Telecom Billing: April 2024

E4 to E5 - Basic Study materials in Telecom Domain

Lesson 1 :

DDOs’ Role – Balancing Timely and Proper Settlements: Personal Claims

As in-charge CAO /IFA every possible effort should be made to ensure that-

All the cash books required to be maintained as per corporate office instructions are maintained by the DDO, written up regularly and the balances in these books agree with the various allied records like, the bank reconciliation statements, Trail Balance etc.

The cash balance for the unit is fixed and that the closing balance is always maintained within the sanctioned limit. Sufficient reasons exist wherever the balances exceeded the prescribed limit and that hey are properly recorded in the cash books.

Bank/Cash transactions are held with the bank with which the unit has been authorized to transact and that the authorization does not exist for more than one bank at one station.

The duties of DDO and CA are not entrusted to the same person.

Necessary security is obtained from the employee being appointed to work as cashier.

A cash chest is embedded in the all and is properly secured. The cash is kept overnight in the cash chest embedded.

The closing cash balances in all the four cash books are checked at least once in a month before signing the trial balance. these will provide information that remittances into bank are not unnecessarily delayed.

The keys of the cash chest are kept in the joint custody of cashier and the DDO.

A set of these key is handed over to the head of the office under acquaintance duly sealed.

The claims of staff are dealt with and settled promptly. Call for the applications pending for action and ensure that here is no abnormal delay in settlement.

The requisition for cash drawal is prepared keeping in view the instructions from corporate office and is submitted on the due dates prescribed.

Proper receipts for cash and other valuables are issued in the prescribed form ACG 67.

All statutory payments like Income Tax, Service Tax, EPF, ESI are remitted promptly within the due dates.

The various returns to corporate office and Circle office where necessary are submitted in time and a calendar of returns is maintained for the same.

All payments as far as possible are made through cheques only or by e-payment. No payment exceeding Rs.20,000/- is made in cash.

Proper arrangement exists for signing of cheques by two officers.

The specimen signatures of officers authorized for signing the cheques are communicated to the bank promptly.

Register of cheques cancelled is maintained properly and entries of all cheques cancelled are made in the register following the instructions on the subject and proper and complete for cancellation are recorded in the register.

The pay and allowances are drawn correctly drawn to the employees

A register of TALTC claims is maintained and necessary watch is kept on the prompt settlement of TA/LTC claims.

The claims for re-imbursement are cleared without delay

Requisite allotment for loans advances is obtained from corporate office, applications obtained, processed and paid to the eligible employees in time.

Proper accounting of GPF contributions and recoveries in respect of GPF are maintained and the applications there of attended to without allowing room for complaints.

The loans and advances are disbursed only after making entries in the retrenchment registers.

Proper broad sheets are maintained for the short term and long term loans advances and are submitted in time to the CCA.

All dues for payment to CCA are made within the time schedule prescribed for the purpose.

All Claims due for payment by CCA are raised in time and that their clearance is watched and reported to corporate office.

The pay fixation in all case has been done promptly and is in accordance wit the rules governing the same.

The service books of the employees are kept under proper control.

The SBs are maintained and postings are made regularly.

The pay bills are drawn in time and the disbursements are arranged without delay.

The leave accounts are posted regularly and are complete in all respects.

Salary accounts are opened for all staff and the salaries are remitted into the salary accounts of the employees and an intimation of the remittance is given to the employees concerned.

All the nominations due are received and kept with the service books and that necessary entries are made in the service books of the respective officials/officers.

The annual verification of services done regularly and is recorded in

the service books.

The service books are submitted to the CCA in all cases of completion of 25 years of service by the respective officials/officers. The services are got verified and communication thereof is given to the employee concerned.

Proper watch is kept over the retirements of employees due. Their pension applications are obtained in time, the pension calculations are made correctly and submitted to the CCA, sanctions obtained and the benefits disbursed to the employee concerned as far as possible on the date of retirement.

Cases for revision of pension where ever due are processed quickly and revised sanctions obtained from CCA.

Proper memorandum of distribution of work is prepared and maintained.

=======

Chapter-2 - Works Expenditure and Accounting

I. Register of Works

(a) The total amount of monthly expenditure in an estimate under cash is posted in the register of works so that a watch can be kept on the progress of expenditure against the sanctioned cost.

(b) The registers are posted every month from the ledger head register after submission of the monthly accounts to the Circle IFA.

(c) After completion of the posting for a month, the correctness is ensured by carrying out the reconciliation of the monthly postings under cash with the amounts booked under the monthly account (Trial Balance) for each detailed head of account. Misclassifications if any may come to light at this stage and may be rectified by issuing journal slips

(d) After posting and reconciliation for the month is over, a certificate to that effect should be furnished to the Circle IFA. The work registers are now maintained in the form of loose leaf Ledger or cardex system.

II. ACE-2 Accounts

As CAO(IFA) of the SSA in-charge of the works & Planning section, he should exercise the following checks by calling for the necessary records every month and as frequently as possible and review them with a view to ensure that --

1. The accounts are submitted in time by the field officers to the works section. The temporary advances are utilized for the purpose for which they are sanctioned and adjusted as soon as the disbursements, for which they were sanctioned were made.

2, The cases of utilization for purposes other than for which sanctioned are brought to the notice of the respective officers and also to the Head of SSA in case of recurrences and the filed officers concerned are instructed suitably.

3. The accounts received are checked by the works section as per instructions contained in Rules 229 to 239 of FHB Vol. III and disallowances if any are justified.

4. The disallowances are rectified by the respective authorities either by complying to the observations or by obtaining proper justification.

5. Interest as per corporate office instructions is levied in cases of delayed submission.

6. The register of temporary advances is reviewed regularly by the CAO/AO(works) at regular intervals and necessary action is taken in cases of delays by calling for the wanting bills.

7 The imprests / Ty. advances are closed quarterly as required by the instructions from

corporate office.

8 The amount returned by the field officers as unspent balance is properly accounted for by AO(Cash). The remarks given by the spending authorities in respect of return of cash are got certified by the AO(Cash).

9. The ACE-2 Accounts are checked in the SSA. The accounts and all the vouchers and

enclosures may be subjected to cent percent check and all the vouchers are initialed by the

JAO in token of having conducted the check.

10. The classification of expenditure on these accounts is checked by the works section and

indicated correctly.

11. The bills are countersigned by the competent authorities.

12. The expenditure incurred has been with in the financial powers of the officer countersigning

the bill. The approval of competent authorities in other cases is obtained and kept with the

voucher.

13. A brief notice of each case of difference of opinion in the matter of retrenchment between the countersigning officer and the A.O will be recorded with full particulars of reference by the latter in a Register to be maintained by him. This register will invariably be reviewed by the Circle Internal check parties at the time of each inspection and commented upon in their internal check reports submitted through the Circle Accountant to the Head of the Circle.

II Measurement Books

The Measurement books are maintained to effect payments for all works done otherwise than by daily labor. The payments are made on the basis of the measurements made in these books. The Para 10.2.8 of CPWD Account code deals with recording of measurements and upkeep of the Measurement Books. The Measurement book is maintained in Form-23. Since payments to contractors for the work done is effected through Measurement Books, these are regarded as very important accounting record.

As CAO/IFA of the unit, it should it be ensured that

All the MBs of a particular division are numbered serially

A register is maintained in Divisional Office Headquarters with the following details.

i. Serial number of each book

II Name of the sub-division to which the MB is issued

III Date of issue and

IV Date of return

The completed measurement books are returned promptly by the field units.

Stock register of MBs is maintained in sub-divisions also showing the names of the SDO and JEs to whom the MBs are issued.

Books which are, no longer in use, are withdrawn promptly even though it is not completely written up.

A record of movement of MBs should maintained in order to keep a track of MBs issued to different JEs of a sub-division.

The detailed measurements are recorded only by executive subordinates who are in charge of works and to whom the MBs have been supplied for the purpose. as required vide Note-1 of Rule - 178 of FHB Vol.III, The measurements are recorded neatly in the MB with the dated initials of the person making the measurement. The entries should ordinarily be made in ink. When it is not possible to do so, the entry should be made in indelible pencil and the pencil entries should not be inked over.

In case of running bills a reference to the previous measurements is given. If the job is completed, date of completion is noted in the prescribed place. If the measurements are first and final or on a running account, fact should be mentioned suitably against the entries in the MB.

IV Procurement Bills :

Purchase orders are placed by the tendering authority or other subordinate officers duly authorized for the said purpose, in terms of the agreements had with the suppliers. The purchase may be of one time transaction where first and final bill is preferred by the supplier. In some type of agreements, 5% or 10% of the amount due is withheld as per the terms and conditions of the agreement as a performance security or warranty of the material. The amount so withheld is released after completion prescribed period of warranty or installation and acceptance of the items

duly obtaining a certificate of the performance from the user.

Each set of measurement should contain the following entries

i. Bills for work done---

ii. A)a) Full name of work as given in the Estimate.

iii. b) Situation of work

iv. c) Name of Contractor.

v. d) Name and Date of Agreement

vi. e) Date of Work Order to commence work.

vii. f) Date of actual completion of work.

viii. g) Date of Measurement.

ii. Bills for supply of materials :

a. Name of supplier

b. No. and date of agreement or Supply order.

c. Details of source of supply like from stock or by purchase from other source.

d. Dt. Of written order to commence supply

e. Dt. of actual completion of supplies

f. Dt. of recording measurements.

· If a Measurement Book is lost, an immediate report of the facts of the case together with an explanation of all parties concerned responsible for the loss should be made promptly to the Chief Engineer, who is empowered to sanction the write-off of the lost Measurement Books.

On receipt of the bill along with MB, the contents of the bill will be subjected to precheck with reference to the respective entries in the MB before pass order. Thereafter the bill with MB shall be sent to AO/AO for check and for issue of pay order.

IV. Procurement Bills

_ The supply of stores is in accordance with the Purchase order.

_ Consignee particulars are in accordance with the Purchase order.

_ Quantity is in accordance with the Purchase order i.e., neither excess nor less

_ Rate of the stores supplied, Sales tax, excise duty are strictly in accordance with the clauses in the purchase

order and necessary excise gate pass produced along with the bill.

_ The Security deposit (or performance security) is available in the form of Cash or Bank guarantee. If not

available, it is to be ensured that the firm is exempted from payment of performance security and valid proof

is to be produced by supplier in support of his claim for having exemption.

_ Inspection certificate issued by the Quality assurance wing is enclosed.

_ Proof of dispatch like copy of Railway receipt or parcel way bill is produced (in case of road transport,

necessary certificate of receipt of stores from the consignee is to be enclosed in the bill.)

_ The supply has been made within the due date (or the date duly extended by the competent authority) of

delivery. The date of offering the stores for testing will be criteria for this purpose. If the stores have not

been supplied on or before the due date, liquidated damages at the rate prescribed in the purchase order is to

be recovered. Certificate of guarantee or warranty is enclosed.

_ Stores have been dispatched in accordance with the terms & conditions of the purchase order. It has to be

ensured that in case of supplies where freight is to be borne by the supplier, the material has been sent on

"freight paid" basis and the amount is not claimed in the bill.

_ Documentary evidence towards the cost of raw material has been produced whenever price variation is

involved as per the Purchase Order.

_ If the payment is for the first bill against a purchase order, necessary indemnity bond is produced in the

prescribed proforma and accepted by the competent authority and the latest income tax clearance certificate

is produced if not done earlier.

_ In case of a final bill, it is also to be ensured that:

_ The bill is accompanied with the bill copy payable challan issued by the consignee.

_ The bill has been claimed for the actual quantity received by the consignee in good condition.

In some contracts, a stipulation is made in the agreements that a part payment will be made on proof of dispatch of stores. In case of some PSUs even 100% payment is made on proof of dispatch of stores. In such cases, invoices, inspection reports, railway or lorry receipts etc., are received by the paying officer even before the stores reaches consignee or stores is received, but the packing cases have yet to be opened. In such cases, terms & conditions in purchase orders/agreement indents issued by the purchasing officers, consignee particulars, contract period, documents received with the invoice or proforma bill, inspection report of Quality assurance or departmental officer issued before packing etc., have to be checked properly before authorizing payment. This payment has to be treated as advance payment to contractor under the concerned schedule. Whenever material is acknowledged by the consignee and goods received note or necessary intimation is received by the stores accounts section, necessary adjustment has to be made in accounts debiting the concerned head like - India inventories, works in progress etc. and crediting advance payment to contractor. The clearance of APC should be reviewed every month and follow up action taken by making reference to the suppliers and indenting officers.

Monitoring of Works Expenditure

Financial Stock Taking Reports

Financial stock taking report '(FST) is prescribed to examine the progress of work and correlated expenditure against each component of each project. These Financial Stock Taking Reports are prepared half yearly. The reports are of very important nature, where the Accounts Wing (IFA & AO) are to involve with executive for

correct preparation and certification. These FST reports indicate physical targets, procurements, utilisation, percentage of work done and correlated percentage of expenditure against each component.

Preparation of FST Reports

• The FST reports are drawn up in the prescribed proforma in respect of all telecom projects costing Rs.5 crores and above and submitted to the - Corporate Office twice a year for the period ending 30th September and 31st

March and should reach the - by 30th November and 30th May respectively. The accuracy of the information furnished in the FST reports will be duly verified by the Heads of Circles and IFA attached to them and the prescribed certificates of having carried out such check will be given by them before submission to the - HQ.

• The FST reports for projects costing Rs.1 crore and above but less than Rs.5 crores will also be drawn up in the same manner as mentioned above. Such reports will be reviewed by the Head of Circle and IFA attached to them very carefully. These FST reports are not however required to be submitted to Corporate Office, but a consolidated review report in the prescribed proforma will be submitted to it along with the FST reports for projects costing Rs.5 crores and over.

• FST reports in respect of projects costing between Rs.25 lakhs and Rs.1 crore will however continue to be reviewed by the Head of Circle and IFA of the Circle concerned. No review on such reports will be submitted to the Corporate Office.

Works in Progress

Major portion of works execution mostly relate to building, works, installation of equipments under A&P, Erecting Lines & Wires, Masts & Aerials, Laying of cables/fiber optical fiber cables. This expenditure is booked initially under "works in progress" and whenever "management certificates" are received certifying completion

of work, the expenditure will be transferred to "fixed assets" for asset formation according to accounting policy.

In this connection it is imperative to ensure the "works in progress" are completed well in time and converted into Fixed Assets. Only when the work-in-progress is converted into asset, the claim for benefit of "depreciation" can be obtained for Income Tax purpose. While the work-in-progress should be completed at the earliest in any case, it should also be ensured that more than one year oild item is not allowed to remain in work-in-progress without valid reason.

Register of Works

Register of works is in one way form as Sub ledger of works expenditure compiled from works vouchers, journal entries, schedules etc. This collective record of the expenditure on works in SSA is maintained by them in form ACE-23. This register brings together from month to month the total amount of cash and adjustments

chargeable to each sub or detailed head of account included in an estimate and thus enables a watch being kept on the progress of work and of expenditure against the sanctioned amount of the estimate, and against the amount allotted for the execution of the work. This register will be reviewed by CAO/IFA and agree with booked figures in Trial balance.

Completion Reports

As soon as any work is completed, completion report in prescribed form is prepared and indication is made against respective estimate in the Estimate Register. This completion report will be subjected for scrutiny by IFA of the unit. There should not be undue delay in release of Completion Report of any work which has been physically completed. SSA head/IFA are required to keep this important matter under constant observation and take such steps which will ensure that delays do not occur.

Settlement of Outstanding CRs

The position of pending CRs will be reviewed by IFA of SSA and put up the SSA Head with his observations. Statement of outstanding completion reports will be prepared quarterly for scrutiny and necessary action by the Head of the SSA/Unit. Completion report is different from "Management Certificate". Management certificate will be issued as soon as a certain portion of work is completed and ready for use according to Accounting Policy. This certificate is only to facilitate capitalization of that portion as Fixed Asset. The completion report is with reference to total expenditure on completion of work as a whole in respect of certain detailed estimate, after allowing any credit etc., This enables for review of excess expenditure etc. over provision made, calling for revised estimate where necessary.

=======================

Chaper-3 Budgeting and Cash Flow Management

1. Budget

Introduction

Budget is a best tool in the hands of management to overview:

• Funds Management

• Projects undertaken in the business, its expenditure and its further requirement

• Exercising expenditure control

• Assessing financial capability of the organisation

• To modify / Augment the business planning

Budget in -

The budget in - is compiled under three categories:

• Revenue Budget

• Capital Budget

• Cash Budget

The following tabulation will indicate the composition of different Budgets in -.

BUDGET
Revenue (Op.Exp)	Capital (Cap.Exp)	CASH
Revenue (Op.Exp)	Capital (Cap.Exp)	Requirement of fund	Monthly Cash flow Statement
Salary	Land	For Operation Account Every 10 days	Collection Accounts
Medical	Building
Wages	A&P
Overtime	Elect. Instln
LTC	Lines & Wires
Pension/Leave Salary Cont	Cables
Maintenance Exp	Subscr.Instnl.
Business Promotion & Mkg.

Budget Heads

Capital Works : Schedule 105 to1 07 - Fixed Assets

Schedule 114 to 116 - Works in Progress

Operating Expenses: Schedule 150 to 166 - Remuneration

Schedule 171 to 185, 192 - Office & Administration

Schedule 189 to 191 - Depreciation

Schedule 195 – Interest

Capital Works Programme

• The capital works programme containing proposals for budgeting of the capital works to be submitted to Corporate Office, during Feburary in the forms 'A','B' and 'C'.

Capital Works Programmed (February)

The capital works programme should be thoroughly scrutinized before submission to the corporate Office by the planning branch and the IFA of the circle office.

Capital Budget

Capital Expenditure in - primarily relates to Acquisition of Land, Constructing Telephone Exchanges, Procurement of equipments, Line and Wires, Laying of cable etc.

Formulation of RE/BE

Points to be kept in view while formulating Budget-Estimates are:

• The necessity for individual projects, newly proposed as well as works –in progress should be fully examined from the point of view of the relevance of the project to the expansion or improvement of the network, the essentiality of the specific project and its profitability.

• The works-in-progress may turn out to be not relevant and therefore not justifying further expenditure for the following reasons.

(i) Prolonged gestation of the projects concerned.

(ii) Recent developments, like policy decisions regarding changing technology, such as digitalization,

change in Product-mix, from factories, like phasing out of electro-mechanical system etc.

• Decision should be taken in such cases regarding abandoning of the project, taking care to find ways and means of salvaging the investment already made.

• In case of projects which have been included in the Demand-for-grants after the above scrutiny, the listing may be done on the basis of priority, so that the directorate could decide about any possible deletion in the context of inadequacy of allotment of funds.

• In the case of works costing less than Rs.5 Cr each, where a lump sum allotment is asked for, a similar exercise, as mentioned above should be under taken so that only essential and remunerative projects are included in the programme.

• The above mentioned exercises should be conducted by both the planning and

budget branches jointly.

RE/BE Statements in respect of Capital works is to be submitted to CO, - in forms 'A' to F during September.

STATEMENT “A”

a. Works costing Rs.5 crores and above each (WIP & New works ) which are already sanctioned should be included. Instructions issued from time to time regarding Zero based budget may be taken into account in framing these estimates. Whenever a Budget project (new works or WIP) is proposed to be dropped reasons for the same may please be given against the entry concerned item.

b. Care should be taken to give “sanctioned estimated cost” component wise with reference to the project estimate sanction only. The practice of giving the sanctioned cost with reference to detailed estimates leads to confusion.

c. The sanctioned cost, expenditure and funds requirements be shown component wise strictly in columns prescribed. At the same time the total sanctioned cost, total expenditure and total requirement for each work should be indicated at the foot of the entry under each of the columns.

d. No demand under Stores may be made as there is no store item in Corporate set up.

STATEMENT ‘AA’

This will include service wise, account head wise and component wise consolidation of demand in respect of works included in Statement “A”. The statement is found necessary as the circles carry the demand under Category “A” to the consolidation of total demand and it has not been possible to verify the correctness of such carry over conveniently within a short time and to compile important analysis of demand.

STATEMENT ‘B’

a. Lump sum requirements for works costing less than Rs.5 crores including all overheads should be included. The requirement should be arrived at after consolidating the work wise demands. But work wise details need not be furnished in the copies or statement sent to Corporate office. Demands may be compiled and minor head wise and vertical and horizontal columns total should be struck.

b. From the year 1996-97 onwards the expenditure incurred on the provision of Village Public Telephone is to be classified separately under the new head of account 1150600.

STATEMENT ‘C’

The requirement of works originally estimated to cost less than rs.5 crores (including all over heads) each but where the expenditure has exceeded Rs.5 crores should be included. Revised sanctions should invariably accompany or reasons as to why the estimates could not be revised should be indicated. It may be ensured that the requirements for these works are not included in Statement “B”.

STATEMENT ‘D’

This is the final consolidation.

STATEMENT ‘E’

Material input wise break up of requirements on capital works should be furnished in duplicate separately for the total projections made. The requirement is to be worked out based on physical targets under different schemes for current year and for ensuing year.

STATEMENT ‘F’

This is the statement showing the profitability of projects under Capital works to enable the - to assess the expenditure on non remunerative projects for the purpose of “USO” funding.

Allotment of Funds for Capital Works Expenditure:

• The funds for Capital works expenditure comprise -

(i) Specific provision for each project costing Rs.5 Cr and above.

(ii) Lump sum provision for all other works.

• This distinction made in the budget determines the method by which allotments are placed at the disposal of the various authorities for execution of works.

• Funds for major works, costing Rs.5 crores & above are allotted by the Corporate Office to Heads of Circles according to the components of each project.

• In respect of all other works, allotments are made account head-wise in lump.

• Allotments of funds are made, subject to the following conditions:-

a) That no appropriation of funds is to be made against any unsanctioned detailed estimate.

b) That no appropriation of funds is made beyond 10% of the sanctioned cost of a detailed estimate, and

c) That no appropriation of funds is made which has the effect of exceeding the sanctioned cost of the project beyond 10%

Expenditure Control

The Corporate office is ultimately responsible for controlling the whole expenditure against the sanctioned grant and in turn Heads of Circles are required to cooperate in the exercise of this control. Control in relation to budget allotments:

EXPENDITURE CONTROL

(i) That expenditure should not be incurred under any head in excess of the funds allotted.

(ii) That if any time it becomes apparent that there is likely to be a surplus under any head, then the

amount of the probable excess must be promptly surrendered.

These two objects can be attained only by the adoption of a systematic watch over expenditure and by a monthly comparison with grants. For purpose of control every administrative officer should insist on the submission by each of his subordinate officers amongst whom he subdivides his allotment of a regular monthly basis. The same can be watched through the registers and various statements prescribed.

Non Budgeted Works (Project Costing 5 Crores & Above)

Works not provided for in the sanctioned budget are termed as “Non-Budgeted works. No expenditure can be incurred on Non Budgeted works with out the prior approval of the competent authority. In case of urgency, recourse can be had with the approval of the competent authority.

Demands for funds for execution of projects beyond sanctioned cost

In some cases funds are demanded in BE/RE/FG for individual projects beyond the sanctioned cost, stating that the revised project estimates are under preparation. Orders of the - are clear that funds cannot be allotted beyond the sanctioned cost.

Since the projects should not be starved of funds during advanced stages of execution, it has been decided that as soon as the expenditure on a project reaches the level of 75% of the sanctioned cost, a review should be under taken to examine if the project can be completed within the sanctioned cost. If it is anticipated that the cost is likely to go beyond 10% of the sanctioned estimate, immediate action should be taken to prepare a revised project estimate and have it sanctioned well in advance.

Revenue Budget

The Revenue receipts and Working Expenses are forecasted and worked out and RE/BE statements are compiled in Annexure-A, B and C.

Annexure-A (Working Expenses):

The Estimation is projected in Part-A and Part-B distinctly for Employment (Remuneration) and expenditure on Office and Administration respectively. The actual expenditure for last three years are taken for comparison. The actual for the first four months of current financial year and estimation for remaining eight months are worked out. The estimation for BE is also worked out and projected. While furnishing requirements of funds care is taken to provide pension and leave salary contribution of employees. Instructions are issued by - HQ from time to time for compiling the RE/BE statements keeping in view of economy measures and control of expenditure.

Annexure-B (Revenue Receipts)

The Estimation of revenue is worked out on the basis of number of telephone lines, telex lines, WLL lines and CMTS by applying average revenue for such lines. A target of additional lines for the current year and also the expansion programme for ensuing year are taken into account for estimation of revenue receipts.

Annexure-C (Establishment Expenditure)

The Establishment expenditure on salary is estimated in relation to the actual / estimated number of posts. Proposals for creation of new posts are also taken into account for estimation of salary expenditure.

New Items of Expenditure

No provision for new expenditure may be included in the budget without the prior approval of competent authority. All proposals for new expenditure will be submitted for the approval of the competent authority. All proposals for new services, expansions to existing services expenditure and proposals for additional expenditure likely to involve excess over grants necessitating an application for a supplementary grant should be placed in the statement. No expenditure should be incurred without the approval of the competent authority. It is most important that proposal involving new expenditure that it is desired to introduce during any particular year, should be submitted in ample time before the prescribed date to admit of their being fully considered and approved and taken into

account for purposes of the preliminary schedule of demands relating to that year. In preparing this statement of new items of expenditure should be made in respect of increase which is of a permanent nature and those which are seasonal or temporary. These should be grouped separately.

Cash Budget

The Cash requirement of each SSA and Circle HQ are forecasted once in 10 days against Capital and Working Expenditure with reference to proportionate Budget Allotment. Funds are released by Corporate Office after scrutiny of requirement through banking channel. This arrangement gives effective control on spending units for regulating the expenditure within budget allotment. Monthly cash flow statement of Collection Accounts is prepared & sent by SSA to Circle Office. Circle Cash flow statement of Collection Accounts is prepared by Circle & sent to Corporate Office. It will ensure smooth flow of funds from SSA/PAU/Circle to Corporate Office.

Cash Flow Management

1. Introduction:

Cash, the most liquid asset, and also referred to as the life blood of a business enterprise is of vital importance to the daily operations of business firms. Its efficient management is crucial to the solvency of the business because cash is the focal point of the fund flows in a business. 'Cash' refers to the cash as well as the bank balances of the company at the end of the accounting period, as reflected in the balance sheet of the company. While profits reflect the earning capacity of a company, cash reflects its liquidity position.

What is Cash?

There are two ways of viewing the term 'cash'. In a narrow sense, it includes actual cash in the form of notes and coins and bank drafts held by a firm and the deposits withdrawable on demand. And in a broader sense, it includes even marketable securities which can be immediately sold or converted into cash.

2. Need For Cash Management:

• Transaction Motive

A company is always entering into transactions with other entities. While some of these transactions may not result in an immediate inflow/outflow of cash (eg: Credit purchases and sales), other transactions cause immediate cash inflows and outflows. So firms always keep a certain amount as cash to deal with routine transactions where immediate cash payment is required.

• Precautionary motive

Contingencies have a habit of cropping up when least expected. A sudden fire may break out, accidents may happen, employees may go on strike, creditors may present bills earlier than expected or debtors may make payments later than warranted. The company has to be prepared to meet these contingencies to minimize its losses. For this purpose, companies generally maintain some amount in the form of cash.

• Speculative motive

Firms also maintain cash balances in order to take advantage of opportunities that do not take place in the course of routine business activities. For example, there may be a sudden decrease in the price of raw material which is not expected to last long or the firm may want to invest in securities of other companies when the price is just right. These transactions are of a purely speculative nature for which the firms need cash.

• Lack of proper synchronization between Cash Inflows & outflows

In the case of reasonably well-managed profitable companies, the total amount of cash inflows for the year is usually higher than the total amount of cash outflows. However, the company can have spells of cash deficits and surpluses. This kind of a situation arises mainly due to lack of proper synchronization between cash inflows and outflows. Seasonal industries such as tea, jute are typical examples for mismatching of inflows and outflows.

• Asymmetry in the consequence of 'shortages' and 'surpluses' of cash

An argument comes out with an interestingly that the Finance Manager is more worried about the situation of an 'uncovered cash deficit' than the situation of surplus cash lying idle in the bank. This attitude on the part of the Finance Manager is quite understandable as the deficiencies in cash management are more likely to come out into the open during a period of cash crunch than in a period of cash surplus. As the opportunity loss sustained by the company for keeping excess cash at bank is not likely to affect all sections of the employees while inability to meet wages and salaries does, the Finance Manager may feel tempted to err, if at all, on the conservative side. This will have the impact of the need for additional cash lying in bank.

3. Objectives of Cash Management:

All or some of the reasons explained above give rise to the company's need for cash. The question will naturally arise as to the amount of cash to be maintained by a company. While trying to answer this question, one should not lose sight of the fact that cash is the most liquid of all the assets and can be put to alternative uses. So, idle cash has an opportunity cost as they could have been invested to fetch a positive return. Thus the objective of cash management can be regarded as one of making short-term forecasts of cash position, finding avenues for financing during periods when cash deficits are anticipated and arranging for repayment/investment during periods when cash surpluses are anticipated with a view to minimizing idle cash as far as possible. Towards this end, short-term forecasts of cash receipts and payments are made in the structured form of cash budgets, information is monitored at appropriate intervals for the purpose of control and taking suitable measures as arranged by the situation.

4. Factors of Efficient Cash Management:

Cash reports help in monitoring actual data for comparison with the budgeted amounts, understanding the reasons for the deviation between the two and in the light of this knowledge, controlling and revising the budget on a regular basis. The efficiency of cash management can be enhanced considerably by keeping a close watch and controlling a few important factors briefly described and illustrated below.

Prompt billing and mailing

A time lag occurs from the date of dispatching goods to the date of preparing invoice documents and mailing the same to the customers. If this time gap can be minimized early, remittances can be expected, otherwise remittances get delayed. In case of one organization, it had been observed that the time lag was as high as one week. Subsequent scrutiny revealed that the reason for delay was due to the practice of preparing bills and mailing them in 'bunches'. As a result, the bills on earlier ales got delayed resulting in late realization. Once the reason for the delay was identified, corrective measures were taken to prevent the bunching bottleneck of bills. This resulted in the reduction of delay in remittances. Thus accelerating the process of preparing and mailing bills will help reduce the delay in remittances and early realization of cash.

Collection of cheques and remittance of cash

Delay in the receipt of cheques and depositing the same in the bank will inevitably result in delayed cash realization. This delay can be reduced by taking measures for hastening the process of collection and depositing cheques/cash from customers. Here also an example will help in understanding how this can be achieved. An organization having branches in all the districts of West Bengal had been selling fertilizers to a great extent by a vast network of consignees who will get a margin for the services rendered. Quite often the consignees were making remittances to the Head office in Calcutta resulting in delays in realization of cash. An in-depth study revealed that delays can be considerably reduced by adopting the following procedure:

• The consignees should be asked to prepare challan-cum-invoice on credit sales which would cut-short the work of raising separate bills.

• Non-operating collection accounts had to be opened in the district level branches of the Head Office bank into which cheques and cash from sales are to be deposited by the consignees, under advice to the Branch Manager. The amounts so deposited are to be transferred to the main bank account of the Head Office telegraphically, under advice to the Head Office. The Branch Managers/their assistants should make occasional visits to the bank branches as also to the consignees for ensuring compliance with the instructions issued.

The above procedure considerably reduced the delay in receipts with a resultant decrease in the incidence of interest on the cash credit account of the Head Office.

Centralized purchases and payments to suppliers:

The Company can get some advantages, as listed below when purchases and payments to suppliers are centralized at Head Office.

• By the sheer size of purchase there is a scope to obtain bulk purchase discounts on certain items which will effectively reduce the cost.

• As cash receipts get consolidated at the Head Office, the disbursement schedule can be more effectively implemented. As far as possible, the company can make an arrangement with suppliers so that the payment schedule matches with the schedule of cash receipts.

• As far as possible, cash discounts on purchases can be utilized, preferably by remitting cheques on the last day for utilizing such facility. This will release cash within the discount period and the company6 can also avoid the implicit rate of interest underlying the failure to avail cash discount as this rate will be considerably high.

• Under the centralized purchase system, arrangements can be made with the suppliers for direct shipment of materials to the company's units located at different parts. This will reduce to some extent the total cost of transportation, handling and storage.

5. Treasury:

The treasury in the finance department deals with liquid assets and thus the treasurer has a major responsibility of being a custodian of cash and other liquid assets. The other functions of the treasurer are:

• Formulate capital structure for the organization in accordance to business goals and implementation of the same.

• Management of liquid assets including cash.

• Acting as a Cashier

• Role of an authorized signatory on payment of cheques including the authority to approve such cheques.

• Reconciliation in checking accounts.

• Overall management of the credit functions of the firm.

• Authority to utilize surplus cash of the company in short term beneficial investments.

• Establishes the company policy with respect to decision on trade discounts and vendor payment aging.

• Establishing relationship with the Bankers and investors.

All the above functions are implemented by the treasury with the cooperation of the Cash manager, finance manager and the credit manager.

Controlling Functions:

Just as the treasurer deals with the liquid assets, the controller of the organization has to record the transactions of these liquid assets. It is the combined and effective working of both the departments that gives rise to an effective system of internal controls. Some of the functions of the controller are:

• Records all the transactions in the general ledger, the accounts receivables and the accounts payables sub ledger, transactions with respect to fixed assets such as depreciation, inventory control etc.

• Looks into the aspect of taxes and insurance.

• Keeps track of the company's short-term investments by recording and reconciling the transactions with those of the brokerage firms.

• Looks into the regulatory aspects and implementation of the company's policy on trade discounts and receivables aging.

• Acts as a Planning director

• *Keeping a record of the attendance of the employees, their movement timings so as to facilitate in preparing pay roll.

• Reporting information to the management. To assist the controller in accomplishing the above are the Tax Manager, Data Processing Manager, Cost Accounting Manager and Accounting Manager. Thus, the function of financial accounting, internal audit, taxation, management accounting and control, budgeting - planning and control are accomplished.

6. Other Aspects:

The size of the treasury depends on the size of the organization. Big companies usually the public limited companies and large private sector giants may have the structures as mentioned above or similar to it. However, small fledging organizations usually have the Directors to take major policy decisions and fulfill the role of both the treasurer and controller. He will have the Finance Manager, Accounts Officer and cashier to look into the aspects of the implementation and thus assist him or even in some cases some of the officials are responsible for more than one of the above listed functions. Once the rules and regulations are framed in respect of various functions of the treasury, it is important that these standards of accounting and control are properly implemented and strictly adhered to.

Cash Flow SSA Statement

a) The IFAs of the SSAs/PAUs are having much important role to play in ensuring that the funds collected at various collection centers in the SSAs/PAUs reach the Corporate Office with minimum possible delay through the Focal point branch. But it is observed that the funds that have been collected are not reaching the Corporate Office expeditiously. The factors adversely affecting smooth funds flow and remedial measures suggested are indicated in the enclosed 'APPENDIX'.

b) With a view to strength the hands of IFAs to exercise more control on certain sensitive areas, a revised format called ' Cash Flow SSA

Statement' has been designed along with 2 Annexure. These formats have been prescribed keeping in view the requirement of pursuit action to be taken at SSA level and to give feed back to circle and Corporate Office. The formats have been designed in a simplified manner that the data can be complied with ease, soon after closer of collection cash/bank books.

c) This statement is to be prepared by each of the Primary Accounting Units/SSA in triplicate, along with Annexure A and Annexure B furnishing specific review remarks, wherever, they are prescribed. Two copies of the statement are to be forwarded so as to reach Circle Office by 10th of the following month, retaining the other office copy.

d) The IFA of the SSA/PAU should constantly monitor to ensure that:

i) All collections are remitted to bank on the same day by arranging special remittance in the evening if need be, with the cooperation of / coordination with the banks by ensuring that minimum cash balance only is kept in office at the end of the day,

ii) Cheques / DD received are deposited into bank on daily basis and their clearance are periodically watched with an ultimate aim of keeping the un-cleared items always at less than 3 months old and in any case not beyond 6 months, as the validity of any instrument is 6 months only( For Govt. Cheques it is 3 months) iii) The banker remits the total amount ( cash remitted to bank plus amount cleared buy it) to Focal point branch in such a way, that the closing balance at credit in collection account in the bank at the end of the day should be less than Rs.1000/-, failing which , interest is to be claimed on the amount in excess of Rs.1000/-

iv) Special efforts are to be taken to liquidate excess debit/ clear excess credit, by deputing a responsible officer / go himself to the Bank so that these items should not appear / continue in the next month.

Cash Flow Circle Statement along with an annexure

a) The information as received from SSAs/PAUs vide para 3 above is to be consolidated in the Circle Statement striking the totals of each column, to depict the status of the Circle as a whole and forward it to " the Dy. Director General (BBF) Room NoB:-501, Statesman House, 148 Barakhamba Road, New Delhi 110001, So as to reach by 15th of the following month. The statement for April, 04 should reach this office by 17th May, 2004 along with the annexure; and one copy of statement received from SSA/PAU along with Annx A and B, retaining the other as office copy.

b) The Circle IFA will review the statements received from SSAs/PAU along with annexure A&B and satisfy himself about the remarks furnished by the IFAs of the SSA/PAU, and on the status of the work of the SSA/PAU particularly keeping in view the instructions contained in para 3 above and furnish clear remarks in the Cash Flow Circle Statement against the SSA/ PAU concerned, besides indicating the nature of action taken against erring units to bring the position up-to date, So as to appraise the position to the Director (Finance). The Circle IFA will further review and arrange to ensure that the Focal Point Branch remits the amount to Corporate Office New Delhi branch on daily basis, of all amounts in excess of Rs.1000/-

APPENDIX

FACTORS AFFECTING SMOOTH FLOW OF FUNDS FROM SSAs/PAUs AND SUGGESTIONS FOR IMPROVEMENT.

SL	Factors affecting smooth funds flow	Remedial measures suggested/ Nature of corrective actions to be taken by the IFA of the SSA/PAU
1	Retention of heavy cash balances in office	a) Every effort should be made to remit the entire collections of the day, to the bank on same day. If not, collections made up to a specified time should invariably be remitted to Bank. b) Proper liaison is to be maintained with the bank so that more than one remittance can be made during the day, to keep the minimum cash balance. Evening Counters if any available may be utilized for making remittance of money. c) The cash collected after making last remittance of the day, should invariably be remitted on the next working day.
2	Delay in clearance of Cheques deposited in to bank	a) Bill collection systems wherever computerized should be in a position to print the challans with reference to Code Names of the bank already fed into computer system. On closure of day's transactions, Cheques are to be attached to the printed challans and remitted to bank. b) Arrange to prepare separate challans for Banker's Cheques / Cheques issued on the same branch, so that these can be cleared on the same date. Mixing up of outstation Cheques with these instruments may some times contribute for delay for clearance of total amount of the challan. c) If the volumes of cheque received are more, preparation of separate challans for each bank under same bank code will quicken the process of clearing. d) Arrange to obtain credit scroll/bank statement at frequent intervals , depending on size of transactions and tendency, e) The register of Cheques received / deposited in to bank and cleared (ACG 28) is to be
3	Excess debit adversely affecting funds position	a) Collections account will have debits on account TT sent and bank charges (in respect of SBI). Any other debits including regularization of earlier excess credits should be properly explained in the bank statement. Immediately on noticing of such debits, necessary accounting adjustments must be made/ the case must be taken up with the bank for rectification. Immediate attention is required to be paid, as any delay may ultimately leads to frauds and non-availability of records. b) Cheques issued by the unit might have been wrongly debited by the bank in collection account instead of in operation account. Non-pursuance with bank will affect bank reconciliation work of both collections and operation accounts.
4	Excess credit	Normally no bank gives excess credit. Such things may occasionally happen due to clerical mistakes, which can be rectified by a simple visit/ a phone call to bank. The banker will not give any credit under the nomenclature "excess credit". It is the SSA/PAU that finally arrives at this amount after pairing the credits as available in the bank statement (and credit scrolls given separately if any) with the Register of Cheques received, deposited and cleared. The possible excess credits are generally due to: a) Mis-match of amount credited with the amount contained in the challan. The bankers at both the ends might have deducted charges and credited for a lesser amount than the amount indicated in the challan for ' outstation Cheques'. The banker is to be approached to supply details and difference if found within the tariff, can be classified to ' bank charges' and the total amount can be cleared. b) Non-furnishing of details of credits given. The SSA may find it difficult to pair the lump credit given by the bank, without furnishing details properly. Pursuance with bank for getting of challan wise/ credit wise details solves the problem. c) Mixing up of credit of other - units working in the same station / other Govt. Depts.: In stations where there are more than one - unit and if the accounts of all of them are maintained in the same bank, the banker might have wrongly credited the collections of one unit (say electrical, civil, maintenance, projects, factory, stores etc.,) into another account. Immediate pursuance with bank will solve the problems of both units.
5	Bank charges	Any excess of bank charges over the scheduled tariff will have an impact of reducing the credit balances of -. Such cases are to be reviewed and pursued with bank for regularization.
6	Delay in transfer of Funds by link branches by retaining - funds with them	a) Cash remitted by - units and amount cleared by bank in respect of Cheques/ DD remitted to Bank forms credit balance in collection accounts. This amount in excess of rupees 1,000/- is required to be remitted to Focal point branch for outward transmission to the accounts of Corporate Office. It is observed that most of the Link Branches are not promptly remitting the amount, particularly on Fridays, in order to maintain their cash reserves. This is adversely affecting the funds position of corporate office, as they become the main sources of revenue. The IFAs of the SSAs/PAUs should monitor to ensure that banks remit the TT promptly. b) Any delay in clearance of Cheques / DD deposited into Bank; heavy retention of cash in collection accounts, attract interest. The IFAs are therefore required to monitor the position and claim interest in all cases of delay, so that - not only earns interest , but also brings pressure
7	Time limit of clearance of Cheques / DDs deposited in to collection account	As per Negotiable Instruments Act, the validity of any instrument is only 6 months from the date of issue (3 months for Govt. cheques from the first of following month). It is seen that in some SSAs/PAUs, Cheques deposited into collection accounts from October 2000 Onwards are still shown under "Cheques deposited into bank but not cleared". The IFAs of SSAs/PAUs should continue to review all cases where the validity exceeds the prescribed time limit, take proper action to write back them after getting necessary confirmation from banks besides taking action to recover the dues from the concerned parties and ensure that no outstanding should be more than 6 months old.
8	Dishonor of Cheques	This is an important area, which affects the revenue of -. As per existing orders, Cheques cannot be accepted from the persons whose Cheques are frequently being dishonored and their names are to be black listed. When Cheques are dishonored immediate action should be taken to get the amount realized besides passing necessary entries in records.

Note: Where ever detailed Heads of Accounts are available, Booking should not be made against Main Heads of Accounts.

=====================

Chapter 5 : Accounting Standards

Accounting Standards:

If accounts is the language of business, Accounting Standards may be stated to be the grammar of that language. These established standards that are mandatorily to be complied with to ensure that financial statements are prepared in accordance with the generally accepted accounting practices and that auditors carry out their audits also accordingly. Accounting standards provide for appropriate disclosure norms to add value to the preparation of accounting statements. The need for accounting standards flows directly from the objectives of financial statements and reporting. Accounting standards address the core issue of information needs of the stakeholders in a business. Accounting standards are also an effective way of ensuring managements’ compliance to ethics, consistency and business transparency. It is also important to note that the Accounting Standards are supplementary to the laws of the land and do not substitute their provisions in any manner.

Accounting Standards are therefore

• Guidelines to direct as to how the items which go to make up the financial statements should be dealt with in Accounts and presented in the Annual Accounts

• Norms of Accounting Policies and practices by way of codes i.e., codification of Generally accepted Accounting principles

• Provides a structural framework within which credible financial statements can be produced

Objectives of Accounting Standards

• Brings about uniformity in financial reporting

• Ensures consistency and comparability in the data published by the enterprises

• Consequently enhances the Quality and the degree of dependability of the financial statements

Significance of Accounting Standards

• Useful to investors assessing the yield and risk of alternative investments

• Will raise the standards of the audit in its task or reporting on the financial statements

• Meaningfulness of the numbers in the accounting reports for the purpose of economic planning, market analysis etc,

• Confidence that user groups have in the fairness and reliability of the financial statements

Accounts to comply with Accounting Standards

The Companies (Amendment) Act, 1999 has prescribed this requirement by amending Section 211 that every profit and loss accounts and balance sheet shall comply with accounting standards. It is further provided by the amendment that if there is any deviation from the prescribed standards, the annual accounts shall state:

1. The fact that there has been a deviation,

2. The reason for such deviation, and

3. The financial implication of the deviation.

is further provided by the amendment that for the purposes of this section ‘Accounting Standards’ means such standards of accounting recommended by the Institute of Chartered Accountants of India as may be prescribed by the Central Government in consultation with the National Advisory Committee on Accounting Standards.

List of Accounting Standards

• Disclosure of Accounting Policies (AS-1)

• Valuation of Inventories (AS-2)

• Cash Flow Statements (AS-3)

• Contingencies and Event occurring after the Balance Sheet Date

• Net Profit or Loss for the Period, Prior Period Items and Changes in the Accounting Policies (AS-5)

• Depreciation Accounting (AS-6)

• Construction Contacts (AS-7) Revised

• Accounting for Research and Development (AS-8)

• Revenue Recognition (AS-9)

• Accounting for Fixed Assets (AS-10)

• Accounting for the effect of changes in foreign exchange rates (AS-11)

• Accounting for Government Grants (AS-12)

• Accounting for Investments (AS-13)

• Accounting for Amalgamations (AS-14)

• Accounting for Employee Benefits (AS-15)

• Borrowing Costs (AS-16)

• Segment Reporting (AS-17)

• Related Party Disclosures (AS-18)

• Leases (AS-19)

• Earning Per Share (AS-20)

• Consolidated Financial Statements (AS-21)

• Accounting for Taxes on Income (AS-22)

• Accounting for Investments in Associates in Consolidated Financial Statements • (AS-23)

• Discontinuing Operations (AS-24)

• Interim Financial Reporting (AS-25)

• Intangible Assets (AS-26)

• Financial Reporting of Interest in Joint Ventures (AS-27)

• Impairment of Assets (AS-28)

• Provisions Contingent Liabilities and Contingent Assets (AS-29)

==============================

Chapter-6 Ratio Analysis

Financial Analysis is the process of identifying the financial strengths and weakness of the firm by properly establishing relationships between the items of the balance sheet and the profit and loss account. Ratio Analysis is a powerful tool of financial analysis. The relationship between two accounting figures, expressed mathematically, is known as a financial ratio. Ratios help to summarise the large quantities of financial data and to make qualitative judgement about the firm’s financial performance.

Standards of comparison: A single ratio in itself does not indicate favourable or unfavorable conditions. It should be compared with some standard. Standards of comparison may consist of:

1. Ratios calculated from the past financial statements of the same firm;

2. Ratios developed using the projected, or pro forma, financial statements of the same firm;

3. Ratios of some selected firms, especially the most progressive and

successful, at the same point of time, and

4. Ratios of the industry to which the firm belongs.

Advantages of Ratio Analysis:

i. Simplifies, Summarizes and Systematizes accounting figures for easy understanding;

ii. Ratios helps the management in measuring things like Long-term Solvency, Operational Efficiency, etc. of the firm

iii. Facilitates the understanding of financial statements showing the whole story of changes in financial conditions of business;

iv. Facilitates inter-firm comparison showing relative performance of enterprise in the industry;

v. Facilitates intra-firm comparison showing the improvement/degradation in the performance of the enterprise;

vi. Facilitates the Planning of Operations;

vii. Facilitates in Establishing Standards;

viii. Facilitates Management by Exception higher management can concentrate the area where its intervention is required; thereby making the best use of time & available resources.

Limitations of Ratio Analysis:

1) Ratios has little meaning by itself; unless there exists a comparison;

2) Ratios are arithmetical expressions, so, qualitative aspects cannot be presented through ratios directly;

3) Ratios are calculated from accounting records which are subject to their own limitations. Hence, ratios are also considerably affected by limitations of accounting records;

4) Ratios are only a tool, whose best use ultimately depends upon the craftsman who uses it. So, “they are only means & not end in themselves”.

5) Strongly affected by manipulations of financial statements [like window dressing]; & this fact is not revealed by Ratio Analysis.

6) Factors like Inflation also strongly distort the Ratio Analysis.

Classification of Ratios:

Structural Classification of Ratios: This is the Conventional mode of classifying

ratios where the ratios are classified on the basis of information given in the financial

statements. The classification is as follows:

SLNO	TYPE	WHAT IT IS	EXAMPLES
1	Balance Sheet Ratios	These are the ratios for which the components for computation are *drawn from the Balance Sheet.* These are called	* Current Ratio * Liquid Ratio * Debt Equity Ratio * Proprietary Ratio * Capital Gearing Ratio
2	Profit and Loss Account Ratios	These are the ratios for which the components for computation are drawn from the Profit & Loss Account. These are called Income Statement	* Gross Profit Ratio * Net Profit Ratio * Operating Ratio * Stock Turnover Ratio * Expenses Ratio
3	Interstatement Ratios or Combined	These are the ratios for which the components for computation are drawn both from the Balance Sheet and Profit & Loss Account. These are	* Return on Capital Employed [ROCE] * Return on Investments ROI] * Debtors Turnover Ratio * Creditors Turnover Ratio * Fixed Assets Turnover Ratio * Working

_ Functional Classification Of Ratios:

Types of Ratios

Liquidity Ratios: Liquidity ratios measure the ability of the firm to meet its

current obligations.

1. Current ratio = Current assets

Current Liabilities

Current assets include cash and those assets which can be converted into cash within a year, such as marketable securities, debtors and inventories. Prepaid expenses also included in current assets as they represent the payments that will have not to be made by the firm in the near future. All obligations maturing within a year are included in current liabilities. Thus current liabilities include creditors, bills payable, accrued expenses, short-term bank loan, income-tax liability and long-term debt maturing in the current year. The current ratio is a measure of the firm’s short-term solvency. A

ratio of greater than one means that the firm has more current assets than current claims against them. As a conventional rule, a current ratio of 2 to 1 or more is considered satisfactory. Too much reliance should not be placed on the current ratio. Further investigations about the quality of current assets should be carried.

2. Quick ratio = Current Assets-Inventories

Current liabilities

This ratio establishes a relationship between quick or liquid, assets and current liabilities. Generally a quick ratio of 1 to 1 is considered to represent a satisfactory current financial condition.

3. Cash ratio = Cash + Marketable securities Current liabilities

4. Interval measure =Current assets-Inventory

Average daily operating expenses

This ratio assesses a firm’s ability to meet its regular cash outgoings. The daily operating expenses will be equal to cost of goods sold plus selling, administrative and general expenses less depreciation(and other non-cash expenditure) divided by number of days in the year (say 360)

5. Net working capital ratio =Net working capital

Net assets

The difference between current assets and current liabilities is called net working capital. NWC is sometimes used as a measure of a firm’s liquidity. It can be related to net assets (or capital employed). It is considered that, between two firms, the one having the larger NWC has the greater ability to meet its current obligations.

Leverage Ratios:

Leverage ratios are calculated to measure the financial risk and the firm’s ability of using debt for the benefit of shareholders. Leverage ratios may be calculated from the balance sheet items to determine the proportion of debt in total financing. Leverage ratios are also computed from the income statement items by determining the extent to which operating profits are sufficient to cover the fixed charges.

1. Total Debt ratio = Total Debt = TD

Total debt + Net worth TD + NW

OR = Total debt = TD

Capital employed CE

Total debt (TD) will include short and long-term borrowing financial institutions, debentures/bonds, deferred payment arrangements for buying capital equipments, and bank borrowing, public deposits and nay other interest- bearing loan. Capital employed (CE) will include total debt and net worth (NW) Capital employed (CE) equals net assets (NA) which consist of net fixed assets (NFA)

and net current assets (NCA). Net current assets (NCA) are equal to current assets (CA) minus current liabilities (CL) excluding interest- bearing debt.

2. Debt-Equity ratio =Total Debt

Net Worth

Relationship describing the lenders’ contribution for each rupee of the owners’ contribution is called debt-equity ratio.

3. Total liabilities to total assets ratio = Total liabilities

Total assets

THIS RATIO assesses the proportion of total funds-short-term and long-term provided by outsiders to finance total assets.

4. Debt ratio = Total debt + Value of lease

Total debt + Value of lease + Net worth

Coverage Ratios:

1. Interest coverage = EBIT + Depreciation

Interest

EBIT = Earnings before interest and taxes

2. Fixed coverage = EBIT + depreciation

Interest + Loan repayment

1-tax rate

Activity Ratios:

Activity ratios are employed to evaluate the efficiency with which the firm manages

and utilizes its assets. These ratios are also called turnover ratios because they indicate

the speed with which assets are being converted or turned over into sales.

1. Inventory turnover =Cost of goods sold

Average inventory

This ratio indicates the efficiency of the firm in selling its product. The average inventory is the average of opening and closing balances of inventory

2. Days of inventory holdings (DIH) = Number of days in a year (say 360)

Inventory turnover

3. Raw material inventory turnover = Material consumed

Average raw material inventory

4. Work in process inventory turnover = Cost of production

Average work in process inventory

5. Debtors turn over = Credit Sales

Average debtors

6. Average collection period (ACP) = 360

Debtors turnover

liquidity of debtors.

Asset Turnover

Assets are used to generate sales. Therefore, a firm should manage its assets efficiently to maximize sales. The relationship between sales and assets is called assets turnover.

7. Net assets turnover = Sales

Net assets

8. Total assets turnover = Sales

Total assets

9. Fixed assets turnover = Sales

Net fixed assets

10. Current assets turnover = Sales

Current assets

11. Net currents assets turnover= Sales

Net current assets

Profitability Ratios:

The profitability ratios are calculated to measure the operating efficiency of the company.

1. Gross profit margin = Gross profit

Sales

Gross profit= Sales-cost of goods sold

2. Net profit margin =Profit after tax or EBIT

Sales sales

EBIT = Earnings before interest and tax

3. Operating expense ratio =Operating expenses

Sales

4. Return on Investment = EBDIT

GFA+NCA

EBDIT=Earnings before depreciation, interest and Tax

GFA=Gross fixed Assets

CFA=Net current assets

5. Return on equity = Profit after tax

Net worth

6. Earnings per share (EPS) = Profit after tax

Number of common shares outstanding

7. Dividends per share (DPS) = Earnings paid to shareholders

Number of common shares outstanding

8. Dividend payout ratio = DPS

EPS

9. Price-earnings ratio = Market value per share (MVPS)

Earnings per share (EPS)

10. Market value-book value ratio = Market value of the share

Book value of the share

Illustration:

The ABC company’s financial statements contain the following information:

	31st March 2007 Rs.	31st March 2006 Rs.
Cash	200000	160000
Sundry Debtors	320000	400000
Temporary investments	200000	320000
Stock	1840000	2160000
Prepaid expenses	28000	12000
Total current Asset	2588000	305200
Total assets	5600000	6400000
Current liabilities	640000	800000
10% debentures	1600000	1600000
Equity share capital	2000000	2000000
Retained earnings	468000	812000

Statement of Profit for the year ended 31st March,2007 Rs.

Sales
Less cost of goods sold Less Interest	2800000 160000	2960000
Net profit for 2001		1040000
Less taxes @50%		520000
		520000

Dividend declared on equity shares = Rs.220000

(i) Liquidity Ratios

(a) Current ratio = Current assets

Current liabilities

2000=2588000=4.04

640000

2001= 3052000=3.82

800000

(ii) Solvency Ratios

(a) Debt equity ratio: Long term debts

shareholders’funds

2000=1600000=0.65(approx.)

2468000

2001=1600000=0.57(approx.)

2812000

b) Interest coverage ratio: Profit before interest and taxes

Interest charges

2001=1200000=7.5 times

160000

(iii) Profitability ratios

(a) Net Profit ratio = Net profit x 100

Sales

2001=520000 x 100= 13%

4000000

(b) Returns on capital employed : Net profit before interest and taxes x 100

Total capital employed

2001=1200000 x 100=27.2%

4412000

(iv) Activity ratios

(a) Stock turnover ratio: Cost of goods sold

Average stock

2001=2800000=1.4 times

2000000

(b) Total assets turnover ratio: sales

Total assets

2001= 4000000=0.625 times

6400000

====================================================

Chapter-7 DOT Cell Functions

Controller of Communication Accounts

Controller of Communication Accounts - in the grade of SAG from

Accounts & Finance Service

Joint CCA - in the grade of JAG from

Accounts & Finance service.

Deputy CCA - in the grade of STS from Accounts & finance service.

Communication Accounts Officer - in the grade Group B from

Accounts & Finance service.

Junior Communication Accounts Officer - in the grade of Group B from

Accounts & Finance services.

The office establishment comprises of Senior Accountants, Junior Accountants and Lower Division Clerks etc. It is necessary that closing balances as on 30.09.2000 in respect of various transactions like loans and advances, GPF etc. are identified and balances agreed with the books of accounts are transferred to the DOT. In addition to the above, the recoveries made after 1.10.2000 in respect of the above transactions relating to DOT period are transferred to CCA regularly on month to month basis so as to enable the CCA to maintain necessary broad sheets for the same.

Item 1 (A)

The responsibilities of the SSAs in - and the CCA unit in respect of items of work relating to erstwhile DOT/DTS employees who are on deemed deputation to - and also for those who are absorbed in - are summarized below:

Item of Work

Responsibility of - field unit

Responsibility of the CCA unit

Settlement of pension &

retirement benefits

Will process the pension

cases and other retirement

cases and submit them

direct to the circle CCA

Will issue PPOs. Authorize

DCRG, Commuted value of

pension, family pension,

insurance payment, GPF final

payment.

Pension and leave salary

contribution

Assess correctly and

remit regularly the

amount of contribution to

the CCA

Will undertake collection and

employee wise scrutiny.

General Provident Fund

accounting

Details of amount

collected and amounts

paid will be intimated to

the CCA unit.

Will maintain employee wise

GPF broad sheet.

Recovery and

accounting of HBA and

other long term advances

Recovery particulars in

respect of such loans &

advances already taken by

the employees prior to

corporatisation will be

intimated by the -

Will maintain the official wise

broad sheets and watch for

complete recovery.

Settlement of

outstanding balances

under remittance and

suspense heads before

transfer of firm figures

to the balance sheet of

the corporation

Will co-ordinate with

CCA unit for early

reconciliation.

Settlement will be done by the

CCA in collaboration with the

Settlement of USO

subsidy claims

To submit the claim for

subsidy every quarter

To settle the claim after

exercising necessary checks

Important

All claims of the govt. against the - and those of the - will be settled in Cash. Further, there should be no netting of -’s claims against the GPF contribution or pension contribution or leave salary contribution etc. A soft copy (floppy) and hard Copy (print out) of the schedules is to be given. Item 1 (B)

The other functions of CCA office are as below:

1. Collection of license fees in the form of revenue sharing from various organizations on behalf of Govt.

2. Collection of service tax from the telecom service providers.(This has since been dispensed with and SSAs are now to remit the service tax amount directly to service tax authorities)

3. Will handle the budget, finance and accounting functions of the Wireless Monitoring Organization.

4. Handling realization and accounting of revenue in the form of license fee and royalty for use of spectrum.

5. Handle the budgeting, accounting and DDO functions of CCA unit.

It may be seen from the list given at item 1(A) above, that it shall be the responsibility of the SSA units in - to ensure that the monthly recoveries of GPF,CGEIS, Leave salary & Pension Contribution, Loans & advances etc. are made regularly and are transferred duly agreed in time every month to the CCA office. This work is required to be completed before 15th of the month following the month of account. The amount due should be remitted in the form of DD. It is important to note that the correctness of maintenance of accounts would depend upon the correctness and promptness with which the returns are submitted by the -.

Levy of penalty for delayed payments to CCA:

Of late undue delay has been observed in transferring the recoveries to the CCA unit. It has been therefore been decided by the Govt. that the corporation will be liable to pay penal interest on delayed pension contribution.

The following are the details of rates of penal interest decided for levy provisionally by the DOT pending final approval by Ministry of Finance:

(i) Delay in remittance of LSC/PC: As per SR 307(1)

(ii) Delay in remittance of GPF/L&A:

2.5% above the applicable rate of interest. Interest will be charged from 1st of the month

following the recovery, if payment is not made by the specified date.

(iii) In case of CGEIS/CGEIS

2.5% of the ruling rate of interest on CGEIS per annum (Compounded quarterly). Interest will be charged from 1st of the month following the recovery, if payment is not made by the specified date.

Claims if any, by - on the CCAs/DOT may be preferred separately by 7th of following month and CCA will settle the same within 7 days from the date of receipt of the claim.. No netting is allowed to be made from the recoveries or any other amount due and payable to CCAs/DOT.

Actions suggested by the CCA for timely payment of pension to - staff :

So as to obviate the possible delays in settlement and to ensure that the pension and other retirement benefits are settled in time, the following schedule of action has been prescribed.

(A) Supply of six monthly list of the officials due to retire with in the next 24 to 30 months:

This should be supplied to the CCA office not later than 31 st of January or 31st of July as the case may be. In the case of officials retiring for reasons other than superannuation, the office of CCA is to be informed as soon as the employee seeks retirement.

Preparation of Pension Papers:

• Immediate action should be taken to verify the qualifying service of all employees retiring within 2 years.

• Ensure 24 months before retirements that the Service Book contains the certificates of verification for the entire period of service. Wanting certificates if any should be called for and recorded in the SB.

• If service verification relating to a different unit is not forth coming, the official concerned may be asked to file a written statement certifying the service rendered producing supporting evidence.

• All Govt. dues to be ascertained in advance and kept ready.

• In case of death/voluntary retirement, the head of the office should start verifying qualifying service, dues, pending disciplinary cases if any, and try to obtain the pension papers to avoid delay in settlement of the case.

• The TA branch of the SSA should complete calculation of average emoluments 10 months before retirement of retiring officials.

• Pension papers in triplicate to be forwarded to the individual with in 8 months of the retirement.

• The pension case should be forwarded to the office of CCA by the TA wing of the SSA not later than 6 months before the date of retirement, duly ensuring that -

(i) The Joint photo is duly attested and pasted in the application.

(ii) All columns in the data sheet are completed

(iii) The calculations are correct.

(iv) The bank account no. is clearly noted in the application if the govt. servant wishes to draw

pension through the bank.

(v) The place where the retiring Govt. Servant wishes to stay after retirement

and whether the place covered under the CGHS or otherwise.

Documents that should accompany the pension claims sent to the office of CCA:

1. Data sheet Two copies.

2. Pension application Two Copies

3. Photograph/Joint photograph Two copies

4. Specimen signature slip-claimant Two copies

5. Specimen signature slip-spouse Two copies

6. Details of family members One Copy

7. Nomination for DCRG/GPF/CGEIS One copy

8. Statement showing non-qualifying service One copy

9. Report of vfn. of 25 yrs. Service One copy

10. Commutation application One copy

11. Vig/disciplinary clearance One copy

12. Identification marks of the individual One copy

13. Identification marks of the spouse. One copy

14. Detailed calculation sheet One copy

15. No dues certificate One copy

16. Succession certificate. One copy

(in case of no nomination)

17. LPC (Provisional/Final) One copy

Sunday, April 14, 2024

E4 to E5 - Basic Study materials in Telecom Domain

Blog Archive

Popular Posts