 2 integrated

steel plants located at Dolvi and Kalmeshwar, in maharashtra. It is headquatered at Mumbai and

employees about 3,347 employees. It carries its business not only in India but also in word. The

company's core competency is the production of high quality steel, for which it employs cutting edge

technologies and stringent quality standards. It produces world-class sponge iron, galvanized sheets and

cold rolled coils, in addition to hot rolled coils.


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B) VALUES OF IIL

Respect the skills and integrity of professionals Empower those who belong to it Work in tandem with the environment Listen to the stakeholders, be they customers or communities Build value for all the shareholders and the Society with which it coexist.

C) VISION AND MISSION OF IIL:

To be an organization that continuously achieves economic value by optimizing resources

through operational excellence, powered by technology, driven by innovation creating customer delight.

To be amongst the worlds most admired new generation steel companies: in products, in service, in

work ethics, and in the culture of societal integration

D) PROCESSES OF IIL:

I. Dolvi Plant: -

The sprawling 1,200 acres Dolvi complex, locatedon the coast of Maharashtra houses hot rolled coils plant,

sponge iron plant and blast furnace that combines the latest

technologies - the Conarc process for steel making and the

compact strip process (CSP) - introduced for the first time

in Asia.

II.Kalmeshwar plant: -

The Kalmeshwar complex houses Ispat's 0.4 million

tonnes cold rolling complex, which also includes the

galvanized plain/ galvanized corrugated (GP/GC) lines and

India's first colour coating mill.


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E) PRODUCTS:

I. Sponge Iron:In September 1994, Ispat Industries

commissioned the world's largest gas based, single

mega-module plant for making sponge

iron/direct reduced iron (DRI), in

Maharashtra, India and it is one of the most

efficient Sponge Iron plants in the world.

Sponge Iron is mainly used as a raw material for speciality steel as well as substitute for scrap.

The rise in price of scrap and other factors have led to the increase in the use of sponge iron for

making high quality steel.

II. Hot Rolled coils:

Ispat Industries Limited manufactures

international standard hot rolled (HR) coils at its Hot

Strip Mill (HSM), situated at Dolvi in the state of

Maharashtra, India. The production of these coils

involves the use of state-of-the-art equipment and

manufacturing processes that ensure products of the


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highest quality. Ispat's HSM uses a combination of the advanced Conarc Process and Thin Slab

Casting technology

III. Cold Rolled Coils:

Ispat Industries Limited, cold rolled coils are

manufactured at the highly advanced cold rolling mill at

Kalmeshwar, and can be used in a wide variety of

applications as follows:

In industrial goods such as automobile components, precision tubes and consumer durables. In the manufacture of bodies of vehicles as varied as automobiles and railway coaches. For the production of heavy machinery like earthmoving and material-handling equipment Specially suited for panel applications in refrigerator bodies and washing machines. In bicycle parts, office equipment and furniture.

For basic items such as galvanized sheets, tin-plates, drums and barrels.

IV. Galvanized Sheets:

Ispat Industries Limited was the first Indian

company to set up a Continuous Galvanizing Line for thin

gauge sheets in 1985. With two Galvanizing Lines and

high performance sophisticated corrugation

machines at its plant at Kalmeshwar, it

manufactures coils and GP/GC sheets that serve the

specific need of varied applications as per

customers requirements.


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V. Colour Coated Sheets:

Ispat manufactures colour coated sheets called

Polysteel, in a variety of shades and designs, such as

dark or pastel, printed or plain and striped or

embossed. Polysteel is durable, cost-effective and easy

to install and use. Polysteel building sheets, for

instance, make it possible to design and construct

customers choice of beautiful structures, save on

structural steel and maintenance, and obtain overall cost effectiveness.

F) QUALITY PROCESSES:

Six Sigma Total Quality Management Total Productive Maintenance

G) CSR ACTIVITY:

IIL provides 44 villages with free drinking water. Beautification of public spaces with the concurrence of the local administration. IIL routinely distributes textbooks, school uniforms, notebooks and computers to students of

schools in the vicinity.

Ispat has recognized Tree plantation and landscaping as an important tool to improve the Ecosystem. A full- fledged nursery is maintained to support the green drive.

IILs contribution During the Floods of 26/7 and for the Tsunami-affected victims.

H) ACHIEVEMENTS:

Since its inception, the IIL has been moving from strength to strength, consistently breaking new

grounds and spearheading new developments in iron and steel. Some of the key achievements are as

follows:


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Acknowledged many Quality Certificates from ISO, License for Quality Systems, NationalQuality Awards, etc.

Received many awards Such as Amity HR growth award, Golden peacock National Trainingaward, Good green governance award, TPM Excellence award, safety innovation award,

Excellence kaizen award, etc

Acquired many awards for corporate social work. Ispat Industries was ranked 5th among major steel companies in India for the year 2008 by

Business World.

Ispat Industries Ltd (IIL) ranks 45th in the FE-500 ranking of 2005.

CHAPTER2 OBJECTIVES AND SCOPE OF THE STUDY

2.1 OBJECTIVES OF THE STUDY:

To discard or remove those Fixed Assets from the Fixed Asset Register, which are not in activeuse or which are idle.

To discarding or removing those Fixed Assets from the Fixed Asset Register, which are stated atthe lower of their net book value.

To check whether the method and the rates of depreciation for the Fixed Assets is appropriate To ensure Fixed Assets availability where and when needed. To track fixed assets for the purposes of financial accounting, preventive maintenance, and theft

deterrence.

2.2 SCOPE OF THE STUDY:

The Indian steel industry has entered into a new development stage from 2005-06, riding high

on the resurgent economy and rising demand for steel. Rapid rise in production has resulted in India

becoming the 5TH largest producer of steel. The research was carried on in ISPAT INDUSTRIES.


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I had been sent to the plant of ISPAT INDUSTRIES LTD situated at DOLVI,

MAHARASHTRA where I completed my Project work. I surveyed on my Project Topic Financial

savings through fixed asset management by investigating about those Fixed Assets, which are not used

in the operational process, or those, which are costing, high on Repairs and Maintenance cost in Sponge

Iron plant, Blast Furnace Plant and Hot Strip Mill Plant situated at Dolvi plant.

The study ofFinancial Savings through Fixed Assets Management will help to know which fixed

assets are not in active use or idle or which are stated at the lower of their net book value. Also it helps

to know the accounting of the fixed asset in case of acquisition,

retirement or replacement of the Fixed Assets. It also provides the information regarding the impairment

of the long-lived fixed assets. The project has also reviewed the procedure for disposal or replacement of

Fixed Assets.

This project report may help the company to make further planning and strategy.


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CHAPTER3 INTRODUCTION TO THE PROJECT

The project topic FINANCIAL SAVINGS THROUGH FIXED ASSETS MANAGEMENT

clearly mentions the deduction in the expenditure costs, which are in connection with those fixed assets,

which are not used in the operational process. Thus disposal of such assets which are idle or not used in

the production process can save money as they can deduct the expenditures such as Repairs and

Maintenance to these assets, Depreciation on these assets, Interest charges in case the assets are acquiredby borrowed capital, etc.

The project on Financial Savings through Fixed Asset Management mainly focuses on

discarding or removing of those Fixed Assets, which are not used in the current operational process or

which are idle. The project also concentrates on those assets, which are high on the maintenance cost. It

mainly focuses on identification and then disposal of the assets which are idle or which are frequently

under repairs eventually increasing the operating cost for production. It also provides information about

the procedure of disposal or transfer of fixed assets.

PURPOSE OF THE PROJECT


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The project Financial Savings Through Fixed Assets Management is defined as the selling of

the assets which are Idle or which are not in the production use. It refers to removing of the assets from

the Fixed Asset Register which are not in use or which are costing high on repairs and maintenance cost.

It mainly focuses on financial saving through discarding the obsolete and used assets.

Purpose of the project:

To review the assets which can be physically disposed off in the fiscal year 2010 - 11. To study the accounting of Fixed Assets as per AS- 10, Accounting of the Depreciation on Fixed

Assets AS- 6 and the accounting of Impairment losses as per AS-28.

To check whether the method of depreciation for the FIXED ASSETS is appropriate as per theCompanies Act,1956.

To review the Fixed Asset Register and to check for any errors in the register . To provide the information regarding the procedure of disposal of particular fixed assets and give

information about the different methods through which disposal can be done. For Example: sale

by public tender, sale though company agent, donating, etc.

SCOPE OF THE PROJECT:The survey on the Project Topic Financial savings through fixed asset management is done by

investigating about the different Fixed Assets in Sponge Iron plant, Blast Furnace Plant and Hot Strip

Mill Plant of ISPAT INDUSTRIES LTD. situated at Dolvi plant.

The study ofFixed Asset Management will help to know which fixed assets are is not in active

use or idle or which are stated at the lower of their net book value. Also it helps to know which assets

are having more repairs and maintenance costs and Disposal of such Fixed Assets.

This project report may help the company to make further planning and strategy.

SALIENT CONTRIBUTION OF THE PROJECT:


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The salient contribution of the project on Financial savings through fixed asset management to the

company is as follows:

It will provide the knowledge regarding the current scenario of the company as well as providesa competitor analysis of the fixed assets of the company.

It will provide information to the management of the company to make strategies and planningregarding the disposal of the fixed assets.

It will help the management to get idea about those Fixed Assets that are obsolete or kept idle. It will also provide information regarding those fixed assets, which are costing heavy on the

maintenance.

This project will help the Management to know the procedure to disposal or transfer of any FixedAsset. It includes the proper Fixed Asset Disposal Request form.


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CHAPTER4 FIXED ASSETS AND ACOUNTING OF FIXED

ASSETS

4.1 FIXED ASSETS (DEFINITION AND CLASSIFICATION):

Fixed Assets refer to physical or tangible things of value a company owns such as facilities,

equipment, and land. The term "Fixed Assets" reflects the traditional notion that these kinds of Fixed

Assets are fixed and do not require much consideration after they are purchased.. Companies rely on

their Fixed Assets, to generate profits. Modern equipment in good repair, is essential for high

productivity and efficiency, and hence for earning profits. Fixed Assets analysis involves calculating the

earnings potential, use, and useful life of Fixed Assets.

In addition, Fixed Assets analysis determines if Fixed Assets are sufficiently maintained to ensure

current and future earning power as well as the relative profitability contributed by Fixed Assets and

Fixed Assets acquisitions. These Fixed Assets are used to derive production capacity. Therefore, they

are also known as earning Fixed Assets. Fixed Assets are purchased for continued and long-term use in

earning profit in a business. They are written off against profits over their anticipated life by charging an


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annual amount calculated so as to eliminate the original cost less scrap, over that period. Therefore, the

business needs to make long-term investment in Fixed Assets.

Company management and stockholders expect that Fixed Assets justify their existence by

producing "returns" and so use income statement and balance sheet entries to measure the efficiency and

productivity of the company's Fixed Assets in this way, Fixed Assets that sit idle or are otherwise

unproductive are candidates for elimination. The fixed Assets are classified as follows:

I. Property, Plant And Equipment - PP&E:

A companys Fixed Assets that is vital to

business operations but cannot be easily liquidated. The

value of property, plant and equipment is typically depreciated

over the estimated life of the Fixed Assets, because even the longest-term Fixed Assets become obsolete

or useless after a period of time. Depending on the nature of a

company's business, the total value of PP&E can range from very

low to extremely high compare to total Fixed Assets.

Accounting standard 10 deals with the accounting treatment of PP&E.

This item is listed separately in most financial statements because

PP&E is treated differently in accounting statements. This is because improvements, replacements and

betterments can pose accounting issues depending on how the costs are recorded.

II. Land:

Property or real estate, not including buildings or equipment that does not occur naturally.

Depending on the title, land ownership may also give the holder

the rights to all natural resources on the land. These may include

water, plants, human and animal life, fossils,

soil, minerals, electromagnetic features, geographical location,

and geophysical occurrences.


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In the traditional school of economics, land is considered a factor of production, along with labor

and capital. Selling land results in a capital gain or loss. As opposed to almost any other Fixed Assets,

land is not a depreciable. Fixed Assets under IRS tax laws. The cost of land includes all expenditures

that relate to its acquisition and preparation for use. This amount typically includes purchase price,

attorney fees, real estate costs, document filing fees, and so on. Special assessments levied by a

government authority for sidewalks and streetlights or impact fees will also be included in the

capitalized cost of land, as well as general preparation costs such as grading, soil removal, drainage, and

demolition of existing buildings.

III. Building:

The cost of buildings can be determined in a

number of ways.. The allocation of cost is essential because land

represents a non-depreciable FIXED ASSETS, while the cost

of the building is depreciable. Once acquired, the building may

need some additional expenditure to make the building

ready for its intended use. These are often referred to as

make-ready costs and are included in the cost of the building.

IV. Furniture and Fixtures

Typically, a company that maintains more than 1,100

stores with an indoor lumberyard and warehouse merchandise

displays must invest heavily in furniture, fixtures, and

equipment. Narrow-aisle forklift trucks, rental vehicles,

customer shopping carts and flatbeds, and movable ladder

systems are examples of a companys investment in

equipment.


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Probably the most significant investment in fixtures by a retail company is evident as customers

walk between the product aisles. The heavy-gauge, steel storage systems throughout the store constitute

an enormous investment in fixtures. This racking system not only has to be strong, but much of it has to

be designed to be safe for consumers.

4.2 ACCOUNTING FOR FIXED ASSETS (AS- 10 by ICAI)

The following is the Accounting Standard 10 (AS 10) issued by the Institute of Chartered Accountants

of India on 'Accounting for Fixed Assets'.

Introduction

Financial statements disclose certain information relating to fixed assets. In many enterprises

these assets are grouped into various categories, such as land, buildings, plant and machinery, vehicles,

furniture and fittings, goodwill, patents, trademarks and designs.

Identification of Fixed Assets

Judgment is required in applying the criteria to specific circumstances or specific types of

enterprises. It may be appropriate to aggregate individually insignificant items, and to apply the criteria

to the aggregate value. An enterprise may decide to expense an item, which could otherwise have been

included as fixed asset, because the amount of the expenditure is not material.

Stand-by equipment and servicing equipment are normally capitalized. Machinery spares are

usually charged to the profit and loss statement as and when consumed. However, if such spares can be

used only in connection with an item of fixed asset and their use is expected to be irregular, it may be

appropriate to allocate the total cost on a systematic basis over a period not exceeding the useful life of

the principal item.

In certain circumstances, the accounting for an item of fixed asset may be improved if the total

expenditure thereon is allocated to its component parts, provided they are in practice separable, and

estimates are made of the useful lives of these components. For example, rather than treat an aircraft and


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its engines as one unit, it may be better to treat the engines as a separate unit if it is likely that their

useful life is shorter than that of the aircraft as a whole.

Components of CostThe cost of an item of fixed asset comprises its purchase price, including import duties and other non-

refundable taxes or levies and any directly attributable cost of bringing the asset to its working condition

for its intended use; any trade discounts and rebates are deducted in arriving at the purchase price.

Examples of directly attributable costs are:

Site preparation; Initial delivery and handling costs; Installation cost, such as special foundations for plant; and Professional fees, for example fees of architects and engineers.

The cost of a fixed asset may undergo changes subsequent to its acquisition or construction on account

of exchange fluctuations, price adjustments, changes in duties or similar factors.

Financing costs relating to deferred credits or to borrowed funds attributable to construction oracquisition of fixed assets for the period up to the completion of construction or acquisition of

fixed assets are also sometimes included in the gross book value of the asset to which they relate.

However, financing costs (including interest) on fixed assets purchased on a deferred credit basis

or on money borrowed for construction or acquisition of fixed assets are not capitalized to the

extent that such costs relate to periods after such assets are ready to be put to use.

Administration and other general overhead expenses are usually excluded from the cost of fixedassets because they do not relate to a specific fixed asset. However, in some circumstances, such

expenses as are specifically attributable to construction of a project or to the acquisition of a

fixed asset or bringing it to its working condition, may be included as part of the cost of the

construction project or as a part of the cost of the fixed asset.


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The expenditure incurred on start-up and commissioning of the project, including theexpenditure incurred on test runs and experimental production, is usually capitalized as an

indirect element of the construction cost. However, the expenditure incurred after the plant has

begun commercial production, i.e., production intended for sale or captive consumption, is not

capitalized and is treated as revenue expenditure even though the contract may stipulate that the

plant will not be finally taken over until after the satisfactory completion of the guarantee period.

If the interval between the date of a project on which it is ready to commence commercialproduction and the date at which commercial production actually begins is prolonged, all

expenses incurred during this period are charged to the profit and loss statement. However, the

expenditure incurred during this period is also sometimes treated as deferred revenue expenditure

to be amortized over a period not exceeding 3 to 5 years after the commencement of commercial

production

Non-monetary Consideration

When a fixed asset is acquired in exchange for another asset, its cost is usually determined by

reference to the fair market value of the consideration given. It may be appropriate to consider also thefair market value of the asset acquired if this is more clearly evident. An alternative accounting

treatment that is sometimes used for an exchange of assets, particularly when the assets exchanged are

similar, is to record the asset acquired at the net book value of the asset given up in each case an

adjustment is made for any balancing receipt or payment of cash or other consideration.

When a fixed asset is acquired in exchange for shares or other securities in the enterprise, it is

usually recorded at its fair market value, or the fair market value of the securities issued, whichever is

more clearly evident.

Improvements and Repairs

Frequently, it is difficult to determine whether subsequent expenditure related to fixed asset

represents improvements that ought to be added to the gross book value or repairs that ought to be


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charged to the profit and loss statement. Only expenditure that increases the future benefits from the

existing asset beyond its previously assessed standard of performance is included in the gross book

value, e.g., an increase in capacity.

The cost of an addition or extension to an existing asset which is of a capital nature and which

becomes an integral part of the existing asset is usually added to its gross book value. Any addition or

extension, which has a separate identity and is capable of being used after the existing asset is disposed

of, is accounted for separately.

Retirements and Disposals

An item of fixed asset is eliminated from the Fixed Asset Register on disposal. Items of fixedassets that have been retired from active use and are held for disposal are stated at the lower of their net

book value and net realizable value and are shown separately in the financial statements. Any expected

loss is recognized immediately in the profit and loss statement.

In historical cost financial statements, gains or losses arising on disposal are generally

recognized in the profit and loss statement. On disposal of a previously revalued item of fixed asset, the

difference between net disposal proceeds and the net book value is normally charged or credited to the

profit and loss statement except that, to the extent such a loss is related to an increase which was

previously recorded as a credit to revaluation reserve and which has not been subsequently reversed or

utilized, it is charged directly to that account. The amount standing in revaluation reserve following the

retirement or disposal of an asset, which relates to that asset may be transferred to general reserve

Valuation of Fixed Assets in Special Cases

In the case of fixed assets acquired on hire purchase terms, although legal ownership does not

vest in the enterprise, such assets are recorded at their cash value, which if not readily available, is

calculated by assuming an appropriate rate of interest. They are shown in the balance sheet with an

appropriate narration to indicate that the enterprise does not have full ownership thereof.


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Where an enterprise owns fixed assets jointly with others (otherwise than as a partner in a firm),

the extent of its share in such assets, and the proportion in the original cost, accumulated depreciation

and written down value are stated in the balance sheet. Alternatively, the pro rata cost of such jointly

owned assets is grouped together with similar fully owned assets. Details of such jointly owned assets

are indicated separately in the fixed assets register

Where several assets are purchased for a consolidated price, the consideration is apportioned to

the various assets on a fair basis as determined by competent valuer.

Disclosure

Disclosures that are sometimes made in financial statements include:

Gross and net book values of fixed assets at the beginning and end of an accounting periodshowing additions, disposals, acquisitions and other movements;

Expenditure incurred on account of fixed assets in the course of construction or acquisition.

Revalued amounts substituted for historical costs of fixed assets, the method adopted to computethe revalued amounts, the nature of any indices used, the year of any appraisal made, and

whether an external valuer was involved, in case where fixed assets are stated at revalued

amounts.

4.3 Fixed Assets Register

Fixed Asset Register (FAR) is an accounting method used for major resources of a business.

Fixed Assets are assets such as land, machines, office equipments, buildings, patents,

trademarks, copyrights, etc. held for the purpose of production of goods or rendering of services and are

not held for the purpose of sale in the ordinary course of business.

Fixed assets constitute a major chunk of the total assets in the case of all manufacturing entities.

Even in the case of service entities such as hotels, banks, financial institutions, insurers, mobile /

telephone service providers etc. it has become imperative to invest heavily in furnishing, equipment, and


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technology to attract, and retain customers.Just as it is important for a person investing on the NASDAQ

to know those investments, so it is important for a business entity to have a list of its fixed assets. A

Fixed Asset Register is that list of assets.

Objectives in maintaining a Fixed Asset Register (FAR):

A FAR must be kept in order to be in compliance with legislation governing corporations,

companies, etc. It allows a company to keep track of details of each fixed asset, ensuring control and

preventing misappropriation of assets. It also keeps track of the correct value of assets, which allows for

computation of depreciation and for tax and insurance purposes. The FAR generates accurate, complete,

and customized reports that suits the needs of management.

A FAR also allows a company to keep track of fixed assets that are not under simple, direct

control of the company. This means owned and leased assets, assets under construction, and imported

assets.The FAR can also be used to aid in capital budgeting and to keep track of amount provided for

Asset Retirement Obligation (ARO) in respect of each asset.

Making entries in the FAR:


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Not all assets are capitalized. Keeping in view the concept of materiality, a company may have a

policy to capitalize only those assets which cost more than a specified amount. The companies are

required to expense all equipment whose value is below a threshold limit. Similarly, fixed assets which

have a useful life of less than one year are not capitalized.

In some companies, improvements or alterations made to an asset are capitalized separately in the

FAR. This is not correct. If such mistakes are made, it is highly probable that the auditors while

undertaking physical verification of assets will notice irreconcilable differences. Where improvements

or alterations made to an existing asset justifying capitalization, such additions should be made to the

cost of the original asset.

The format of FAR Entries:

The format / details to be provided in a FAR generally depends upon the following factors:

a) Nature of assets.

If moveable assets constitute a significant portion of total fixed assets, details will be necessaryon their movement from one department / cost center / people to another.

Cost of assets: Greater control and security is required for costly equipment.b) Customized Reports on fixed assets required by management.

c) Disclosure norms / regulatory compliances as per statutory laws applicable to the entity.

d) Extent of owned, and assets taken on lease / hire purchase.

e) Requirements of insurance company.

f) Location of fixed assets:


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If fixed assets are located at numerous locations, greater details will have to be given. In the

case of a iron and steel company, the assets are located at different area in the plant. These operational

plants maybe in different cities / countries / continents.

g) Maintenance costs.:

Some fixed assets require regular servicing to keep them running in an efficient and

satisfactory manner. It would be necessary to keep a tab on the maintenance costs, dates of servicing etc.

during a stated period.

Maintenance of a FAR in a Multi-National Corporation (MNC) can be onerous and complex

due to different regulatory and compliance requirements in each country and different currencies.

Generally, an MNC sets up a subsidiary in the country in which it intends to start operations.

Maintenance of FAR is decentralized. The FAR is maintained per the companys policy, and regulatory

requirements which are country specific. If consolidation of holding company and its subsidiaries

(whether domestic or foreign) is required by the law applicable to companies, and relevant Accounting

Standards, the task may become a bit complex. The crucial point is related to selection of exchange rate

for conversion of fixed assets. Most companies either use average annual rate or year-end exchange rate.

Similarly, for companies having their shares listed on National Stock Exchanges, the fixed

assets are required to be stated in accordance with the requirements of INDIAN generally accepted

accounting principles (INDIAN GAAP).

Identification of a fixed asset:

In a large corporation, the task of identifying and locating a specific fixed asset can be

difficult unless numbering is scientific, systematic, and up-to-date. A common problem in most

companies is the improper maintenance of the FAR. Physical verification of fixed assets becomes a

futile exercise unless the FAR is properly maintained.


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It would be advisable to use a scientific numbering technique to identify fixed assets. The

process of numbering fixed assets is called tagging. An identification number (combination of alphabets,

and numbers) is written on the asset. Engraving the identification number on the asset is advisable in the

case of Plant & Machinery where there is heavy wear and tear.

A tag verifies the existence of assets and their location, aids in maintenance, provides a

common ground for communication between the Accounts Department and the end-users and recording

the net book value of asset in case of sale / scrapping.It is not necessary to tag all fixed assets. Land,

buildings and vehicles all have independent systems of tracking in registration papers and survey

numbers

4.4 DEPRECIATION (DEFINITION AND ITS METHODS):

Except land, all fixed assets have a limited life. During such period, due to continuous use

and/or lapse of time, the value of some assets starts decreasing. Such a gradual decrement of value of

assets is called Depreciation. Hence, depreciation can be defined as a decline in the value of an asset due

to constant use.

Since these assets have limited life, sooner or later they have to be replaced. At the time of

replacement, the business incurs heavy cash outflow, which can create liquidity

problem in that year. In order to avoid such problem, a fixed amount out of profit is set aside as

depreciation account. By the time the fixed asset expires, sufficient amount of fund will be accumulated

in depreciation account, which, then can be used to buy new asset. Hence, the process of setting aside a

fixed amount as expense in depreciation account is called Depreciation.

I. Characteristics of Depreciation

The following are some of the features of depreciation:

Depreciation may be physical and functional.


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Depreciation is a gradual/permanent and continuous decrease in the utility value of a fixed assetand it continues till the end of useful life of an asset.

Depreciation arises due to the use of assets in productive activities. The primary object of depreciation is to allocate expired cost of fixed assets against a number of

accounting periods.

Depreciation is charged in respect of fixed assets only i.e., building, machinery, equipment andfurniture etc.

Depreciation is a charge against profit. Total depreciation of an asset cannot exceed its depreciable value (cost less scrap value).

II.

Causes of Depreciation

Depreciation is a measure of reduction in the use-value of an asset. It can be physical deterioration or

decrease in the market value. The primary causes of depreciation are as follows:

Wear and Tear: Due to constant use, assets get worn or torn out. Exhaustion: Exhaustion is the depletion of some assets due to continuous use and lapse of time.

In case of mines and oil wells, the continuous extraction of minerals or oil, a stage comes when

the mine or well gets completely exhausted an nothing is left.

Obsolescence: Some assets are discarded before they are completely worn out because ofchanged conditions. This is the case when an asset becomes usefulness

because of technological advancement, new invention, change in style etc. in that asset.

Efflux of time: Certain assets get decreased in their value with the passage of time. This is truein case of assets like leasehold properties, patents and copyrights etc.

Accidents: Accidents can cause depreciation in the value of the asset.III. Objectives of making provision for depreciation

Depreciation accounting is a must for every business for attaining the following objectives:

To ascertain net profit: Depreciation is the expense for the business. Hence to ascertain the netprofit, it must be included in the total cost of sales.


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To depict the true financial position of the business: The balance sheet depicts true financialposition of a business at a point of time. To depict the true financial position of the business the

assets should be shown in balance sheet not in its original cost but at the depreciated cost. That isall fixed assets should be shown at cost less the amount of depreciation suffered by them till the

date of the balance sheet.

To ascertain cost of production: Depreciation is an expense. Hence it is necessary to chargedepreciation in the total cost of production to fix true sales price of the goods and service.

Replacement of assets: One of the primary objectives of depreciation is the provision for thereplacement cost on the retirement of original assets.

To ascertain income tax: If depreciation is not charged, the operation will show more profit. Asa result, the taxable income will be higher. Hence, depreciation is charged for the correct

ascertainment of total taxable income.

To follow the company act: According to company act, it is compulsory to charge depreciationon fixed assets.The depreciation rates as per companies act 1956 is as follows:

NATURE OF THE ASSET SINGLE DOUBLE TRIPLE

SHIFT SHIFT SHIFT

WDV SLM WDV SLM WDV SLM

BUILDINGS: ,

a.) Other Than Factory Buildings 5% 1.63% 5% 1.63% 5% 1.63%

b.) Factory Buildings 10% 3.34% 10% 3.34% 10% 3.34%

c.) Purely Temporary erection 100% 100% 100% 100% 100% 100%

PLANT AND MACHINERY:

a.) Plant and machinery (not being a

ship) Other than continuous process

13.91% 4.75% 20.87% 7.42% 27.82% 10.34%


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plant.

Cycles [NESD]. 20% 7.07% 20% 7.07% 20% 7.07%

Motor-cars, motor-cycles, scooters And

other mopeds [NESD].

25.89% 9.50% 25.89% 9.50% 25.89% 9.50%

Electrically operated vehicles 20% 7.07% 20% 7.07% 20% 7.07%

Including battery powered or

Fuel cell powered vehicles [NESD].

b. Continuous process plant. 15.33% 5.28% 15.33% 5.28% 15.33% 5.28%

Concrete pipes manufacture

Moulds [NESD] 30% 11.31% 30% 11.31% 30% 11.31%

Drum containers manufactureMoulds

[NESD] 30% 11.31% 30% 11.31% 30% 11.31%

Earth-moving machinery employed in

heavy construction works, such as dams,

tunnels, canals, etc. [NESD]

30% 11.31% 30% 11.31% 30% 11.31%

Moulds in iron foundries [NESD] 30% 11.31% 30% 11.31% 30% 11.31%

Motor buses and motor lorries other

than those Used in a business of running

them On hire [NESD] 30% 11.31% 30% 11.31% 30% 11.31%

Motor tractors, harvesting combines

Patterns, dies and templates [NESD] 30% 11.31% 30% 11.31% 30% 11.31%

Ropeway structuresRopeways, ropes

andTrestle sheaves and connected parts

[NESD]

30% 11.31% 30% 11.31% 30% 11.31%

Motor buses, motor lorries and motor

taxis used in a business of running them

on hire [NESD] 40% 16.21% 40% 16.21% 40% 16.21%

Data processing machines including

Computers [NESD] 40% 16.21% 40% 16.21% 40% 16.21%

Gas cylinders including valves

andRegulators [NESD] 40% 16.21% 40% 16.21% 40% 16.21%

Iron and Steel industriesRolling mill

rolls

100% 100% 100% 100% 100% 100%


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FURNITURE AND FIXTURES

a.) General Rates [NESD] 18.31% 6.33% 18.31% 6.33% 18.31% 6.33%

b.) Rate for furniture and fittings used inhotels, Restaurants and boarding houses;

schools, Colleges and other educational

institutions, Libraries; welfare centers;

meeting halls, Cinema houses; theatres

and circuses; and for furniture and

fittings let out on hire for Use on the

occasion of marriages and similar

Functions {NESD}25.88% 25.88% 25.88% 25.88% 25.88% 25.88%

VESSELS

a.) Ocean-going ships

Dredgers, tugs, barges, survey launches

And other similar ships used mainly for

Dredging purposes [NESD]

19.80% 7% 19.80% 7% 19.80% 7%

Other ships [NESD] 14.60% 5% 14.60% 5% 14.60% 5%

b.) Vessels ordinarily operating on

inland waters

Speed boats [NESD] 20% 7.07% 20% 7.07% 20% 7.07%

Other vessels [NESD] 10% 3.34% 10% 3.34% 10% 3.34%

NOTES to above table:

Buildings include roads, bridges, culverts, wells and tube-wells. Factory buildings does not include offices, godowns, officers and employees quarters, roads,

bridges, culverts, wells and tube-wells.

Where, during any financial year, any addition has been made to any asset, or where any assethas been sold, discarded, demolished or destroyed, the depreciation on such assets shall be

calculated on apro rata basis from the date of such addition or, as the

case may be, up to the date on which such asset has been sold, discarded, demolished or

destroyed.


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In the case of a seasonal factory or concern, the number of days on which the factory or concernactually worked during the year or 180 days, whichever is greater;

In any other case, the number of days on which the factory or concern actually worked during theyear or 240 days, whichever is greater.

The extra shift depreciation shall not be charged in respect of any item of machinery or plantwhich has been specifically, excepted by inscription of the letters NESD (meaning no extra

shift depreciation) against it in sub-items above .

Continuous process plant means a plant, which is required and designed to operate 24 hours aday.

IV. Methods of DepreciationThere are a number of different methods of providing depreciation for the assets. The method of

depreciation depends on a number of factors such as type of asset, life, policy organization etc.

1.) Straight Line Method

This method is also known as Fixed Installment Method, Equal Installment Method, Original

Cost Method, Simple or Historical Cost Method. Under this method, a fixed proportion of original cost

of the asset is written-off annually so that by the time asset is worn out; its value in the books is reduced

to zero or residual value.The amount of depreciation to be charged each year can be found out as

follows:

assetofLife

valuescrapestimatedassetfixedofCostOriginalonDepreciatiAnnual

-

=

2.) Diminishing balance method:

This method is also known as Written down Value method, Reducing Balance method.

Under this method, a fixed percentage of depreciation is charged on the reducing balance of asset (cost -


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depreciation) till the amount is reduced to scrap value. Since a constant percentage rate is being applied

to the written down value, the amount of depreciation charged every year decreases over the life of the

asset. This method assumes that an asset should be depreciated more in earlier years of use than later

years because the

maximum loss of an asset occurs in the early years of use. The fixed percentage rate, to be applied to the

allocation of net cost as depreciation, can be obtained by following formula

,

Where, n = Estimated useful life of the asset

CHAPTER5. FIXED ASSET DISPOSAL AT IIL.


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With investments of over 13557 crores, Ispat Industries Limited is the seventh largest Indian

private sector company in terms of fixed assets. It aims to consolidate its market leadership in the

national specialty steel market by capitalizing on the proximity of its manufacturing facilities to major

consumers of flat steel products in Maharashtra, while increasing its presence in international markets

by using its convenient port location.The detailed information of Fixed Assets of ISPAT INDUSTRIES

LIMITED as on 31st March 2010 is as follows:

Schedule V for the Balance sheet for the year ended 31st

mar, 2010

Fixed Assets Of IIL (Rs. In Crores)

Particulars Gross Block Depreciation Net Block

As on 31st

Mar

2009

Additi

on

Sales As on

31st

Mar

2010

Up to

31st

Mar.09

For

The

Year

On

Sales/

Additi

on

Upto

31st

Mar

2010

As at

31st

Mar.10

As at

31st

Mar

2009

Land :

Leasehold 7.7 - - 7.7 0.43 0.09 - 0.52 7.18 7.27

Freehold 125.25 1.71 - 126.96

(A)

- - - - 126.96 125.25

Total Land 132.5 1.71 - 134.66 0.43 0.09 - 0.52 134.14 132.52

Buildings 531.5 6.68 538.18

(B)

111.78 15.55 - 127.33 410.85 419.73

Railway sidings

& Loco. 59.39 - 59.39 13.78 2.9 - 16.18 43.21 46.11

Plant &Machinery 12097.55 122.41 318.75

(D)

11901.21 4228.17 652.47 4.73 4875.91 7025.3 7869.3

8

Vessels 19.08 - 5.25 13.83 3.25 1.62 2.35 2.52 11.31 15.83

Electrical


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Installation 621.22 7.44 2.44 626.22 27.56 1.69 283.14 343.08 363.95

Vehicles 11.96 0.51 0.62 11.85 5.89 0.85 0.41 6.33 5.52 6.06

Computers 41.2 0.97 3.27 38.9 30.17 3.02 3.1 30.09 8.81 11.03

Furniture &

Fixtures 42.54 1.04 7.19 36.39 19.34 2.68 5.81 16.21 20.18 23.2

Total 13557.39

(C)

140.76 337.52 13360.63 4669.58 706.74 18.09 5358.23 8002.4 8887.8

1

Previous Year 13167.93 620.44 230.98 13557.39 3961.92 728.1 20.44 4669.58 8887.81

Notes to above table:-

(A) Includes Rs. 3.24 crores (Rs 5.05 crores) being the cost of 84.24 acres (111.65 acres) land,which is

yet to be registered in the Company's name.

(B) Includes Rs.0.12 crore (Rs.0.12 crore) being cost of shares in Cooperative Housing Society and

Rs.0.04 crores (Rs.0.04 crores) being the cost of certain properties,which are pending registration in the

Company's name.

(C) Land,Buildings, Railway Sidings, Plant & Machinery and Electrical Installations revalued by

approved valuers on 31.03.1991, 31.03.1997, 31.03.2002, have been again revalued on Replacement

Cost basis, based on the balances of respective fixed assets as on 31st March 2006 and the net increase

of Rs. 1018.38 crores was transferred to Revaluation Reserve.

(D) Includes foreign exchange differences on long term foreign currency monetary items relating to

depreciable fixed assets de-capitalised Rs.310.53 crores (net) (Rs. 519.14 crores (net) capitalized).

The above table give us the information about the various fixed assets status as on 31st

March

2010 at ISPAT INDUSTRIES LIMITED.

The company has made some disposal in the fiscal year 2009-2010. The retirement made by the

company in the three different unit namely SIP, HSM and BF are as follows:


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Sponge Iron Plant ( Business Area 1101):

In the sponge Iron plant the Following Retirement were made

PLANT AND MACHINERY

Asset No. Description of the asset Acquisition

Amt.

Depreciation on

Asset

36002822 Dust Suppression system & IB 2,08,138.00 1,63,368.09


36002826 Dust Suppression system & IB 33,167.00 26,032.88


36000413 Dust Suppression system DSIA &

IB

6,57,039.00 5,32,152.72

TOTAL 13,17,446.00 10,50,507.98

ELECTRICAL INSTALLATION


Amount

Depreciation on

Asset

55001199 1000 KVA 3.3 K.V. Transformer 15,611.62 14,878.54

55001200 1000 KVA 3.3 K.V. Transformer 590.879.87 5,61,335.88

55001201 1000 KVA 3.3 K.V. Transformer 8,12,765.70 7,72,127.41

55001203 1000 KVA 3.3 K.V. Transformer 3,19,266.76 3,03,303.42

55001205 Cable 3.3 K.V & Termination 19,715.00 18,729.25




55000828 Battery charger & Batteries 1,49,682.12 1,09,018.47


55000830 Battery charger & Batteries 8,925.00 6500.39


55000973 3.3 KV H.T Switch board 20,947.50 15,228.37

55000974 3.3 KV H.T Switch board 33,14,109.00 24,09,279.62




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TOTAL 69,29,057.11 54,55,301.11

VEHICLES


Amount

Depreciation on

Asset

62000040 Spendour motorcycle OR-21-0630 41,879.00 29,356.52

TOTAL 41,879.00 29,356.52

The detail total retirement made from the SIP unit in the financial year 2009-2010 is having an

acquisition cost of 82,88,382.11 INR and the total accumulated depreciation on the same assets is

65,35,165.61 INR

HOT STRIP MILL PLANT (Business Area 1102 to 1104):In the Hot Strip Mill Plant the total retired assets were having acquisition cost of 440,05,58,620.00

INRand having a depreciation of 386,83,08,105.00 INR

BLAST FURNACE PLANT (Business Area 1111 to 1121):

There was no retirement in the Fixed Assets in Blast Furnace Area.

Ispat Industries Limited uses two different methods for discarding the Fixed Assets Of the company.

Disposal by scrapping. Disposal by sale through online auction.

Disposal by scrapping:

These method of disposal is used by IIL generally to scrap the used and obsolete Equipments. Ispat

Industries Limited sale the scrap of rubber, cooper and alluminium to other companies where it can be

used as a raw material. Whereas the iron and steel metal equipment scrap are again sent to the blast

furnace and remoulded to make steel. The different equipments which are used and currently unused or

obsolete in the three main area namely SIP, BF and HSM are sent to the central stores and are stored at

the scrap yard. Then the stores deparment look after the disposal of these scrap material.


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The detail of the spares which are scrapped in the fiscal year 2009-2010 is as follows:

Sr no Plant Material code Material Description

1 1102 SCRAP50000011 scrapped conveyor belt various sizes

2 1101 SCRAP50000012 scraped various electrical items(misc)




7 1102 SCRAP50000016 misc.rubber scrap

8 1111 SCRAP50000058 pig mould scrap

9 1102 SCRAP50000075 used & scraped grinding wheel(assorted)

10 1101 SCRAP50000081 used scrap reformer tubes

11 1102 SCRAP50000088 used & scrapped flexowell conveyor belt

12 1101 SCRAP50000099 scrap;used conveyor belt

13 1121 SCRAP50000106 discarded hammers (sinter )

14 1121 SCRAP50000108 scrap used bar,grate;327x122x30mm,f.sint

15 1102 SCRAP50000121 unusable conv.belt cutpcsscrap(below-3m)

16 1102 SCRAP50000127 scrap zebra acsr conductor

17 1102 SCRAP50000128 scrap discarded HSS roll

18 1102 SCRAP50000128 scrap discarded HSS roll

19 1102 SCRAP50000129 scrap discarded ICDP roll

20 1102 SCRAP50000130 scrap discarded high chrome roll

21 1102 SCRAP50000130 scrap discarded high chrome roll

22 1102 SCRAP50000131 scrap discarded back-up roll

23 1101 SCRAP50000077 used reformer catalyst

24 1102 SCRAP50000020 scrapped & broken graphite eletrode

*The rates of the above listed material cannot be quoted as it is the confidential data of the

company

Total Scarp in Stock = 31,283,423

Target of the month = 10,000,000

TOTAL SCRAP SALES 31st

March 2010= 36,50,125.34


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Balance Scrap To Be Sold Worth = 6,349,875

Target Min Stock to be kept only= 2,500,000

The equipment which have become obsolete due to change in the technology are stated under

obsolete criteria. The material which are in obsolete criteria is as follows

The obsolete items are classified into moving items and non-moving items. Moving items are those

which are in current use whereas non moving items are those which are idle for mor than 6 months from

the day they have been acquired.

The total cost of the items which are obsolete under moving items as per every business area is as

follow:

Business Area Total cost

Sponge Iron Plant 8,17,391.00

Hot Strip Mill PLant 1,09,11,791.00

Blast Funace Plant 1,39,220.00

Total 1,18,68,402.00

The total cost of the material which is obsolete under non moving items as per every business area is as

follow:

Business Area Total cost

Sponge Iron Plant 10,81,912.00

Hot Strip Mill Plant 32,71,488.00

Blast Furnace Plant 0.00

Total 43,53,400.00

Disposal through sale by Online Auction:

The major Plant and Machinery is not scrapped but it is sold through the online auction.These

disposal method is used to dis[pose off those fixed assets which are obsolete or which are no longer used

in the company due to technical innovation or new equipments are purchased to replace older ones.


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The interested bidders are given an unique identification ID to quote their bid prices and the

maximum feasible prices for any particular Equipment is taken and the asset is sold.

CHAPTER6 SAVINGS THROUGH FIXED ASSETS

MANAGEMENT

Fixed assets management is an accounting process that seeks to track fixed assets for the purposes of

financial accounting, preventive maintenance, and theft deterrence.

Many organizations face a significant challenge to track the location, quantity, condition,

maintenance and depreciation status of their fixed assets. A popular approach to tracking fixed assets

utilizes serial numbered Asset Tags, often with bar codes for easy and accurate reading. Periodically, the

owner of the assets can take inventory with a mobile barcode reader and then produce a report.

Off-the-shelf software packages for fixed asset management are marketed to businesses small

and large. Some Enterprise Resource Planning systems are available with fixed assets modules.

Some tracking methods automate the process, such as by using fixed scanners to read bar

codes on railway freight cars or by attaching a radio-frequency identification (RFID) tag to an asset

Asset Lifecycle Management means asset decisions should be made with cost consideration over the

asset life from planning through the disposal.. So the entire practice of acquiring, using, and getting rid

of Fixed Assets is known as Fixed Assets Life Cycle Management.The flow chart of how to minimize

the cost by managing the Fixed Asset

properly is as follow:


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Assets may be abandoned, sold, or exchanged. In any case, it is first necessary to fully update all

depreciation calculations through the date of disposal. Then, and only then, the asset disposal would be

recorded. If the asset is simply being scrapped (abandoned), the journal entry entails only the

elimination of the cost of the asset from the books, removing the related accumulated depreciation, and

recording a loss to balance the journal entry. This loss reflects the net book value that was not

previously depreciated:

Accumulated Depreciation 75,000

Loss 25,000

Equipment 100,000

*Abandoned equipment costing $100,000. The equipment

was 75% depreciated on the date of disposal.

On the other hand, an asset may be disposed of by sale, in which case the journal entry would need tobe modified to include the proceeds of the sale. Assume the above asset was sold for $10,000.

Logically, the loss would be reduced by this amount, and the entry would be as follows:


Loss 15,000

Cash 10,000

Equipment 100,000

*Sold equipment costing $100,000 for $10,000. The

equipment was 75% depreciated on the date of sale.

While the journal entry may be sufficient to demonstrate the loss calculation, you might also consider

that an asset with a $25,000 net book value ($100,000 cost minus $75,000 accumulated depreciation) is


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being sold for $10,000 -- which gives rise to the loss of $15,000.Conversely, what if this asset were sold

for $30,000? Here is the entry for that scenario:


Cash 30,000

Gain 5,000

Equipment 100,000

*Sold equipment costing $100,000 for $30,000. The equipment was

75% depreciated on the date of sale.

The specific activities and goals involved in life cycle management differs among different kinds of

FIXED Assets, but generally FIXED ASSETS life cycle management makes use of best practice

methods for planning, accounting, deployment, usage, and maintenance, in order to reach these

objectives for the organization's collection of FIXED Assets:

Ensure FIXED ASSETS availability where and when needed. Minimize the risk of FIXED ASSETS failure or breakdown before the end of FIXED ASSETS

economic life.

Maximize the return (gains) from the FIXED ASSETS. Ensure that FIXED Assets are used productively throughout the FIXED Asset s economic life,

and they are not wasted or idle. This may involve working with other management to improve or

re-design processes that impact FIXED ASSETS utilization and FIXED ASSETS productivity.

Sell or otherwise divest the FIXED Assets that are idle or unproductive. Set priorities for FIXED Assets acquisition and replacement and plan future expansion or

reduction of the FIXED Asset base.

Reaching these objectives requires good knowledge of: Expected gains or returns from the FIXED ASSETS. FIXED Assets lifecycle, total cost of ownership, including maintenance costs and operating

costs.


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Advancements and the current state of technology for the FIXED ASSETS class. This isobviously true for computing FIXED Assets, of course, but is also important for

Any major FIXED Asset class based on constantly improving technologies, such as medical orlaboratory equipment.

FIXED Assets subject to changing requirements for fuel efficiency or emissions. FIXED ASSETS reliability and or/risks to FIXED ASSETS availability Available choices in FIXED ASSETS leasing vs. buying, and the implications of each approach

in terms of upgrade/replacement flexibility, responsibility for maintenance, position either on or

off the balance sheet, and potential tax liabilities and tax savings.

The FIXED Assets depreciable life and its economic life.

6.1.) HOW FINANCIAL SAVINGS CAN BE DONE THROUGH DISPOSAL OR

REPLACEMENT OF FIXED ASSETS:

The Fixed Asset disposal and replacement should be based on facts and figures. The judgment,

which the Owner- Financial Manager of a company makes, should be the result of weighing the costs of

keeping the old equipment against the cost of its replacement.

Sooner or later, you must decide whether you should keep an existing unit of equipment or

dispose it off or replace it with a new unit. As time goes by, equipment deteriorates and becomes

obsolete. Frequent breakdowns occur, defective output increases, unit labor costs rise, and production

schedules cannot be met. At some point, these occurrences become serious enough to cause you to

wonder whether or not you should replace or dispose the equipment.

To recognize the better alternative you need to know the total cost of each alternative - keeping

the old equipment or buying a replacement. Once these costs are determined, you can compare them and

identify the more economical equipment. The paragraphs that follow discuss the individual costs, which

you must consider when computing the total cost of the old and new equipment.

i.) Depreciation


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One of the costs connected with any type of equipment is depreciation. For cost comparison

purposes, depreciation is simply the amount by which an asset decreases in value

over some period of time. For example, if you bought a piece of equipment for $20,000 and sold it for

$6,000 after seven years of service, you would say that the depreciation during the

seven-year period was $20,000 minus $6,000, or $14,000. This $14,000 was one of your costs of owning

the equipment for that period. From this, it follows that when considering equipment replacement, you

must calculate the future depreciation expense that you will experience with both the old and the newequipment.

In so far as the new equipment is concerned, this calls for knowing certain things about the

equipment. You need to know (1) its first cost, (2) its estimated service life, and (3) its expected salvage

value. The difference between the first cost and the salvage value will represent the amount by which the

equipment will depreciate during its life - that is, during the time you expect to use it.

You determine the depreciation expense for the old equipment in the same general way but for

one import difference. So to determine the actual future depreciation expense that will be experienced

with the old equipment, you must know (1) its present market value, (2) its estimated remaining service

life, and (3) its expected salvage value at the end of that life. The difference between the present market

value and the future salvage value represents the amount by which the equipment will depreciate during

its remaining life in your business.

ii.) InterestIn addition to depreciation, every piece of equipment generates an interest expense. This

expense occurs because owning an asset ties up some of your capital. If you had to borrow this capital

you would have to pay for the use of the money. This "out-of-pocket" cost is one of the costs of owning


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the equipment. In this case, the amount involved is no longer available for other investments, which

could bring you a return. This "opportunity cost" is one of the costs of owning the equipment.

To cite an example, suppose that the market value of an asset during a given year is $10,000.

Suppose also that at the same time, you are getting capital at a cost of 15 percent per year. On the other

hand, suppose that if you converted the asset into cash, you could invest

the money and realize a rate of return of 15 percent per year. In either case, a decision to own that asset

during that year would be costing you 15 percent of $10,000, or $1,500 in interest.

iii.) Operating Costs

There is a third type of cost - the cost of operation - that is experienced with a piece of

equipment. Typical operating cost are expenditures for labor, materials, supervision, maintenance, and

power.

This cost must be considered because your choice of equipment affects them. You may find it

convenient to estimate these costs on an annual basis. You can get figures for each unit of equipment by

estimating its next-year operating costs as well as the annual rate at which these costs are likely to

increase as wage rates rise and the equipment deteriorates.

For example, you might say that operating cost for the new equipment are likely to be

$16,000 during the first year of its life. You might also estimate that after the first year, the operating

costs will increase at a rate of $500 a year.

iv.) Revenues

When this is true, revenues can be ignored for the same reason that you can igno

financial savings through fixed assets-copy

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