fixed assets management

STATEMENT OF THE PROBLEM

The Fixed Assets Management is the Traditional Financial statement of a

business enterprise. While they do furnish useful Financial Data regarding its

operations, a serious limitation of these statements is that they do not provide

information regarding changes in the firm’s financial position during a

particular period of time.

1. Have long-term sources been adequate to finance fixed assets purchase?

2. Does the firm posses adequate Fixed Assets?

3. Has the liquidity position of the firm improved?

4. Does the firm meet their requirements?

INTRODUCTION TO FIXED ASSETS

Fixed assets

Those assets which are acquired and held permanently in the business and are used for

the purpose of earning profits are called fixed assets. Land and buildings, plant and

machinery, motor vans, furniture and fixtures are some examples of these assets.

Fixed assets are acquired for use in the business for earning revenues so they are

shown at their book values and at their current realizable values. But when the business unit

is not a going concern and is to be liquidated, current realizable value of fixed assets become

relevant. A fundamental concept of accounting, closely related to the going concern concept,

is cost concept of accounting. According to this concept, a fixed asset is recorded in the books

at the price paid to acquire it and that this cost is the basis for all subsequent accounting for

the asset. This concept does not mean that the fixed asset will always be shown at cost but it

means that cost becomes basis For all future accounting for the fixed asset. Asset is recorded

at cost at the time of its purchase but is systematically reduced in its value by charging

depreciation. The market value of a fixed asset may change with the passage of time, but for

accounting purpose it continues to be shown in the books at its book value, i.e., the cost at

which it was purchased minus depreciation provided up-to-date.

The cost concept has the advantage of bringing objectivity in the accounts. Value

of fixed assets given in the balance sheet is not influenced by the personal bias or judgment

of those who furnish such statements. In the absence of cost concept assets will be shown at

their market values, which will depend on the subjective views of persons who furnish

financial statements.

The effects of inflation are more pronounced in case of fixed assets. Under the cost

concept of accounting, depreciation calculated on the basis of historical costs of old assets is

usually lower than that of those calculated at current value or replacement value. Under the

cost concept of accounting depreciation is calculated on the original cost of the fixed asset

with the result that only an amount equivalent to the original cost of the fixed asset is

available for its replacement when its life is over.

But the replacement cost of the asset will be more than the original cost on account of

inflation so that the replacement provision made by way of depreciation charge on the

original cost will be insufficient for the purpose. This explains the need for charging

depreciation on current value and showing the fixed assets at the current values.

Fixed assets are valued at cost less a reasonable depreciation written off and any

fluctuation in their market price is ignored because they are not meant for resale in the

market. The utility of such assets is not in the least affected by their market value being high

or low; so any fluctuation in their market price is not cared for. Thus, so far as business unit is

a going concern, fixed assets are valued at cost less a reasonable depreciation written off to

date, but when a business unit is not a going concern and is to be liquidated, current realisable

value of fixed assets becomes relevant.

Out of fixed assets, land is an exception to the principle of valuation of fixed asset at

cost, less a reasonable depreciation written off. Land is usually valued at the price at which it

was purchased including registration charges and brokerage paid. Depreciation is usually not

provided on the land because it is not subjected to depletion in value by its use. The value of

the land usually increases with the passage of time because of its limited availability so there

is no need of any provision for depreciation in case of land.

Need for valuation of Fixed Assets

Valuation of fixed assets is important in order to have fair measure of profit or loss

and financial position of the concern.

Fixed assets are meant for use for many years. The value of these assets decreases

with their use or with time or for other reasons. A portion of fixed assets reduced by use is

converted into cash though charging depreciation. For correct measurement of income proper

measurement of depreciation is essential, as depreciation constitutes a part of the total cost of

production.

EVALUATION TECHNIQUESThis section discusses the important evaluation techniques for capital budgeting. The

methods of appraising capital expenditure proposal can be classified into two broad

categories.

1. Traditional Techniques/Methods

2. Time-adjusted Methods

1. Traditional Techniques

This category includes the following.

i. Average rate of return method and

ii. Pay back period method

i. Average rate of return

The Average rate of return method of evaluating proposed capital expenditure is also

known as the Accounting rate of return method. It is based up on accounting information

rather than cash flows. There are a number of alternative methods for calculating ARR. The

most common usage of the ARR expresses it as follows.

ARR = Average annual profits after taxes x100

Average investment over the life of the project

ii. Pay Back Method The Pay back method is the second Traditional method of capital

budgeting. This method answers the question: How many years will it take for the cash

benefits to pay the original cost of an investment, normally disregarding salvage value? Cash

benefits here represent CFAT ignoring interest payment. Thus, the payback method measures

the no of year required for the CFAT to pay back the original outlay required in an investment

proposal.

Pay Back Method = Investment

Constant annual cash flow

2. Time – adjusted Techniques This category includes the following.

(i) Net present value method

(ii) Internal rate of return method

(iii) Profitability index method

i. Net present value method NPV may be described as the summation of the present values of cash proceeds

(CFAT) in each year minus the summation of present values of the net cash outflows in each

year. Symbolically, the NPV for projects having conventional cash flows

NPV =C.F1 + C.F2 ------ C.Fn

(1+I)1 (1+I)2 (1+I)n

ii. Internal Rate of Return Method

The second Time-Adjusted Method for appraising capital investment decisions is the

internal rate of return method. This technique is also known as yield on investment, marginal

productivity of capital on time–adjusted rate of return and so on. This method also considers

the time value of money by discounting the cash streams.

IRR= r - PB-DFr

DFrl-DFrh

iii. Profitability Index Method

The another time-adjusted capital budgeting technique is profitability index or

benefit-cost ratio. It is similar to the NPV approach. The profitability index measures the

present value of the returns the per rupee invested, while the NPV is based on the difference

between the present value of future cash flows and the present value of cash outlays.

PI = Present value of cash inflows

Present value of cash outflows

MANAGEMENT OF FIXED ASSETS

The selection of various assets required to creating the desired production

facilities and the decision as regards determination of the level of fixed assets is

primarily the task of the production people. However there are certain financial

considerations also involved in the same. As the decision relating to fixed assets

involve huge funds for a long period of time and are generally of irreversible

nature affecting the long term profitability of a concern, an unsound investment

decision may prove to be fatal to the every existence of the organization. Thus

management of fixed assets is of vital importance to any organization.

The process of fixed assets management involves:

1. Selection of most worthy projects or alternative of fixed assets

2. Arranging the requisite funds/capital for the same.

However some important aspects of fixed assets management are

i. The first important consideration to be kept in the mind is to acquire only

that much amount of fixed assets which will be just sufficient to ensure

smooth and efficient running of business. However in some cases it may

be economical to buy certain assets in a lot size.

ii. Another important consideration to be kept in mind is the possible

increase in demand of the firm’s products necessitating expansion of its

activities. Hence a firm should have that much amount of fixed assets

which could adjust to the increased demand.

iii. The third aspect of fixed assets management is that firm must ensure

buffer stocks of certain essentials equipments to ensure un-interrupted

production in the event of emergencies. Some times there may be a break

down in some of the equipments or services affecting the entire

production. It is always better to have some alternative arrangement to

deal with such situations. But at the same time the cost of carrying such

buffer stocks should also be evaluated.

iv. The fourth aspect of management of fixed assets is to consider the cost of

capital to be invested.

Principles of Fixed Assets Management

The main objective of fixed assets management is to make sound

investment in the fixed assets such as land, building, machinery etc.

The following are the main principles in managing fixed assets:

1. Selection of most appropriate and suitable fixed assets.

2. Financing and acquisition of fixed assets.

3. Sound depreciation policy.

4. Proper accounting of fixed assets.

5. Periodical appraisal of fixed assets.

IMPORTANCE OF RATIO ANALYSIS

The ratio analysis is the most important powerful tool of the financial

analysis. With the help of ratios the following can be determined.

1. The efficiency with which the firm is utilizing its assets.

2. The ability of the firm to meet its current obligation.

3. The extent to which the firm has used its long term solvency by

borrowing funds.

The ratio analysis will reveal the financial condition of the company more

reliably when trends in ratios overtime are analyzed. Ratios at a point of time

can mislead the analyst, because they may be high or low for some exceptional

circumstance at that point of time. An impressive present financial position may

really be over time, while a weak position may be improving at rapid rate

overtime.

Fixed Assets Ratios

The main objective of providing this chapter is just to bring out certain

ratios regarding to fixed assets and to provide satisfactory norms thereon to

Chittoor co-operative sugars limited. Hence, the wide coverage of ratio analysis

not discussed and maintained for C.C.S.L.

Certain ratios provided for CCSL will enhance the efficiency and

effectiveness of fixed assets management in the firm. The worthiness and un

worthiness in the utilization of fixed assets should be known through the

analysis of these ratios in the CCSL. These ratios will act as a yardstick to the

company in the prospective year and hence the need arises to maintain these

ratios for CCSL.

Normally a ratio is “the indicated quotient of two mathematical

expressions or the relationship between two or more things.

The following are the different ratios:

1. Fixed assets to Net worth ratio

2. Fixed assets ratio

3. Fixed assets turnover ratio

4. Fixed assets to Funded debt ratio

5. Fixed assets to Total capital ratio

6. Fixed assets to Networking capital ratio

7. Fixed assets to Current assets ratio.

PROFILE OF SUGAR INDUSTRY

Sugar cane is one of the important crops for the Indian farmer. Sugar and

Jaggery are the main products that we get from Sugarcane. Other products such

as Biogases for industrial use, Molasses for distillery, filter cake. Mud as an

organic manure and green leaves with tops for cattle feed are also available as

by-products, because of it’s multi uses Sugarcane has played crucial role in

Indian economy with Rs 20000 cores turnover and width 450 sugar mills

providing assistance to 45 million sugarcane farmers and 2 million Sugarcane

farmers and 2 million workmen directly and indirectly.

In A.P. sugar industry is an important Agro-based industry, occupying the

second position next to text tile industry. The annual cultivated area is about

1.99 lack hectares with a yield of 149.45 lacks of tones during 96-97. At

present, there are 36 sugar factories in the state and 50% of them are in co-

operative sector. The co-operative sugar units in the states have been suffering

due to lack of adequate cane irrigation facilities, working capital, by-product

utilization, excessive employment etc.

The sugar industries which provide direct employment to about 3 lacks

persons of sugar cane followed by Brezil & Cuba. Sugar cane existed in India

from 3000 B.C the centre place of origin of sugar cane regarded as Northeastern

India, from sugar cane seems to have been to China and other places by early

travelers and no man’s between 1800 and 1700 B.C. later. It was penetrated to

Philippines, Jewa and other places. Actually the word sugar derived from a

Sanskrit word “shakra”.

India was the world’s largest producer of sugar cane occupies a very pride

place in the world. In India, the cultivation of sugar cane is 10,000 miles tones.

The average yield, being 56 tones per acre of total cultivating land is occupied

by sugar cane cultivation. Sugarcane is grown in almost all part of India, except

in colder regions and extreme North Jammu Kashmir, Himachal Pradesh.

Area wise distribution of sugar industry in A.P

S.no Sector No.of

industries

Costal

Area

Rayalaseema Telangana

1 Co-

operative

18 12 4 2

2 Public

sector

7 1 1 5

3 Private

sector

11 8 2 1

Total 36 21 7 8

List of Co-operative sugar factories in A.P.

1. The Chittoor Co-operative sugars ltd, Chittoor.

2. The Chodavaram Co-operative sugars ltd, Chodavaram.

3. The Anakapalle Co-operative sugars ltd, Anakapalle.

4. The Etikuppaka Co-operative agricultural of industrial society ltd,

Ethikuppaka.

5. Sir Vijayarama Gajapathi Co-operative sugars ltd.

6. The Amadavalasa Co-operative agricultural industrial society ltd,

Srikakulam.

7. The West Godavari Co-operative sugars ltd, Eluru.

8. Palakollu Co-operative agricultural & industrial society ltd., Palakollu.

9. The Thandara Co-operative sugars Ltd, Vishakhapatnam.

10.Nizamabad Co-operative sugars ltd., Nizamabad.

11.Sir Venkateswara Co-operative sugars ltd., Renigunta.

12.The Cuddapah Co-operative sugars ltd., Channur.

13.the Nandyal Co-operative sugars ltd., Ponnapuram,

14.The Kovur Co-operative sugars ltd., Nellore.

15.Nagarjuna Co-operative sugars mills ltd., Gurzala.

16.Namapaneni Venkata Rao Co-operative sugars ltd., Hanuman junction.

17.Srihanuman Co-operative sugars ltd., Hanuman junction.

18.Palair Co-operative sugars ltd., Ammagudem.

Sugar industry nature

Seasonality

The industry is seasonal, with the season starting in Nov and continuing

till April/May, sugar cane is available during these 6-7 months and crushing also

takes place during these months.

Licensing system

To protect sugar – producing units and ensure a sufficient quantity of raw

material (sugar cane), licensing system was introduced. Under this system, each

unit had a command area from where the sugarcane was produced.

The licensing system presently in place is also trying to encourage the

setting up of new units by providing them with sops and other benefits.

PROFILE OF THE C.C.S.LIMITED

Brief data of The Chittoor Co-Operative Sugars Limited

1. Name of the firm : The Chittoor Co-Operative Sugars Ltd,

Chittoor, A.P.

2. Location and address : Chittoor Co-Operative Sugars Ltd, Chittoor.

3. Date of registration : 22-08-1955.

4. Date of commencement

of business : 22-08-1963.

5. The installed capacity

of the enterprise : 1000 metric tones/day.

I. First stage : 8.50 lack from growers

II. Second stage : 25.00 lack from State Government

III. Third stage : 95.00 lack from term loans

Total : 128.50 lack.

The society has a separate Finance Department. Set of Finance

Department is as follows:

Chief Engineer

Chief Chemist

Deputy Engineer

M.D

Office

Administration

Accounts Officer

Cane Officer

Technical

The irrigation in Chittoor district mostly depends on open wells, recharge

of water in the wells depends on ground water level and rainfall. However,

rainfall depends on monsoon, which is uncertain. The soils in the district are

almost suitable for sugarcane. In the good olden days, total quantity of

sugarcane produced in the district was commenced as Jaggery by ganugas

(bullock crushers) and power crushers. The Jaggery making was very difficult

so the small farmers due to lack of crushers and unfavorable prices. The big

farmers also faced difficulty to crush the cane for a long period.

The Jaggery make in the district was brought to the Chittoor & Pakala,

which are the market places with railway transportation. There was a lot of

exploitation of farmers by the Jaggery mundi owners by advancing the money

with high interest rates, commission and also not with power weighing. The

price fluctuation created by the traders was also a reason for poor realization,

but there was no other choice to the farmers.

Evaluation of the factory

Under the above circumstances, the farmers and leaders of the district felt

the need for the establishing a factory in Co-operative sector to enable

sugarcane farmers to gets good returns. The Chittoor Co-operative sugar ltd.,

Chittoor is the first Agro-based major industry in Rayalaseema area; it was first

registered on 22-08-155 under the APCS Act. Its area of operation comprises of

192 villages in 21 mandals. Factory is located along Cudalore- Kurnool

National Highway no 18, 3 kms towards Kurnool from Chittoor town. It Owns

85.96 acres of land. It was first commissioned on 18.01.1963 with a licensed

and installed capacity of low tones cane crushing per day.

During 1974 its cane crushing capacity has been expanded to 1600 tones

per day. Since 1989, Modernization is being done in phases. Presently factory is

working at an average cane crushing of 1800-2000 tones per day.

CAPITAL STRUCTURE

Original project cost was Rs128.50 lacks it has been founded from

following sources.

Rs. Lakhs

I Share capital from

(a) Cane grower members 8.50

(b) State Government 25.00

II Loans

(a) IFCI,, New Delhi 75.00

(b) LICI, Bombay 20.00

-----------

Total 128.50

------------

III Capital outlay

(a) Land 2.38

(b) Buildings 5.90

(c) Plant & Machinery 109.34

(D) Other assets 5.77

(e) Pre. Co- operative exp 4.00

(f) Vehicles 0.96

---------------

Total 128.50

---------------

IV Present value of assets as on 31.03.2007

(a) Land 497.19

(b) Buildings 423.85

(c) Plant & Machinery 1155.70

(d) Other assets 34.73

(e) Transport vehicles 19.94

--------------

Total 2131.41

---------------

Membership share capital No Rs.lacks

(a) Members 13448 185.57

State Government 1 1028.44

---------- -------------

Total 13449 1394.01

---------- ------------

(b) NRD&NRFD of members 213.69

(c) Accumulated loss on 31-03-03

(As per proforma of accounts) 3189.49

Working capital arrangements

Under sugar cane control order (1966)of Government of India,

cane price is payable with in the 14 days from the date of purchase where

as sugar produced and released for sale monthly over a period of 16 to 18

months. More than 70% of cost of production is covered by sugar to

comply with statutory provision in regard to payment of sugar cane price

with in 14 days. Either to financing banks i.e., (District Co-operative

Central Bank) have been allowing loan @90% of levy sugar value and 8

on open market sugar value. First time for this 1999-2000 season,

NABARD have laid down, in their new credit policy guide lines, to

compute and allow pledge loan an sugar stocks restricting to statutory

minimum cane price notified by Government of India.

With thin new guide line, through huge sugar stocks with abundant

loan drawing power are available, factory can’t draw loan to pay state

advised cane price to growers. The SMP notified by Government would

not cover even cultivations costs. The difference between state advisory

prices is about Rs.250 per M.T. To receive the difference amount of cane

price cane suppliers have to wait till the entire sugar stocks are sold

which would take about 16 to 18 months

This particular condition introduced first time this season is to be with

drawn oilier wised cane growers would go in for cultivation of alternate

crops as the SMP would not cover even cultivation costs. This issue is

taken up by state Government with NABARD and Ministry of Finance,

Government of India.

MODERNISATION

During the year 1993-94 factory has planed to increase it’s cane

crushing capacity from 1600 tcd to 2500 tcd in phase, as a part of the

program, under 1st phase, factory has spent Rs 341.80 lack and carried out

I phase modernization. During 1997 purchase of a new 3 MW power

turbine has been finalized. It is commissioned during this 1999-2000 cane

crushing season. The new power turbine and altering electrical and civil

works put together is Rs 160 lack. At a cost of about the 90 lack,

installation of TRF system to mills modification of a boilers to increase

the capacity and modification of return biogases carrier are

executed/being executed to achieve a daily cane crushing of 2200 tones

cane.

WAGE STRUTURE

a. The wages of the workers are covered by “Sugar Wage

Board” recommendations at “All India level”.

b. The minimum monthly wage of unskilled workers at starting

of the time scale is Rs 3,901.

c. Sugar season is re-opened from 1st Oct to 30th Sep next year,

generally cane crushing operating one commenced during 3

week of nov and continued up to end of April of next year.

From May-Oct is off season.

Cane Development and Incentives To Cane Crowers

(A) There is separate Agricultural Wing in factory headed by a Chief

Agriculture Officer. Total area of operation is divided into 36 field

men’s work is supervised by 8 Agricultural Officers.

(B) Following are developmental activities being implemented

a. Arrange soil testing at factory’s soil laboratory.

b. A supply of improved verities of seed in consultations with

regional agricultural research stations.

c. Arrange educational tours, to selected cane suppliers, within

and out side the state.

Incentives paid to Growers

a. 50% 0f actual cane transport charges up to 40kms distance are

Subsidized.

b. Cane transport charges beyond 40kms are subsidized 100%.

c. Over and above state advised cane price, an incentive price of one

25 Per MT is paid to improved varieties supplied to factory.

d. Fertilizers are supplied on loan, free of interest.

e. Pesticides & Feticides are supplied at subsidized rates.

f. At 1/2 kg per tone of sugar cane supplied for cane crushing, sugar

is Supplied Subject to minimum of 120kgs and maximum of

120kgs at subsidized rates.

Welfare schemes to cane growers

a) A Kalyanamandapam is constructed in factory’s premises with

Rs.56.51 lacks. Contribution from cane supply members. Rs.4200 per

day is charged as rent from cane supply members and employed.

Rs.7350 per day are charged from non members.

b) 5002 cane supply members are covered under Janata personal

accident policy for a period of 12 year commencing from Jan 98.

Family of any deceased number covered under this policy gets Rs

100000 as compensations 50% of premium i.e., Rs 3.51 lacks is

subsidized by factory.

c) 5002 cane supply numbers are covered under “Janarogya Bhima

Policy”. Reimbursement charges up to a maximum of Rs 5000 per

year is expended under this scheme 50% of premium i.e., Rs 2.05

lacks is subsidized by factory.

Management:

At present the elected board has assumed charged on 06.04.2000 the

present Board of directors as detailed below.

President 1

Board of directors 14

Employee’s director 1

---------

Total 16

---------

Chief executive & functioning of various departments:

a) Chief Executive of the society is M.D. having a seat on the Board

b) There are five major Departments.

a. Administrative

b. Engineering

c. Manufacturing

d. Agriculture

e. Accounts & Finance.

c) All aspects of accounting, sugar cane weightiest and laboratory analysis

reports are computerized during 1989-90 for better cane regulation,

wireless system was also introduced during 1989. At all 8 division Head

Quarters and at a Administrative Office wireless stations and sets are

installed.

d) All policy matters are dedicated by Board/person-in-change.

e) Cane price:

Before commencement of sugar cane crushing season,

Government of India notifies statutory minimum cane price

payable by each sugar factory. This is also to be paid within 14

days from the date of purchase. Over and above the statutory

minimum cane price payable by each sugar factory. This SAP is

being paid by us. We have crushed cane for the season 1999-2000

is 2,82,202.592 mts with an average recovery 9.038.

f) Sugar:

Out of total sugar production of each season, 30% shall

be delivered to Government nominees for public distribution system at

notified levy price for every season Government of India notified levy

sugar price application to each sugar factory. Every month

Government of India releases the quantity of levy sugar and open

market sugar to be sold during each month. Open market sugar is sold

an tender systems and is delivered against payment of cost plus duties.

g) Molasses:

Molasses is a by product in the course of manufacturing

of sugar from 1993 June molasses price are de- controlled. Molasses is

sold by inviting tenders on all India basis by publishing tender notice.

h) Engineering and Manufacturing Departments:

During off season Engineering and Manufacturing

Department attend to over hauling and preventing maintenance and keep

ready the plant for cane crushing. During the season factory works round

the clock in three shifts.

i) Cane department:

Cane department is provided with sufficient Executive

Staff. They collect cane supply offers, from cane growers, offers are

being accepted member’s 5 years supply average tie up arrangement with

factory. One month before commencement of cane crushing. Prepares

maturity survey is conducted by drawing cane samples from agreement

cane fields they are analyzed in factory’s laboratory, based on the

analysis, cane supply numbers permits are issued to cane supply number

limiting to factory’s daily cane crushing capacity. Factory provides 60 to

80 Hired Lorries to needy growers. 50% of transport charges up to 40 km

distance are subsidized by factory. Transport charges beyond 40 km are

subsidized 100%.

j) Liaison farm:

Factory is having a sugar cane liaison farm in an extent

4.80 hec. Factory brings improved varieties from sugar cane research

stations multiplies in it’s farm and supplies seed to growers.

k) Total strength of establishment is No. of workers

1. Permanent (non seasonal) 215

2. Seasonal permanent 223

3. Consolidate wages (seasonal) 234

4. Daily wages (NMR) 283

------------

Total 955

------------

Investment on Fixed Assets

The Capital expenditure proposals are ascertained by the Government of

A.P. prior. A.P. prior to this accounts officer of the accounts departments has to

prepare Budget of the concerns (Through department heads).

Board of Directors (BOD’S)/Director of sugar are authorized to decide

investment on fixed assets.

There is no limit fixed on the size of the investment on fixed assets the

concern is having machinery’s worth 1 Crore also. Some times in purchase of

large assets the procedure is resolutions are kept before M.D or Director of

sugar if they feel to have the resolutions passed then it is kept and makes it

accepted in Board meeting.

No officers of the undertaking exceeded the authorized limits of the fixed

assets.

Based on the need and necessity of the firm is made. The M.D. (or)

director of sugar is approved it.

No special techniques have been adopted for evaluating investment

proposals on the fixed assets. According to the decisions of the Board various

investment proposals are made on the fixed assets.

Based on tender system & state level purchase co decisions fixed assets

are purchased.

Tenders are scrutinized based on the viewing company’s past

performance, quotations made and standard of the asset.

The method of depreciation is straight- line method and based on I.T act.

Depreciation rates for the different assets are fixed at different rates like on

machinery’s 10%

On loose-tools @6%, some assets don’t carry depreciation.

No depreciation has been maintained for Reserve Fund.

CASH MANAGEMENT

a. No separate organization for cash management is maintained in the

society.

b. Major things in the concern are the sugar cane. The sugar cane is

seasonal crop and of course this is treated as main important thing

for the firm. Tenders are inviting in the purchasing the cane. Based

on the availability of the sugar cane working capital requirements

are made.

c. Tender procedures are adopted for this purpose.

d. Liquidity question doesn’t arise because the society deals almost

all each and every transaction through Bank, DDs & Cheques.

e. No policy has been followed regarding optimal cash balance in the

society.

f. Working capital requirements are mainly from the sugar cane

growers.

g. Through unsecured short- term loans over drafts short-term loans

are raised.

h. Cash credit limits doesn’t arise.

i. The head of the department regulates cash balance

j. Adequacy of cash schedule doesn’t arise

k. There is no cash were Surplus/in adequacy of cash balances in the

society

Inventory Management

There is no question of selling up of the Organization for the maintenance

of materials & store .usually store keepers looks after the maintenance of the

materials 2 stores of the concern.

Usually at the very beginning of the season sugarcane is purchased in

bulk .If needed further purchase is made by inventing tenders and

quotations .Usually purchasing Committee goes for the lower tender for the

purchase of sugarcane.

The Members of the Purchasing Committee

Chairman, M.D, Accounts officers, other 2 members selected by Director

of sugar

The role of purchasing committee is usually meets 4 times in a year i.e.

for every 3 months according to need and urgency of the firm. The role of P.C

usually has a vital essence in the finical of pending indents .the P.C examines

the various quotations made by growers and selected those tenders, which are

beneficial to the concern.

The Methods of Purchasing are

o Open tender, according to urgency direct purchase

o No delegation is made to lower level employees in case of

purchase

o There is no particulars policy made regarding the value of stock

limits whatever it may be like

o Raw materials ,work in progress ,supplies and construction

materials ,stores and spares ,packing ,materials ,process materials

and other materials if any .as agreement are made keeping in view

our needs .so there is no limits raises.

The Raw Material Requirements are Estimated

Chief Chemists and Stores manager, raw materials are purchased in bulk.

By means of factories contract Lorries on by Private Lorrie’s raw materials

are transported

A raw materials for the society is sugar cane usually Chief Engineer

estimates the raw materials agreement is making increase of purchase of raw

materials

The basis for estimating raw material requirements is

Sugar cane is seasonal crop so this will be usually estimated by CAGO

(Chief Agricultural Officer). How much production of sugar cane is there in the

state? The Chief Chemist and Chief Engineer prepare a statement in

requirement of raw materials of the concern and purchase it thought direct

method a making tenders.

Once in year the purchase was made i.e. before starting of the season raw

materials are purchased. There fore the raw materials for the whole year

purchased once.

The spare pails requirements are estimate by Chief Engineer

o Based on the requests of the Departmental heads spare pails

requirements are fulfilled.

o Store keeper stores and spares control inventory classification and

codification techniques has been adopted

o By classification and codification the inventory of the concern are

made good and gives maximum output to the concern

o Yes, there is over stocking of and a spare in the society .the cause

for over stocking is.

o Huge purchases with out consumption though over stocking is

there it is kept as dead stock in the stores but it can be used in the

production and it is not treated as waste stock.

o For e.g. if lime is 500/- per bag before 3 months it will be

purchased and stored. After 3 months if it’s price went up to 800/-

per bag then the stored one is dead stock it can be used in the

production of sugar it is not treated as waste.

o The materials are purchased on both credit and cash

o If small payment to be made it will be paid immediately.

o If larger amounts they can be paid according to the financial

position of the concern.

o

Bills/Receivables Management

Bills/Receivables arise only when the product is sold on credit basis i.e.,

when credit sales take place bills come to the show. But the society sells the

sugar on cash and D.D. sale of sugar is made doesn’t arise. Society directly sells

the sugar to the Government sometimes.

Profitability management

Various products of the society

o Sugar, molasses, press mud contains sulphur used as fertilizers.

o The nature of the market is competitive

o The size of the market is national

The close competitors are

o S.V. Sugar factory in Renigunta, Vani Sugars in Punganur

o Vellore Sugar factory and Mayura Sugars in B.N. Kandriga.

The pricing practice followed by the enterprise is

Competitive pricing in case of sugar

Prices based on Government award in case of cane

The enterprise products are price correctly

The Government for the fixation of prices of the products has fixed

no guideline.

Profit notice is the primary objective in the fixation of the prices.

The enterprise adopting the system for profit planning and control.

Profit target is determined by

o Minimizing the cost of production to achieve more profits

The department involved in the profit planning is

Accounts department

o For achieving the profit the management has been reviewing on

cost of production.

o To get good recovery in sugar frequent enlightment program has

been done with numbers by agricultural experts and receive

instructions to the head of the institution.

OBJECTIVES

The following are the objectives of the study of Inventory control:

1. To study the various sources of Fixed Assets in the Chittoor Co-operative

Sugars Ltd for 2003-2007.

2. To study the Fixed Assets management in “Co-operative Sugars

Limited”, with specific reference to

Management of Land and Buildings.

Management of Plant and Machinery.

Management of Motor vans, Furniture etc.

3. To study the liquidity position of The Chittoor Co-operative Sugars

Ltd for 2003-2007.

4. To identify the problems regarding to Fixed Assets Management in

Co-operative Sugars Limited and give possible suggestion for better

management.

5. To study how to make decisions regarding to Fixed Assets in The

Chittoor Co-operative Sugars Ltd for 2003-2007.

SCOPE OF STUDY

The current study undertaken for the purpose of analyzing Fixed Assets

Management of the Chittoor Co-operative Sugars Limited, which is situated at

Chittoor, Andhra Pradesh.

The study concentrates on various techniques involved in maintaining an

optimum level of Fixed Assets that involves maintaining of Land and Buildings,

Plant and Machinery etc.

RESEARCH METHODOLOGY

The main aim of this study is to know the Fixed Assets Management with

respect to Chittoor Co-operative Sugars Ltd.

Research is a careful investigation or enquiry especially through search

for new facts in any branch of knowledge.

1. DATA COLLECTION:

The required data for this study has been collected from Secondary sources

of information. This information has been gathered from “Co-operative Sugars

ltd” through personal interview and personal verification of the company reports

and financial statements.

2. PLAN OF ANALYSIS:

The entire Fixed Assets Management in “Co-operative Sugars Limite has

been analyzed in detail and the information gathered and analyzed by using the

appropriate tools such as ratio analysis and graphs. It is a quantitative analysis

of the Fixed Assets Management. The study has been used to generate some of

the the recommendations to the company at times of crisis.

LIMITATIONS OF THE STUDY

The following are the limitations of a study:

1. The study is limited to only a particular company, i.e. The Chittoor Co-

Operative Sugars Limited.

2. It is difficult to analyze the overall information regarding the company

because the analysis based for a specified period.

3. The result of the study depend upon the information furnished by the

secondary source

4. The Government and economic policies affecting the industry are not

taken into consideration.

5. The Fixed Assets Management of “The Chittoor Co-operative Sugars ltd”

is studied only for a period of 4 years, from 2002-03to 2006 - 07.

CHAPTARISATION

The Study is Divided into Eight Chapters

CHAPTER-I: Discuss with

Statement of the Problem

Need for Study

CHAPTER-II: Discuss with

Introduction to the Fixed Assets

CHAPTER-III: Discuss with

Profile of Sugar Industry

CHAPTER-IV: Discuss with

Profile of the Chittoor Co-operative Sugars Ltd

CHAPTER-V: Discuss with

Investment on Fixed Assets

Cash Management

Inventory Management

CHAPTER-VI: Discuss with

Research Design & Methodology

Objectives of the Study

Scope of the Study

Collection of Data

Analysis of Data

Evaluation Techniques

Limitations of the Study

CHAPTER-VII: Discuss with

Findings & Suggestions

CHAPTER-VIII: Discuss with

Bibliography

Statement showing the changes in the Fixed Assets of the Chittoor Co-operative

Sugars Ltd for the year 2002-03 To 2003-04.

Particulars 2003

Rs

2004

Rs

Changes

in Fixed

Assets Rs

Factory Buildings

Factory Vehicles

Factory Mixing Plant

Land

Non-Factory Building

Non-Resident Building

Plant and Machinery

FMP Building

FMP Godown – I

FMP Godown – II

Furniture and Fittings

New Administrative Building

Effluent Treatment Plant

Mollasses Tank

Compound Wall (Building)

Total

2986793

818279

143284

447870

1087425

4608

104042668

48828

54442

39053

1708344

572235

31867

2742415

833502

115561613

2986793

818279

143284

447870

1087425

4608

104042668

48828

54442

39053

1708344

572235

31867

2742415

833502

115561613

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-



Particulars 2004

Rs

2005

Rs

Changes

in Fixed

Assets Rs

Factory Buildings

Factory Vehicles


Land



Plant and Machinery

FMP Building

FMP Godown – I

FMP Godown – II




Mollasses Tank


Total

2986793

818279

143284

447870

1087425

4608

104042668

48828

54442

39053

1708344

572235

31867

2742415

833502

115561613

2986793

818279

143284

447870

1087425

4608

104436172

48828

54442

39053

1708344

572235

31867

2742415

833502

115955117

-

-

-

-

-

-

393504

-

-

-

-

-

-

-

-

393504



Particulars 2005

Rs

2006

Rs

Changes

in Fixed

Assets Rs

Factory Buildings

Factory Vehicles


Land



Plant and Machinery

FMP Building

FMP Godown – I

FMP Godown – II




Mollasses Tank


Total

2986793

818279

143284

447870

1087425

4608

104436172

48828

54442

39053

1708344

572235

31867

2742415

833502

115955117

3041106

1286679

143284

447870

1087425

4608

106295226

48828

54442

39053

1708344

572235

31867

2742415

833502

118336877

54313

468400

-

-

-

-

1859054

-

-

-

-

-

-

-

-

2381760



Particulars 2006

Rs

2007

Rs

Changes

in Fixed

Assets Rs

Factory Buildings

Factory Vehicles


Land



Plant and Machinery

FMP Building

FMP Godown – I

FMP Godown – II




Mollasses Tank


Total

3041106

1286679

143284

447870

1087425

4608

106295226

48828

54442

39053

1708344

572235

31867

2742415

833502

118336877

3041106

1331679

143284

447870

1087425

4608

106295226

48828

54442

39053

1708344

572235

31867

2742415

833502

118381989

-

45000

-

-

-

-

-

-

-

-

-

-

-

-

-

45000

FIXED ASSETS TO NET WORTH RATIO

The Ratio establishes the relationship between Fixed Assets and Share

holders funds. The Ratio can be calculated as follows.

= Fixed Assets Shareholders fund

Shareholders fund=Share capital+ Reserves+ Surplus

The Ratio indicates the extent to which Share holders funds are sunk

into the Fixed Assets. If the Ratio is more than 1 it implies that owners funds

Are more than the total Fixed Assets. When the ratio is less than 1 it implies

That the owner’s funds are not sufficient to finance Fixed Assets.

Table-1: Fixed Assets to Net worth ratio of Chittoor co-operative sugars

Limited for the year 2002-03 to 2006-07.

YEAR FIXED ASSETS SHAREHOLDERS

FUNDRATIO

2002-03 11,55,61,613 36,02,67,944 0.322003-04 11,55,61,613 36,96,40,241 0.312004-05 11,59,55,117 37,05,83,543 0.312005-06 11,83,36,877 37,40,61,601 0.312006-07 11,83,81,989 41,05,12,492 0.29

Source : The Published Balance sheet of C.C.S.Limited

INTERPRETATION:

The ratio is less than 1 in all the 5 years .It implies that the

owners fund is not sufficient to finance fixed assets and the firm has to depends on

outsiders to finance Fixed Assets. In the first years it to be 0.32 and the next three

years it is decreased to 0.31

FIXED ASSETS RATIO

The ratio establishes the relationship between Fixed Assets and

Total long term funds.

= Fixed Assets Total long term funds

Long term funds = Share holders funds + Long term borrowings

Generally the Fixed Assets should be equal to the total long term

Funds, say the ratio should be 100%. In case the Fixed Assets exceeds the

Total long term funds it implies that the firm has financed a part of the Fixed

Assets out of working capital which is not a good financial policy. If the total

Long term funds are more than the Fixed Assets, it means that the part of the

working capital requirements is met out of long term funds of the firm.

Table 2: Fixed Assets ratio of Chittoor Co – operative sugars Limited For the years 2002-023 to 2006-07.

YEAR FIXED ASSETS LONG TERM FUNDS

RATIO

2002-03 11,55,61,613 62,47,20,690 0.182003-04 11,55,61,613 62,22,75,159 0.192004-05 11,59,55,117 63,38,56,864 0.182005-06 11,83,36,877 64,01,35,188 0.182006-07 11,83,81,989 64,46,35,188 0.18


INTERPRETATION:

The Fixed assets ratio is 0.18 in the year 2002-03 and it is

increased in the next year to 0.19 in the year 2003-04. This ratio is again

decreased to 0.18 in the last two years. In all the years the total long term funds

more than the fixed assets, it implies that the part of working capital

requirements is met out of long term funds of the firm.

FIXED ASSETS TURNOVER RATIO

Fixed Assets Turnover ratio is the relationship between the

Sales and Fixed Assets. This ratio measures the efficiency of a firm in managing

and utilizing its Fixed Assets. The higher the Turnover ratio the more efficient

in the management and utilization of fixed assets and lower the ratio indicates

of under utilization of fixed assets.

= Sales / cost of goods sold

Total Fixed Assets

Table 3: Fixed assets turnover ratio of Chittoor co-operative sugars limited for

the years 2002-03 to 2006-2007.

YEAR SALES FIXED ASSETS RATIO

2002-03 20,14,86,573 11,55,61,613 1.7

2003-04 13,05,17,436 11,55,61,613 1.1

2004-05 11,38,74,542 11,59,55,117 0.9

2005-06 12,37,19,616 11,83,36,877 1.0

2006-07 12,49,28,917 11,83,81,989 1.1


INTERPRETATION:

The fixed assets turnover ratio is 1.7 in the year2002-03

and it is decreased in the next year to 1.1. It is continuously decreased for next

two years and reached 0.9 in the year 2004-05. However it is increased in the

year 2006-07 and reached to 1.1.The fixed assets ratio is highest in the year

2002-03 and 2002-03 which indicates the efficiency in utilization of fixed assets

by the firm.

FIXED ASSETS TO FUNDED DEBT RATIO

The ratio measures the relationship between the Fixed

Assets and Funded debt. It is very useful to the long term creditors. The ratio

can be calculated as follows.

= Fixed assets

Funded debt

Funded debt = Long term loans (Debentures + Mortgage loans)

Table 4: Fixed assets to funded debt ratio of Chittoor co-operative sugars

limited for the years 2002-03 to 2006-07.

YEAR FIXED ASSETS FUNDED DEBT RATIO

2002-03 11,55,61,613 27,09,14,629 0.43

2003-04 11,55,61,613 23,02,09,091 0.5

2004-05 11,59,55,117 26,78,64,182 0.42

2005-06 11,83,36,877 29,53,12,473 0.4

2006-07 11,83,81,989 30,87,05,186 0.4


INTERPRETATION

This ratio is 0.43 in the year 2002-03 and it is increased in

the next year and reached to 0.50. The ratio is decreased in the last two years

and reaching lowest of 0.4 in the year 2006-07.This ratio may decrease because

of increase in the funded debt.

FIXED ASSETS TO TOTAL CURRENT ASSETS RATIO

The ratio measures the relationship between the Fixed

Assets and Current assets. The ratio can be calculated as follows.

= Total Fixed Assets

Total current assets

Table 5: Fixed assets to current assets ratio of Chittoor co-operative sugars


YEAR FIXED ASSETS CURRENT

ASSETS

RATIO

2002-03 11,55,61,613 1,84,00,968 6.2

2003-04 11,55,61,613 2,88,56,655 4

2004-05 11,59,55,117 3,10,85,454 3.7

2005-06 11,83,36,877 3,36,40,584 3.5

2006-07 11,83,81,989 3,51,40,584 3.4


INTERPRETATION

The ratio is 6.2 in the year 2002-03 and it is continuously

decreased for next four years and reached to lowest of 3.4 in the year 2006-07.

FIXED ASSETS TO TOTAL CAPITAL RATIO

The ratio measures the relationship between Fixed Assets and

Total Capital. The ratio can be calculated as follows.


Total Capital

Total Capital = Share capital + Reserves + Loans + Bonds

Table 6: Fixed Assets to Total capital ratio of Chittoor co-operative sugars


YEAR FIXED ASSETS TOTAL

CAPITAL

RATIO

2002-03 11,55,61,613 63,12,30,516 0.18

2003-04 11,55,61,613 62,87,09,731 0.18

2004-05 11,59,55,117 64,38,73,464 0.17

2005-06 11,83,36,877 66,94,22,017 0.17

2006-07 11,83,81,989 68,15,64,510 0.17


INTERPRETATION

This ratio may be better up to 0.50.But in all the 5 years it

is below 0.50.In The first two years the ratio is 0.18 and it is decreased to 0.17

in the last two years which indicates the less acquisition of fixed assets.

FIXED ASSETS TO WORKING CAPITAL RATIO

The ratio measures the relationship between the

Fixed Assets and Net working capital. The ratio can be calculated as follows.


Net working capital

Net working capital = Current Assets- Current Liability

Table 7: Fixed assets to Networking capital ratio of Chittoor co-operative

sugars limited for the year 2002-03 to 2006-07.

YEAR FIXED ASSETS WORKING

CAPITAL

RATIO

2002-03 11,55,61,613 1,23,06,491 9.3

2003-04 11,55,61,613 76,65,961 15

2004-05 11,59,55,117 74,34,642 15.5

2005-06 11,83,36,877 68,85,214 17.1

2006-07 11,83,81,989 63,83,405 18.5

INTERPRETATON

The ratio is 9.3 in the year 2002-03 and it is increased to 15 in

the year 2003-04.The ratio will be increased in the next three years and reached the

highest of 18.5 in the year 2006-07.

FINDINGS

In the overall evaluation of the Fixed Assets Management at each and every aspect,

the following findings are:

1. Fixed Assets Ratio of the Chittoor Co-operative Sugar Ltd is above the Standard level

in all the 5 years from 2002-03 To 2006-07 which indicates the good Financial Policy.

2. Fixed Assets to Net worth Ratio of the Chittoor operative Sugars Ltd is less then 100%

which indicates the Owner’s funds are sufficient to Finance Fixed Assets.

3. Fixed Assets Turnover Ratio of the Chittoor Co-operative Sugars Ltd is highest 1.7 in

the year 2002-03, which the management is efficient in utilizing the Fixed Assets.

4. Fixed Assets of the Chittoor Co-operative Sugars Ltd is increase in the years2002,

2003 and 2007.

5. The company sales have been decreased in all the year.

6. The Reserves and Surplus is always accumulating every year. The company can

capitalize the reserves and Surplus.

SUGGESTIONS

1. The company can utilize the reserves and surplus by either capitalizing or can invest

the money some where as investment to get benefit.

2. The company can also increase the share holder’s fund to Finance Fixed Assets.

3. The company can also improve the good financial policy.

4. They can also improve the effective utilization of Fixed Assets to in crease sales.

THE CHITTOOR CO-OPERATIVE SUGARS LIMITED,CHITTOOR

PROFORMA OF BALANCE SHEET AS ON 31-3-2007

LIABILITIES AMOUNTS ASSETS AMOUNTS

1.Share Capital

2 Deposits and Borrowings

a. Deposits

b. Borrowings

3. Outstanding interest

4. Adjusting heads due by

5. Reserves

6. U.D.P

7. Audit Fund

8. Reserve fund yet to be

invested

141123600

35201887.01

405702422.76

46928301.64

229172904.82

268006835.01

64226.88

9695.57

24702.69

628723533.32

3. Cash on Hand

4. Balance with banks

a. Current account

b. Savings account

5. Share in other Co –

operative institutions

4 Deposits with agencies

5 F.D.with banks

6 Loans and advances

7 Loans to other facters

8 Adj-head due to

9 Interst receivable

10. Value of assets

11.Revaluation of assets

12 Value of closing stock

a.Stores stock

b. Packing material

c. Stationery

d. Sugar

e. Sugar in process

f. Molasses

g. Molasses in process

h.Pesticides

i.Fertilisers

j. FMP.rawmaterial &

feed

13. Deficits

95082.98

3380265.98

14469317.43

228550.00

1267225.77

250000.00

13174873.00

1000000.00

75541003.33

1826488.57

139927312.64

95930271.73

19414206.14

1470696.50

40532.00

246711289.11

6298460.92

6619002.89

801596.61

205940.00

20474.20

47943.52

62872533.32



LIABILITIES AMOUNTS ASSETS AMOUNTS

1.Share Capital


a . Deposits

b. Borrowings



5. Reserves

6. U.D.P

7. Audit Fund


invested

141126700

31142758.72

404340806.12

49024988.90

154860078.29

236717735.32

64226.88

9695.57

24702.69

613187429.65

6. Cash on Hand

7. Balance with banks

c. Current account

d. Savings account

8. Share in other Co –



5 F.D.with banks



8 Adj-head due to


10. Value of assets



a.Stores stock

b. Packing material

c. Stationery

d. Sugar

e. Sugar in process

f. Molasses


h. FMP.rawmaterial &

feed

13. Deficits

141218.80

300175.23

7281944.83

228550.00

1267225.77

250000.00

9088634.14

1000000.00

62276338.42

1826488.57

129167811.22

95930271.73

19022714.51

7451525.95

28089.00

267746257.15

8293497.43

8222028.73

302613.45

20474.20

47943.52

613187429.65

-



1.Share Capital


a . Deposits

b. Borrowings



5. Reserves

6. U.D.P

7. Audit Fund


invested

140961400

29238886.65

266073587.95

40525798.40

107334318.84

232982844.55

64226.88

9695.57

24702.69

426367999.42

1 Cash on Hand

2 Balance with banks

a Current account

b Savings account

3 Share in other Co –



5 F.D.with banks



8 Adj-head due to


10. Value of assets



a.Stores stock

b. Packing material

c. Stationery

d. Sugar

e. Sugar in process

f. Molasses


h. FMP.rawmaterial &

feed

13. Deficits

1878931.06

8164182.67

9975877.82

228550.00

1271225.77

275000.00

6545331.94

1000000.00

57166458.77

1826488.57

126647509.22

95930271.73

20040138.64

153236.44

43449.15

79055944.52

2639446.16

10982539.23

----------

20474.20

47943.52

426367999.42

-


PROFORMA OF TRADING ACCOUNT FOR THE YEAR 2006-07

Dr Cr

Particulars Amount Particulars Amount

1. Opening Stock

a. Sugar

b. Molasses

c. Pesticides

2. Expenditure

3.Cost of Production

4. Pesticides purchase

267459792.80

7514240.77

116480.00

26676030.20

381097458.30

3307360.00

686171362.07

1. Closing Stock

a. Sugar

b. Molasses

c. Fertilizers

2. Sales

3. Misc.Income

246711289.11

6619002.89

205940.00

368853566.89

26098795.50

37682767.68

686171362.07


PROFORMA OF PROFIT AND LOSS FOR THE YEAR 2005-06

Dr Cr

Loss Amount Profit Amount

1. Interest paid

2. Expenditure

3. Last year Loss

4. Gross loss

39840440.66

17197181.81

405303194.91

37682767.68

500023585.06

1. Interest Received

2. Miscelleneous Income

3. Net loss

26265.24

1056276.76

498941043.06

500023585.06

BIBLIOGRAPHY

I.M.Pandey, “Financial Management”, vikas publishing house, New

Delhi, 1979.

E.V.Ramanamoorthy, Working capital Management, Institute for financial

management and research, Chennai, 1976.

John J.Hampton, Financial Decision Making, Reston publishing company,

Mumbai,1976.

S.C.Kuchol, Financial Management, Chitanya publishing house 1977.

fixed assets management

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