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Budget and
BudgetarycontrolIndian FarmerFertilizer Co-Operative Limited
The Report contain, indepth understanding ofBudget and Budgetarycontrol. Adding it alsofeatures IFFCOS round
over knowledge and allhappenings
Deepak S.
Gyanchandani
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AcknowledgementEven if a Project Report is in the end the sole
responsibility of student, it is always the final
result of the efforts of a larger group of people
that contributed to it in different ways,
providing information and critical review,
suggesting alternative approaches and new
ideas, sharing their experiences and providing
guidance and support. Also in my case thisproject report would have not been possible if
it was not for the contribution of many people.
I would like to thank all the people at IFFCO,
with whom I had the pleasure to spend the two
months in which I have worked on this project
report. In particular I would like to give
special acknowledgments to Mr. D D Pandya,
Mr. H T. Bhambhani, Mr A G.
Radhakrishnan, Mr. Dushyant Chouhan, Mr.
K M. Patel, Mr. Ranjit Kumar, Mr. V H.
Ambawani, Mr. V Shrinivasan, Mr. H J.
Devaria And Mr.D N josh Mr. S C.
Bhoummik for the time he dedicated me in
reading, revising and discussing the contents
of this work.
A special thank goes to Professor Nandini
Sinha for her valuable comments, corrections
and suggestions and especially for being a
precious guide in the field. I would also like to
thank Dr. Renu Choudhary who also provided
countless valuable thinking and reviewed part
of the project report.
I would like to mention also two people who
provided imperative contributions for the
discussion, namely Mr. V J. Mankodi In
addition I would also like to thank Mr. D C
Maheshwari for the time they dedicated me.
Furthermore I would like to thank some
people who did not actively participated in the
work of this project report but whose support
has been essential for developing in my
studies, namely Mr. Satish Kakani IFFCO, for
being my first valuable contact in the
company and friends, for always reminding
me to believe in myself.
Finally my greatest thank you goes to my
mother, and my father, without whose support,
assistance and love nothing of this, for the
little value it may have, would have ever been
written
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Contents
Acknowledgement ..................................................................................................................... 1OBJECTIVE .............................................................................................................................. 6
PREFACE .................................................................................................................................. 7
RESEARCH METHODOLOGY............................................................................................... 8STEPS IN RESEARCH DESIGN ............................................................................................. 9DATA SOURCES ..................................................................................................................... 9
Primary data ........................................................................................................................... 9Secondary sources ................................................................................................................ 10
BENEFICIARIES .................................................................................................................... 11INTRODUCTION OF INDIAN FERTILIZER INDUSTRY ................................................. 12Major Players in Indian Fertilizer Market ............................................................................... 13Public Sector Companies in Indian Fertilizer Market.............................................................. 14INTRODUCTION TO IFFCO ................................................................................................. 20
Ownership ................................................................................................................................ 23Investment of IFFCO in other Firms. ...................................................................................... 24UNITS OF IFFCO ................................................................................................................... 28COMPANY PROFILE ............................................................................................................ 29ACHIEVEMENTS OF IFFCO KANDLA UNIT.................................................................... 32INTRODUCTION TO F & A DEPARTMENT OF IFFCO ................................................... 33BUDGET AND BUDGETARY CONTROL .......................................................................... 37
Introduction .......................................................................................................................... 37The Objectives of Setting the Budgets..................................................................................... 39What is Budgeting? .................................................................................................................. 40
Fixed budget......................................................................................................................... 45
Flexible Budget .................................................................................................................... 46Basic Budget ........................................................................................................................ 46Current Budget ..................................................................................................................... 46Continuous Budget............................................................................................................... 47Rolling Budget ..................................................................................................................... 47Types of budget.................................................................................................................... 47Responsibility Budget .......................................................................................................... 47Program Budget ................................................................................................................... 48Operational Budget .............................................................................................................. 48Functional Budget ................................................................................................................ 48Financial Budget .................................................................................................................. 48
Capital Budget ..................................................................................................................... 48Performance Budget............................................................................................................. 48FIXATION OF TARGETS.................................................................................................. 51COMMUNICATION OF TARGETS: ................................................................................ 51DELEGATION OF RESPONSIBILITY FOR FORMULATING REVENUE .................. 52Budget proposals at unit level. ............................................................................................. 52Budgeting process at unit level: ........................................................................................... 52PRODUCTION DEPARTMENT ........................................................................................ 54MAINTENANACE DEPARTMENT: ................................................................................ 55TECHNICAL SERVICE DEPARTMENT: ........................................................................ 56CIVIL DEPARTMENT ....................................................................................................... 57FIRE & SAFETY SECTION: .............................................................................................. 57
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TRAINING SECTION: ....................................................................................................... 57PERSONNEL & ADMINISTRATION DEPARTMENT ................................................... 58MATERIALS DEPARTMENT: .......................................................................................... 58FINANCE & ACCOUNTS DEPARTMENT:..................................................................... 58INCOME/OTHER REVENUE ............................................................................................ 59
INSURANCE EXPENSES .................................................................................................. 59BANK CHARGES............................................................................................................... 59DEPRECIATION ON FIXED ASSETS ............................................................................. 59PROCEDURE FOR USING THE BUDGET APPROVED:............................................... 60REVISION OF BUDGET ESTIMATES............................................................................. 61Budget Period....................................................................................................................... 64Key Factor ............................................................................................................................ 64
Budgeting Methods .................................................................................................................. 65BUDGET AND BUDGETARY CONTROL AT IFFCO: KANDLA UNIT .......................... 68REVENUE, PURCHASE BUDGET ....................................................................................... 71& .............................................................................................................................................. 71
BUDGETARY CONTROL ..................................................................................................... 71COLLECTION OF VARIOUS ESTIMATES FROM INDENTORS / H.O: ..................... 72PRODUCTION TARGETS ................................................................................................. 72C& F PRICE OF IMPORTED RAW MATERIALS .......................................................... 73RATES TO BE ADOPTED FOR PACKING MATERIAL................................................ 74EXCHANGE RATES TO BE ADOPTED FOR US $: ....................................................... 74NORMS OF ACTUAL INPUT QUANTITY OF VARIOUS RAW MATERIAL,UTILITIES AND PACKING MATERIALS: ..................................................................... 74STREAM DAYS ESTIMATES FOR PRODUCTION TARGETS................................... 75ALL ESTIMATES OF VARIOUS TYPES OF DIRECT / INDIRECT EXPENSESRELATED TO PRODUCTION .......................................................................................... 75COLLECTION OF VARIOUS DATA IN SPECIALLY DESIGNED STATEMENT /ANNEXURE........................................................................................................................ 76
BRIEF EXPLANATIONS OF STATEMENTS / ANNEXURES: ......................................... 77STATEMENTI: PRODUCTION AND SALES TARGET .............................................. 77Budgeted profitability .......................................................................................................... 79STATEMENTIII: TOTAL COST OF PRODUCTION .................................................. 80Variable cost: ....................................................................................................................... 81Fixed cost: ............................................................................................................................ 81Chemicals ............................................................................................................................. 82Employees remuneration and benefits:............................................................................... 82
Salaries and wages: .............................................................................................................. 82PF & FPF contribution ......................................................................................................... 83Welfare expenses ................................................................................................................. 83Repairs and maintenance: .................................................................................................... 84Insurance .............................................................................................................................. 84Depreciation: ........................................................................................................................ 85STATEMENTIV: PURCHASE BUDGET ..................................................................... 87
ANNEXURES: ........................................................................................................................ 88ANNEXUREIII: TOWNSHIP RECOVERIES AND OTHER REVENUE ........................ 89
A. Plant Machinery .............................................................................................................. 94Meeting by Unit Head with various HODs / SHs:- ........................................................... 101
FINAL PROPOSAL TO BE SENT TO H.O.:- ................................................................. 102REVENUE / PURCHASE BUDGET CONTROL ................................................................ 102
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CAPITAL BUDGETING ...................................................................................................... 103What is capital budgeting? ................................................................................................. 103Capital budgeting techniques: ............................................................................................ 104Intimation from Head Office to send proposals for Next F.Y. :- ....................................... 105Collection of various estimates from Indentors :- .............................................................. 106
Compilation of various data in specially designed Proformas :- ....................................... 106Proposals for New Items :- ............................................................................................. 107N-I: Energy Saving System / Schemes:- ............................................................................ 108N-II: Operational Necessity:- ............................................................................................ 108N-III: Reliability Improvement:- ....................................................................................... 108N-IV: Safety Equipments:- ................................................................................................ 109N-V: Replacement of Ageing Equipments:- ...................................................................... 109N-VI: Pollution Control / Environmental Protection Schemes:- ...................................... 109N-VII: Minor Modification:- ............................................................................................ 110N-VIII: Inspection Facilities:-............................................................................................ 110N-IX: Research & Development Equipments:- ................................................................. 110
N-X: Admn. Office Building, Furniture, Fixtures, and Vehicles etc.:- ............................. 111N-XI: Associated Areas Like Welfare Colony Amenities, G.H.etc. ................................. 111N-XII: Computer & Computer System:- ......................................................................... 111Proposal for ongoing items: ............................................................................................... 112Completed items of current year:- ..................................................................................... 114Dropped items of current year:- ......................................................................................... 114Re-appropriated items:- ..................................................................................................... 115Re-conciliation ................................................................................................................... 115Proforma ............................................................................................................................ 116What is this project about? ................................................................................................. 118Why was the nee for this project felt? ............................................................................... 118Financial Benefits/ Advantages arising from the project? ................................................. 119Financial:............................................................................................................................ 119Break up of cost estimate ................................................................................................... 120Are any ancillary facilities needed? ................................................................................... 120What are basis of cost estimates? ....................................................................................... 120If the proposal is not implemented? ................................................................................... 120
BUDGET FOR LOANS & ADVANCESTO EMPLOYEES ............................................... 122House Building Loan ......................................................................................................... 122Conveyance Loan............................................................................................................... 122Personal Loan /One month salary advance:- ..................................................................... 123
BUDGETARY CONTROL ................................................................................................... 126Variance Analysis .............................................................................................................. 130Selling price changes. ........................................................................................................ 130Material price variance ...................................................................................................... 131Material usage variance ..................................................................................................... 131Direct wage rate variance ................................................................................................... 131Direct labour efficiency variance ....................................................................................... 132Overhead expenditure variance .......................................................................................... 132Overhead efficiency variance ............................................................................................ 133Overhead volume variance ................................................................................................ 133Disposition of variance ...................................................................................................... 133
The choice of method depends on: .................................................................................... 133Methods of variance disposal............................................................................................. 133
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LIMITATIONS OF THE STUDY......................................................................................... 136Findings & SUGGESTIONS ................................................................................................. 137
FINDINGS: ........................................................................................................................ 137SUGGESTIONS: ............................................................................................................... 138
CONCLUSION. ..................................................................................................................... 139
BIBLIOGRAPHY. ................................................................................................................. 141
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OBJECTIVE
Management student has to apply his theoretical knowledge in the practical field and
compare with the results. he has to find new ways for further improvement in the practical
field. Industrial training for management student is the first stage towards the industrial
exposure which tells him what difficulties he has to face while entering into corporate
world.
The main idea was to know the methods followed in IFFCO-KANDLA for preparation of
budget, budgetary control and to compare the same with the concepts.
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PREFACE
This report is prepared at Indian Farmers Fertilizers Co-operative Limited ( IFFCO ),
KANDLA Unit on functional areas of IFFCO KANDLA. It contains the brief description of
the company and all its departments. It also covers the different functions performed in
different departments at IFFCO KANDLA.
The report contains the details regarding the information related to BUDGET &
BUDGETARY CONTROL of Indian Farmers Fertilizers Limited (IFFCO KANDLA). In this
report it is mentioned that how budget is being managed at Indian Farmers Fertilizers Limited
(IFFCO KANDLA).
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RESEARCH METHODOLOGY
As the main objective of the study is to know about the budgeting process and techniques and
insights to it, the research carried out is descriptive in nature. The information needed has to
be clearly defined to carry out descriptive research. Thus the information available is from
secondary sources. The data mainly consists of budget reports of the company and annual
reports of the company.
The data is also obtained from primary sources such as from staff of the Finance and
Accounts department of IFFCO KANDLA.
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STEPS IN RESEARCH DESIGN
There are various steps which have to be followed while for budgetary process. Various
budgets have to be prepared and on basis of that they are analyzed and revised. The following
budgets have to be prepared:
Capital budget
Revenue budget.
These budgets include production budget, expense budget, sales budget, consumption
budget, procurement budget, cash budget.
DATA SOURCES
Primary data
The primary data has been collected in the following way.
I used to have discussion with the financial staff of the company
Other staff of the company helped me to gather the information and provided with necessary
guidance about the project.
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Secondary sources
The secondary sources have been obtained in the following way.
The data has been collected from the annual reports and the budget reports of the company.
Some data has been collected from the official site of IFFCO ltd.
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BENEFICIARIES
To student: The study of budget and the budgeting process would help me in enhancing
my skills and gain practical knowledge about the budgeting process being carried out.The study would help me to understand the various concepts of budgeting and to dealwith the difference arising.
To the company: The Company would be able to find out any variances arising due toinappropriate budgeting and methods to solve those variances. Thus the company wouldbe able to make proper estimates and thus would increase the companys profit.
To customers: The customers would be able to buy goods at a cheaper rate which willbe arrived after solving the variances. Thus the customers would be benefited in terms ofgood quality and affordable cost.
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INTRODUCTION OF INDIAN
FERTILIZER INDUSTRYThe Indian fertilizer industry has been
meeting a substantial portion of the
growing demand of fertilizer now. As on
today the demand-supply gap in the
fertilizer industry is very marginal. The
industry had a very humble beginning in
1906, when the first manufacturing unit of
Single Super Phosphate (SSP) was set up
in Ranipet near Chennai with an annual
production capacity of 6000 M.T. The
Fertilizer and Chemicals Travancore ltd.
(FACT) at Cochin in Kerala and the
Fertilizer Corporation of India Ltd, Sindhri
in Jharkhand were the first large sized
fertilizer plant set up in forties and fiftieswith a view to establish a base for
industrialization and achieving self-
sufficiency in food grains. The seventies
and eighties witnessed a significant
addition to the fertilizer industry.
Presently there are 66 large sized fertilizer
plants in the country manufacturing a wide
range of nitrogenous, phosphatic and other
complex fertilizer. Besides there are about
80 medium and small-scale single super
phosphate plants. As of now the country is
almost self-sufficient in case of nitrogen
but in case of phosphates the scarcity of
domestic raw material constraints the
attainment of self-sufficiency in the
country. Indigenous rock phosphates
supplies meet only a small percentage
(5%-10%) of total requirement of P2O5.
also there are no known commercially
exploitable reserves of potash in the
country and hence the entire requirement
are met through imports.
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Major Players in Indian Fertilizer
Market
The development trajectory of the agricultural industry derives its main stimulus from
the growth in production of fertilizers in India. The fertilizer industry earlier witnessed the
preponderance of the public sector units who still retain their status as the major players in
Indian fertilizer market. Coupled with the private enterprisers manufacturing fertilizers, India
has emerged as the third largest producer of the agro-input. The country has also emerged as
one of the largest consumers of fertilizers along with China and the United States of America.
The fertilizer sector in India holds a major share among the energy intensive industries
of the country. The industry has shown unparalleled growth in the past few years. Although
growing in an accelerating rate, the industry is faced with a number of challenges, interalia,
and the lack of major plant resources such as nitrogen, phosphate and potassium.
Notwithstanding these specificities, India produces both nitrogenous and phosphatic
fertilizers in the domestic market. Urea and ammonium are the two popularly manufactured
nitrogenous fertilizers in India. The various companies dedicated to the manufacture of
fertilizers also produce straight phosphatic fertilizers such as single super phosphate and
complex fertilizers such as di-ammonium phosphate or DAP. The lack of indigenous reserves
of potash in India has stunted the production of potassic fertilizers in the country.
The Indian fertilizer industry has a capacity of 56 lakh MT of phosphatic nutrient and
121 lakh MT of nitrogen. While the private sector has a huge installed capacity for
phosphatic fertilizers, capacity utilization of nitrogenous fertilizers is higher in the public
sector.
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Public Sector Companies in Indian
Fertilizer Market
There are a number of public sector companies in Indian fertilizer market producing
complex fertilizers, ammonium sulphate, DAP, calcium ammonium nitrate and urea. At
present, there are nine public sector undertakings in the Indian fertilizer market and one
cooperative society. These function under the supervision of the Department of Fertilizers of
India. Of the 63 large units producing fertilizers in India, 9 units are dedicated to the
production of ammonium sulphate and 38 units produce urea. There are 79 small and medium
scale units dedicated to the production of single super phosphate. The Indian industries
producing fertilizers have to total capacity of 56 lakh MT of phosphatic nutrient and 121 lakh
MT of nitrogen.
Some of the public sector undertakings in this sector are mentioned below:
Fertilizer Corporation of India Limited (FCIL)
Hindustan Fertilizer Corporation Limited (HFC)
Pyrites, Phosphates & Chemicals Limited
Rashtriya Chemicals and Fertilizers Limited (RCF)
National Fertilizers Limited (NFL)
Projects &Development India Limited (PDIL)
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The Fertilizers and Chemicals Travancore Limited (FACT)
Madras Fertilizers Limited (MFL)
FCI Aravali Gypsum & Minerals India Limited, Jodhpur
Some of the other companies engaged in the production of fertilizers are listed
below:
Paradeep Phosphates Limited (PPL)
Neyveli Lignite Corporation Ltd. (NLC)
Hindustan Copper Limited (HCL)
Steel Authority of India Limited (SAIL)
Private Companies in Indian Fertilizer Market
A number of private companies in the Indian fertilizer market are engaged in
production of the agro-input. Most of the companies also engage in exporting fertilizers in the
global market, earning foreign capital from the business. The country stands at the third
position among the largest producers of the product in the world. India is also ranks among
the highest consumers of fertilizers. The euphoric growth in the business has also facilitated
the agricultural industry of India, which is dependent for its optimization on the fertilizer
industry.
Private Companies Producing Fertilizer in India:
Khaitan Chemicals and Fertilizers Limited
Mangalore Chemicals
Nagarjuna Fertilizers
Zauri Chambal
BEC Fertilizers
Gujarat State Fertilizers &Chemicals Limited
DSCL
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Some of the other private companies engaged in the production of fertilizers in
India are listed below:
The Scientific Fertilizer Co Pvt Ltd
Coromandel Fertilizers
Deepak Fertilizers and Petrochemicals Corporation Limited
Apratim International
Aries AgroVet
Devidayal Agro Chemicals
The production of nitrogenous fertilizer in the private sector has been increasing in
the past few years. The private sector had only 13% share in the production in 1960-
61. The private sector has always retained a higher share in the production of
phosphatic fertilizer production
Cooperative Companies Producing Fertilizer in India
Indian Farmers Fertilizers Co-operative Ltd.(IFFCO)
Krishak Bharati Cooperative Limited KRIBHCO
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What is Cooperative Society?
Meaning:
Co - operation refers to an organization of individuals for achieving a common economic
objective by mutual help and collective efforts.
The word Co - operation has been derived from the Latin word Co-operate which,
means to work together, to labor together, to endeavor for some common purpose.
Features or Characteristics of Co -operative Society:
The following are the characteristics and/or features of the cooperative societies:
1. Voluntary Association
2. Equal Voting Rights
3. Democratic Management
4. Service Motive
5. Limited Interest on Capital
6. Distribution of Profits or Surpluses
7. Cash Trading
8. State Control
9. Serving all at Market Price without discrimination between members and
Nonmembers.
10. Member renders Honorary Services
11. Political and Religious Neutrality
12. Honest Trading
13. Principle of Thrift
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Difference Between Co-operative society & Company.
S. Item Cooperative Society Company
1 Object Interest of members and
community
Self interest either of
management or the share
holders
2 Number of
members
Minimum number of members
should be 50 for a multi state
cooperative society from each
state in case of individual
membership
In case societies are members of
a Multi State Cooperative
Society, two societies from
different states should sign the
application of registration of the
society
If a Multi State Cooperative
Society is a member then the
multi state cooperative and a
society should sign the
application of registration
In a public limited company,
minimum number of
members should be 7 and in a
private limited company
minimum number of
members should be 2
3 Management Chairperson is elected by the
Board of Directors from among
themselves. The Managing
Director / Chief executive is
appointed by the Board of
Directors
Usually, Chairperson /
Managing Director are
persons with maximum
number of shares in the
company
4 Share
Capital
The shares of cooperative
society are not issued to general
public by advertisement and can
be issued any time. Shares can
Shares are issued to general
public or by invitation. In a
company shares cannot be
withdrawn by a share
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be withdrawn member / society
as prescribed by rules in their
byelaws.
holder.
5Types of
shares
Only equity shares are availableEquity and preferentialshares may be issued
6 Voting
Power
Member of a cooperative society
have right of only one vote,
irrespective of the number of
shares held of any denomination
Voting rights depend
directly on the holding of
shares
7 Distribution
of Profits
Minimum 25% of net profits
should be transferred to the
General reserve and the
maximum dividend cannot
exceed 20%
No restrictions on a
company
8 Taxes Cooperatives are exempt from
few taxes in some states like
stamp duty. Tax rates also vary
No exemptions provided
9 Workers
participation
Provision for workers
participation in the management
through a representative exists
No such provision for
workers
10 MRTP Act Not applicable to Multi State
Societies
Applicable
11 Control The Central registrar of
Cooperatives advises in the
affairs of a multi state society
Companies are governed by
the Company Registrar of the
states where its registered
office is located
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INTRODUCTION TO IFFCODuring mid- sixties the Co-operative sector in India was responsible for distribution of 70 per
cent of fertilisers consumed in the country. This Sector had adequate infrastructure to
distribute fertilisers but had no production facilities of its own and hence dependent on
public/private Sectors for supplies. To overcome this lacuna and to bridge the demand supply
gap in the country, a new cooperative society was conceived to specifically cater to the
requirements of farmers. It was a unique venture in which the farmers of the country through
their own Co-operative Societies created this new institution to safeguard their interests. The
number of co-operative societies associated with IFFCO has risen from 57 in 1967 to 38,155
at present.
Indian Farmers Fertilizer
Co-operative Limited
(IFFCO) was registered
on November 3, 1967 as
a Multi-unit Co-
operative Society. On
the enactment of the
Multistate Co-operative
Societies act 1984 &
2002, the Society is
deemed to be registered
as a Multistate Co-operative Society. The Society is primarily engaged in production and
distribution of fertilisers. The bylaws of the Society provide a broad framework for the
activities of Indian Farmers Fertilizer Cooperative Limited as a Co-operative Society.
IFFCO commissioned ammonia - urea complex at Kalol and the NPK/DAP plant at Kandla
both in the state of Gujarat in 1975. Ammonia - urea complex was set up at Phulpur in the
state of Uttar Pradesh in 1981. The ammonia - urea unit at Aonla was commissioned in 1988.
In 1993, IFFCO had drawn up a major expansion programme of all the four plants under
overall aegis of IFFCO VISION 2000. The expansion projects at Aonla, Kalol, Phulpur and
Kandla have been completed on schedule. Thus all the projects conceived as part of Vision
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Head Office
Kandla Kalol Aonla Phulpur
Aonla -1 Aonla-2 Phulpur-1 Phulpur-2
Paradeep
Kandla Kandla 2
2000 have been realized without time or cost overruns. All the production units of IFFCO
have established a reputation for excellence and quality.
A new grow
th path has been chalked out to
realize newer dreams and
greater heights through Vision
2010 which is presently under
implementation. As part of the new
vision, IFFCO has acquired fertiliser
unit at Paradeep in Orissa in
September 2005. As a result of
these expansion projects and acquisition, IFFCO's annual capacity has been increased to 3.69
million tonnes of Urea and NPK/DAP equivalent to 1.71 million tonnes of P2O5.
IFFCO has made strategic investments in several joint ventures. Godavari Fertilisers and
Chemicals Ltd (GFCL) & Indian Potash Ltd (IPL) in India, Industries Chimiques du Senegal
(ICS) in Senegal and Oman India Fertiliser Company (OMIFCO) in Oman are important
fertiliser joint ventures. Indo Egyptian Fertiliser Co (IEFC) in Egypt is under implementation.
As part of strategic diversification, IFFCO has entered into several key sectors. IFFCO-Tokio
General Insurance Ltd (ITGI) is a foray into general insurance sector. Through ITGI, IFFCO
has formulated new services of benefit to farmers.
'Sankat Haran Bima Yojana' provides free insurance cover to farmers along with each bag of
IFFCO fertiliser purchased. To take the benefits of emerging concepts like agricultural
commodity trading, IFFCO has taken equity in National Commodity and Derivative
Exchange (NCDEX) and National Collateral Management Services Ltd (NCMSL). IFFCO
S.R.
NO.
COMPETITORS MARKET
CAPTURED IN%
1 IFFCO 50
2 KRIBHCO 24
3 GNFC 21
4 OTHERS 05
Total 100
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Chattisgarh Power Ltd (ICPL) which is under implementation is yet another foray to move
into core area of power.
IFFCO is also behind several other companies with the sole intention of benefiting farmers.
The distribution of IFFCO's fertilizer is undertaken through over 40,000 co-operative
societies. The entire activities of Distribution, Sales and Promotion are co-coordinated by
Marketing Central Office (MKCO) at New Delhi assisted by the Marketing offices in the
field. In addition, essential agro-inputs for crop production are made available to the farmers
through a chain of 158 Farmers Service Centre (FSC). IFFCO has promoted several
institutions and organizations to work for the welfare of farmers, strengthening cooperative
movement, improves Indian agriculture. Indian Farm Forestry Development Cooperative Ltd
(IFFDC), Cooperative Rural Development Trust (CORDET), IFFCO Foundation, Kisan
Sewa Trust belongs to this category. An ambitious project 'ICT Initiatives for Farmers and
Cooperatives' is launched to promote e-culture in rural India. IFFCO obsessively nurtures its
relations with farmers and undertakes a large number of agricultural extension activities for
their benefit every year.
At IFFCO, the thirst forever improving the services to farmers and member co-operatives is
insatiable, commitment to quality is insurmountable and harnessing of mother earths' bounty
to drive hunger away from India in an ecologically sustainable manner is the prime mission.
All that IFFCO cherishes in exchange is an everlasting smile on the face of Indian Farmer
who forms the moving spirit behind this mission. IFFCO, to day, is a leading player in
India's fertilizer industry and is making substantial contribution to the efforts of Indian
Government to increase food grain production in the country.
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Ownership
One of the strongest parts in Ownership of the IFFCO is in the hand of the Farmers who
are the part of Co-operative society who are holding the major share holder part in share
capital of company. So we can say farmers are the real owner of IFFCO.
The membership of IFFCO is open to the following:
National Cooperative Federations of agricultural credit / marketing / processing
/ supply and other agricultural Cooperative societies;
State level Cooperative Federations of agricultural credit / marketing /
processing / supply and other agricultural cooperative Societies;
District, Regional and Primary cooperative credit / marketing / processing /
supply and other agricultural Cooperative Societies including Cane Unions
Primary Agricultural Cooperative credit, service, multi-purpose, cane, irrigation,
farming societies and other village agricultural societies;
National cooperative Development Corporation;
Government of India;
Public Financing Institutions.
Any cooperative society activities of which are augmentative to the activities
and conducive to overall growth of IFFCO.
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Investment of IFFCO in other
Firms.
IFFCO has started the joint venture in all below mention firms in India as well as in other
country and all the detail regard all the joint venture of IFFCO:
International
Industries Chimiques du Senegal (ICS).
Industries Chimiques du Senegal (ICS) is producing Phosphoric Acid at Darou (Senegal)
which IFFCO needs in producing the NPK/DAP. Its production capacity is 1.5 million TPA
of Phosphoric acid. Its paid up capital as on 31st March, 2000 was Rs 6.5 billion out of which
IFFCO's share was Rs 927.4 million i.e.14.32% of paid up capital.
Indian consortium, consisting of Government of India, IFFCO & SPIC, entered into a long
term agreement with Industries Chimiques du Senegal (ICS) in March 1980. The agreement
was for purchase of Phosphoric Acid by setting up a plant at Darou, Senegal. The plant with a
capacity of 313000 TPA phosphoric acid started commercial production in February 1984.
ICS had been consistently supplying phosphoric acid to Kandla unit since commencement of
production. Doubling of the capacity of the existing plant for production of an additional
313000 TPA was taken up at a total investment of US$ 250 million. IFFCO has committed to
purchase the entire quantity of the acid that would be produced by the ICS expansion project.
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Oman India Fertilizer Project
IFFCO and KRIBHCO have entered into a Joint Venture Agreement with Oman Oil
Company (OOC), Oman for setting up of a Urea - Ammonia Fertilizer Plant at a Capital Cost
of US$ 969 million, with a Debt : Equity Ratio of 2:1. The Fertilizer Plant would be located
on the east coast of Oman, and have a capacity of producing 16.52 lakh MT of urea per
annum and surplus Ammonia of 2.5 lakh MT per annum.
Raw Material (Natural Gas) will be supplied by Omani Government under a long Term Gas
Supply Agreement. Entire Urea will be purchased by Government of India for 15 years under
a Urea Off take Agreement. Surplus Ammonia will be purchased by IFFCO for 10 years
under Ammonia Off take Agreement. The main project Agreements, Urea Off take (UOTA),
Ammonia Off take (AOTA) and Gas supply (GSA) were signed on 29th May 2002. Other
Project Agreements have been finalized amongst the Sponsors and the Arranging Banks. The
Arranging Banks, a consortium of International Banks, appointed for arranging Debt
finalized the financing arrangements for the Project. All the contracts leading to the Financial
Closure for the Project have been executed. The zero date for the project was 15 August,
2002. The construction of the Project will be completed in 35 months.
IFFCO and National Commodity & Derivatives Exchange Limited
IFFCO has picked up 12% stake in Commodity Exchange NCDEX recently. IFFCO's
endeavor had always been to ensure that the farmers receive best quality fertilizer input at
economical price. The present association facilitates enhancement in the scope of services for
farmers wherein the farmers can realize higher prices, minimize risk and strive for reliable
market conditions. With this new relationship, farmers & cooperatives will have a newplatform floated by reputed national institutions to herald a new era in Indian agriculture.
The on-line multi commodity exchange promoted by ICICI Bank Limited (ICICI Bank), Life
Insurance Corporation of India (LIC), National Bank for Agriculture and Rural Development
(NABARD) and National Stock Exchange of India Limited (NSE). Punjab National Bank
(PNB) and CRISIL Limited (formerly the Credit Rating Information Services of India
Limited) by subscribing to the equity shares have joined the initial promoters as shareholders
of the Exchange.
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NCDEX is a public limited company incorporated on April 23, 2003 under the Companies
Act, 1956. It obtained its Certificate for Commencement of Business on May 9, 2003. It has
commenced its operations on December 15, 2003.
NCDEX has an independent Board of Directors and professionals not having any vested
interest in commodity markets. It is committed to provide a world-class commodity exchange
platform for market participants to trade in a wide spectrum of commodity derivatives driven
by best global practices, professionalism and transparency.
NCDEX currently facilitates trading of fifteen commodities - Gold, Silver, Soy Bean,
Refined Soy Bean Oil, Rapeseed-Mustard Seed, Expeller Rapeseed-Mustard Seed Oil, RBD
Palmolein, Crude Palm Oil, and Cotton - medium and long staple varieties, Pepper, Rubber,
Jute Sacking, Chana and Guar Seeds. At subsequent phases trading in more commodities
would be facilitated.
IFFCO - Tokio General Insurance Company Limited (ITGI)
IFFCO had done the amalgamation with the Tokio General Insurance Company Limited and
started serving the insurance sector in India as well as in other countries. It involve in General
Insurance Activity, its Corporate Office is situated at New Delhi. The total paid up capital of
Tokio General Insurance Company Limited was Rs 1 billion as on 31st March, 2001. Out of
which IFFCO's share was Rs 510 million i.e. 51% of its paid up capital.
Godavari Fertilisers & Chemicals Limited (GFCL)
Godavari Fertilisers & Chemicals Limited (GFCL) is situated at Kakinada in Andhra
Pradesh. It is producing NPK/DAP fertilisers, its production capacity in P2O5 terms is 1.5
million TPA. The paid up capital of Godavari Fertilisers & Chemicals Limited (GFCL) was
Rs 320 million as on 31st March, 2000. Out of which IFFCO's share was Rs 79.7 million
i.e.24.9% of its paid up capital.
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Indian Potash Limited (IPL)
Indian Potash Limited (IPL) mainly involve in activities like supply of imported potash as
well as supply of imported fertilizers. The paid up capital of Indian Potash Limited (IPL) was
Rs 95 million as on 31st March, 2000. Out of which IFFCO's share was Rs 32.4 million i.e.
34% of its paid up capital.
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UNITS OF IFFCO
KANDLA
PHULPUR
Kalol
lAONLA
PARADEEP
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COMPANY PROFILE
INTRODUCTION OF IFFCO-KANDLA
Kandla Unit Location
State Gujarat, India
State Capital Gandhinagar
District Kutch
Distance from New Delhi Approx. 1100 kilometers by rail
Distance from Mumbai Approx. 800 kilometers by rail
Nearest Airport Kandla Airport, Near Gandhidham,and Bhuj
Airport 65 KM from Gandhidham.
Railway Station Gandhidham (12 Km from plant and 3 Km
from IFFCO's township at Gandhidham)
and Kandla (3 Km from the plant)
Road Adjacent to Kandla Port Trust on National
Highway 8-A, 365 Km. from Ahmedabad
Area under Plant 70.61 Hectares
Area under Township 79.65 Hectares
Temperature (o
C ) 47 (Max.) in summer to 7 (Min.) in winter.
Rainfall (mm) Scarcity
Longitude 70o
13'26" E
Latitude 23o
00'00" N
Address IFFCO, Kandla Unit, Post BoxNo.12,
Gandhidham - 370201, Kandla (Kutch),
Gujarat, INDIA
Phones :91-2836-270381,-270382,-270539 ,-270639,
-270641.FAX : 91-2836-270642, -270658, -270685.
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Website : www. Iffco. nic. In
E-Mail : iffco_kandla@iffco.nic.in
IFFCOs NPK plant is located on the water front adjacent to Kandla Port Trust Oil Jetty. The
plant was built at a cost of about Rs. 30 crores with two streams (called train A and train B)
and with the licensed capacity of 127000 tonnes of P2O5. This plant was designed by the M/s
Door Oliver-Inc to produced three grade ok NPK based on DAP, the plant was commissioned
on 26th November, 1974 and its commercial
production started on 1st January, 1975.
With increase in demand for complex fertilizers,
the capacity of NPK has been doubled at a cost
of about Rs. 28.6 crores. Two more streams
(train C and train D) had been added with the
increased licensed capacity from 127000 MT
P2O5 to 260000 MT P2O5 per annum. The new
two streams are called Kandla Phase 2 was
completed one month ahead of the projected
schedule. This is a rare phenomenon not only in
India but in entire South East Asian region.
Kandla Phase 2 commissioned on 4th June 1981
with the production record for IFFCO. The
production of Kandla Phase 2 was started from 6th September 1981.
IFFCO went for expansion of their unit at Kandla in 1996-97. Kandla phase-II NPK/DAPproject conceptualized the setting up of two additional streams (train E and train F) for
manufacture of the same grades of NPK/DAP fertilizers with an annual production capacity
of 2,10,700 MTPA thus increasing the total capacity from 3,09,000 MTPA of P2O5 to
5,19,700 MTPA of P2O5. The actual cost of the project was Rs. 205.30 crores against a
budgeted cost of Rs. 212.20 crores.
The total annual production of the Kandla unit was 127000 MTPA as on 26 th November,
1974 with two streams (train A and train B), which was increased by 182000 MTPA as on 6 th
VISION
To augment the incremental incomesof farmers by helping them to
increase their crop productivitythrough balanced use of energyefficient fertilizers, maintain the
environmental health and to makecooperative societies economically &
democratically strong for
professionalized services to thefarming community to ensure an
em owered rural India
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September, 1981 by starting two more stream (train C and train D), which was further
increase to 210700 MTPA as on 1999 by introducing two more streams (train E and train F).
So currently the total production capacity of the both plant at Kandla unit is 519700 MTPA.
Currently all six streams (train A, B, C, D, E and F) is working in its full-fledged capacity
and giving its optimum output. In 1974 when the Kandla Unit was started IFFCO was
importing its raw material with help of Kandla Port Trust Oil Jetty and currently Kandla unit
has its own Oil Jetty.
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ACHIEVEMENTS OF IFFCO KANDLA
UNIT
Nineteen Safety Awards from National Safety Council - U.S.A.
Fourteen Safety Awards from the National Safety Council, Bombay, government of
India.
Twenty-six Safety Awards from Gujarat Safety Council, Baroda.
Six Fertilizers Association of India (FAI) Awards for the best overall production
performance during the years 1981, 1982, 1996-97, 1997-98, 1998-99 & 2002-03.
One National Productivity Council (NPC) Best Productivity Award for the year 1997-
98 in the category of Fertilizers Industry - Phosphatic Sector presented in August'00.
One Safety award from FAI for Excellence in Safety for 1999-2000.
One Safety award from Directorate General Factory Advice Service & Labour
Institutes, Ministry of Labor, Government of India Runner, National Safety award
1999.
One Labour, Government of India Runner, National Safety award - 1999".
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INTRODUCTION TO F & A
DEPARTMENT OF IFFCO
Finance is the lifeblood of the business.
According to Howard and Upton Finance
is that administrative area or set of
administrative function in an organization
which relate with the arrangements of cash
and credit so that the organization may
have the means to carry out of its objective
as possible.
FUNCTIONS OF FINANCE AND ACCOUNTS DEPARTMENT
Finance & Accounts Department of
KANDLA Unit is controlled by Head Of
the Department i.e. CM (F & A). His main
function is to co-ordinate all activities
related to Finance & Accounts and report
to Head Offices Finance & Accounts
Department / Finance Director as well Unit
Head. Finance & Accounts Department
function various type of activities as per
the Guidelines issued by Head Office,
Purchase Procedure, Service Rules,
Powers of officer etc.
At present to carry out all the related
activities, following four sectional heads
are reporting to him for work connected to
their Sections. All the four sectional heads
independently report to Departmental
Head. However, in case, Departmental
Head happens on tour or on leave, the next
senior sectional head takes the charge of
the department and remaining here
sectional head will report to him for all the
work connected to their Sections.
Finance department comprises of :
Pay roll section
Raw materials
Fixed assets & insurance
Works bill section
Purchase bill section
Books & budgets
Financial concurrence
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PAY ROLL SECTION
Pay roll section takes care of all the financial issues of employees in co-ordination with
Administrative & Personnel Department. Its functions includes management of salaries,
TA/DA, loans & advances, misc payment related to employees, Perk/There allowance
payments etc. Here records of each employee are maintained regarding basic pay, leave
encashment, medical, salary, increments, promotion based perks , etc.
RAW MATERIALS
Different types of Raw Materials that are required at IFFCO KANDLA Unit are as follows :
P2O5Imported
AmmoniaImported & Indigenous
Potash - Imported
MAP - Imported
UreaKalol
Filler
Raw Material section in F & A department does the accounting of above mentioned raw
material which includes receipt of raw material are purchased, monthly consumption as pert
the production department and payment to the suppliers.
MISCELLANEOUS ACCOUNTS
The miscellaneous jobs can be broadly divided into following categories:
Passing of bills of miscellaneous nature;
Accounting of cash imprest and advances for expenses;
Miscellaneous recoveries from outside agencies.
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Miscellaneous bills includes rates contracts for service contract for air conditioner, water
coolers, weighing machines, franking machines, knitting of chairs, etc. Others miscellaneous
bills includes telephone rentals, STD calls, local calls, teleprinters, fax, service bills,
advertisement bills, electricity bills, printing and block making bills, bills of travel agents,
bills of canteen purchases, etc. Annual Contracts and Hiring of taxi, motors, etc. is also
included in this.
WORKS BILLS
Work bills section is entrusted with the task of checking and authentication of APF receivedfrom various departments such as Civil, Plant, and Township etc. They have to keep record
and maintain account. They have to verify W.R.T. measurements, Tax provisions like TDS
and other deductions like EMD, Security and penalty etc.
PURCHASE BILLS
In purchase bill, treatment is given to the bills on purchase of machinery and tools and sparesetc. for accounting requirements and book keeping as well as record maintenance and tax
deductions and authentication of AFP on purchase of Goods and Services.
FINANCIAL CONCURRENCE
Financial concurrence deals with crosschecking and green signaling the requisition forpurchases made by various indent departments of the unit. They check for the availability of
budget and ascertain its necessity and critically for regular and smooth operations of the
plants and activities of various departments.
BOOKS & BUDGETS
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Books and budget deal with revenue budget compilation, monitoring and control,
reconciliation of inter unit accounts, maintenance of books of accounts and submission of
monthly / quarterly / annual reports, COP processing and attending internal / statutory / tax
auditors.
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BUDGET AND BUDGETARY
CONTROL
IntroductionComplexities are increasing in
running the modern business and
management has to face a number
of problems, which are to be solved
with utmost care. Number of new
tools and techniques are being
evolved and used by management in
modern times to solve such complex
problems of business. Budgeting is
one of such effective tools in the
hands of management. Now
planning has become an inevitable
part of business management. They
have come to realize that success in
business depends to a large extent
on the planning of its activities with
great care and foresight. The
management gets ready to face the
challenges of future contingencies by
peeping into the future. They are
thus able to keep off the heavy
financial losses and fatal errors.
It is through budgeting that the
management is able to guide the
business in proper direction.
Budgeting is planning and
controlling, two most importantfunctions of management. It is
perhaps a very important tool for
achieving business objectives.
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Concept of Budget
A budget is a financial and / or quantitative statement, prepared prior to a defined period of
time, of the policy to be perused during that period for purpose of attaining objectives. It may
include income, expenditure and employment of capital
Budgeting is an exercise in allocating scarce economic resources among alternative uses. The
necessary of budgeting arises out of the scarcity of economic resources and the number of
alternative uses in which these resources can be deployed.
An analysis of this definition will reveal the essential features of the budget, namely that:
1. A budget can be expressed in terms of money or quantity, or both.
2. It should be developed prior to the period during which it is to operate.
3. It is set for definite period.
4. Before its preparation, the objective to be attained and the policy to be pursued to
achieve that objective are required to be laid down.
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The Objectives of Setting the
Budgets
A budget is blue print of desired plan of actions or operations. Plans covering
the entire organization and all its functions like purchase, production, sales,
financial management, research & development are expressed through
budget.
The budget serves as a declaration of policies and also defines the objective
for executives at all levels of management.
Budgets provide a means of co-ordination of the business as a whole. In the
process of establishing budgets, the various factors like production capacity,
sales possibilities, are procurement of material, labor, etc. are balanced and
co-ordinate so that all the activities proceed according to the objective.
The budgets inculcate team spirit and are like putting so many heads together
to solve a common problem.
Budgets are means of communication. Complex plans lead down by the top
management are passed on to those whole are responsible for putting them
into action.
Budgets facilitate centralized control with delegated authority and
responsibility. Group according to the responsibilities of different executive
levels, they facilitate decentralization of work.
Budgets are instruments of managerial control by means of which the
management can measure performance in every part of the concern and take
corrective actions as soon as any deviations from budgets come to light.
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What is Budgeting?
Institute of Cost and Management Accountants, England defines A Budget is a
financial and/or quantitative statement, prepared and approved prior to a defined
period of time, of the policy to be pursued during that period for the purpose of
attaining objectives. It may include income, expenditure and employment of
capital.
Budgeting is an exercise in allocating scarce economic resources among
alternative uses. The necessity of budgeting arises out of the scarcity of
economic resources and the number of alternative uses in which these scarce
resources can be deployed.
In brief, budgeting can be defined as The statement of plan of activities of
an organization expressed in financial and/ or quantitative terms for a definite
future.
Objectives of budgeting
The following are some of the important objectives of budgeting:
1. To prevent wastes
2. To control economic expenditures
3. To ensure availability of adequate working capital for efficient operation of
plants.
4. To ensure adequate return on capital employed.
5. To identify and bring to the light areas where prompt action/remedial actions
are required to be taken up by the management.
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Essentials of Budgeting?
Top Management
Clear and realistic goals
Assignment of authority and responsibility
Creation of responsibility centers
Adoption of accounting system
Full participation from all employees
Effective communication system
Budget education Flexibility
Top management support
Top management must realize that budgeting is not merely an accountingdevice but it is an important management tool. Top management must:-
Understand the nature and characteristics of budgeting.
Be convinced that this particular approach to managing is preferable to their
preparation.
Be willing to devote the effort required to make it operative.
Support the program in its entire ramification.
View the results of the planning process as performance commitments.
Clear and Realistic goals
Budgeting is the means to achieve goals and objectives. All planning presupposes
that objectives and goals have been clearly and unambiguously established.
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Budgeting will not succeed if the goals to be achieved are not clear, budget
implementation will not be systematic.
The enterprise objective and budget goals to be achieved through budgeting
should be reasonable and realistic, they should be capable of attainment. Budget
goals should not be set at too higher or too low level. Goals set at very high level
are impossible to attain and as a result, have a depressing effect of the emp loyees
morals. Goals set at a very low level do not give any challenge to employees. Their
achievement does not require any special effort and therefore, employees do not
feel motivated.
Assignment of authority and responsibility
A sound organizational structure is essential for the success of the
budgetary system. Authorities and responsibilities of each should be clearly
identified and established. A sound organizational structure and a clear cut
assignment authorities and responsibilities provide an effective means to achievethe enterprise objective and budget goals in a coordinate manner. The budgetary
system should be established in terms of the assigned authorities and
responsibilities, the performance of each manager should be evaluated
accordingly.
Creation of the responsibility centre
A small firm can possibly be managed by an individual or a small group of
individual but the activities of the large firm cannt be supervised by an individual or
few individuals. For the effective control of all activities, a large firm is divided into
meaningful segment, departments or divisions. Each sub units has certain activities
to perform and its manager is assigned specific authority and responsibility to carry
out those activities, and is held responsible for his decision affecting those
activities. The subunits of an enterprise for the purpose of control are called
responsibility centers or the decision centers.
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For planning and control purposes, responsibility centers are usually classified
into three classes.
Cost centers:
A cost centers is a responsibility center where the manager is responsible only for
costs (expenses) incurred in the sub unit. It is not responsible for profit on
investment in the center. Thus, costs are the primary planning and control data in a
cost center.
Profit center
A profit center is a responsibility centre where is manager is responsible for both
costs and revenue and thus, for profit. A profit is more effective assessment of
performance is both costs and revenues are measure in financial terms. A profit is
more relevant for profit planning and controls it allows measurement of both output
and input units of centers.
Investment center
An investment is responsibility center where the manager is responsible for costs
and revenue as well as investment in assets used by the center. In an investment
center, performance is assessed not only by profit but by relating profit to
investment.
Thus, return on investment is used as the performance evaluation criterion in aninvestment center. In a business, investment are treated as separate firms where
manager is responsible for overall activity affecting cost revenues and investment.
Adoption of the accounting system
Budgeting is based on the data generated by the accounting system. Therefore,
the accounting system should be suitably adopted to facilitate the planning and
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control process; it should be structured around the areas of responsibility. In fact, a
sound budgetary system is primarily creation of a responsibility accounting system.
A responsibility accounting system is primarily oriented towards the organizational
responsibilities and a means to achieving effective control.
Accounting system has two primary aims:-
1) To measure the cost of production
2) To furnish data for planning and control
Full participation
Participation tends to increase commitment; commitment tends to heighten
motivation; motivation which is job oriented tends to make managers work harder
and more productively; and harder more productive work by managers tend to
enhance the companies prosperity; therefore, participation is good.
Effective communication
Communication is the process of the transmitting the ideas or information from one
person to another. The basic purpose of communication is to generate mutual trust
between two or more persons by creating similar understanding of ideas and
thoughts.
A sound budgeting system requires effective communication of
objectives and budget goals and means of implementing budget through the
organization so that a unified effort be directed to accomplish those objectives and
goals.
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Budget education
The success of budgeting, everyone in the enterprise should have confidence in
the budgeting system and should be involved and committed to it. The line
executives, who actually prepares the budgets, but also should understand the
technicalities of budgeting, they should know how to read just the budget when the
circumstances change they must be able to sell the ideas of budgeting to
subordinates in order to seek the meaningful participation and involvement. This
requires a continuous budget educati
Flexibility
A rigidly administered budgeting program causes tension and anxiety
and imposes Straight jackets in implementing the budgets. On the other hand, if
the budgeting program is administrate in a flexible way, managers feel free and
relaxed in implementing the budgets.
Scope of budget
A budget established either as a fixed budget or a flexible budget.
Fixed budget
A fixed budget (static budget) is which is designed for specific planned output level
and is not adjusted to the level of activity attained at the time of comparison
between the budgeted and actual cost. This budget is also known as a planned
budget and it is prepared for short period of time.
Fixed budget is most suited for fixed expenses. Fixed budget are useful where the
plan permits maximum stabilization of production. A fixed budget has only a limited
and is ineffective as a tool for cost control.
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Flexible Budget
Flexible Budget (also known as control budgetor variable budgetor sliding
scale budget) is a budget which is designed to change appropriately withfluctuations in output or turnover and to furnish budget cost for any level of activity
attained.
A flexible budget is small elastic, useful and practical. It takes into account
the changes in the actual circumstances and is useful for purpose of performance
evaluation and control. In order to prepare flexible budget, items of anticipated
expenditure are first , classified into fixed, variable and semi variable.
There are two methods of preparing flexible budget, which are listed as below:
1) Prepare the budget of any activity level which is closer to your expectations
for upcoming year then give the breakup of all items/expenses into fixed and
variable.
2) Formula method: In order to prepare the budget under this method a formula
Y= a + bX, is used, where
a = fixed cost
b = variable cost
Basic Budget
Basic budget is a budget which is established for use unaltered over a long
period of time. This is generally used for capital expenditure, research and
development, acquisition of capital funds, etc.
Current Budget
Current budget is a budget which is established for use over a short period
of time and is related to current conditions.
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Continuous Budget
In continuous budget the period is fixed. For e.g. if the budget is for
January to December, then it will always remain the same. And then if the budgetis revised after 6 months, the revised budget will be for July to December.
Rolling Budget
Rolling budget duration is fixed i.e. if in the budget period some months
have passed then they will be deleted a same number of new months will be
added.
For e.g. if the budget duration is 12 months and the budget is prepare for
January to December and in the budget period Jan, Feb, March have passed then
the revised budget will be prepare for the April-March.
Types of budget
Depending on the requirements of the concern and the purpose of the budget
is to serve; budgets are classified into several types or groups. Some of these are:
1. Responsibility Budget
2. Program Budget
3. Operational Budget
4. functional Budget
5. Financial Budget
6. Capital Budget
7. Performance Budget
Responsibility Budget
Budgets are set for operations by a department or by an executive responsible
for it. The stress therefore is on the control aspect of budgeting.
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Program Budget
Separate budgets are set for each plan or program of action of concern. This
enables management to access the economies of various program.
Operational Budget
The operational budget shows planned operations for the forthcoming period
and include the sales, production, production cost, and the selling and distribution
expenses budget.
Functional Budget
This refers to budget foe each function of business, such as sales, production,
research, purchase, finance etc.
Financial Budget
This includes the cash budget showing the anticipated sources and utilization
of cash, budget balance sheet, and budgeted profit and loss a/c.
Capital Budget
Capital budget relates the capital expenditure. It accesses the economies of
capital expenditure and investment.
Performance Budget
The performance budget is established in such a manner as to plan and
control the performance of individual sectors, area and function of management.
Budgets can also be classified as:
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Classification of budget
Sales budget Long Term Budget
Production Budget Short Term Budget
Purchase Budget Current budget
Personnel Budget
Cash Budget
Capital Budget
Function factor Time Factor
Two Factor effects
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BUDGET INTERLINKED
Sales Budget
Loan to Employees
Capital Expenditure
Bud et
Marketing Budget
Head Office
Administration
Cost of Production
Cash Budget
Production Budget
Purchase Budget
Consumption
Overheads Budget
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STEPS IN FIXATION OF BUDGET:
At IFFCO the following steps are followed for compilation of Budgeting procedure:
FIXATION OF TARGETSa. While initiating the budgeting exercise at the head office level, sale targets are fixed
in consultation with marketing division.
b. Production targets are fixed in consultation with Unit Head after giving due
consideration to various constraints some of which are given below:
Plant capacity i.e. production and storage capacities for raw materials, finished
stock etc.
Capacity utilization.
Availability of raw materials particularly imported raw materials like phos. Acid,
Ammonia, Potash etc.
Availability of power and related policy of Gujarat Electricity Board.
Availability of water and related policy of state water supply board.
Availability of packing materials.
Industrial relation position.
Availability of railway wagons and other transportation media for distribution of
finished products form plants etc.
COMMUNICATION OF TARGETS:
After taking into consideration the above parameters and constraints, Units are advised to
communicate their production plan, consumption norms and other proposals which arereviewed at Head Office. Having due regard to other constraints and parameters with in
the knowledge of top management, production targets are fixed for individual production
units and same are communicated to concerned units. Norms of consumption of raw
materials, utilities, fuel and other items proposed by the units are also reviewed and after
obtaining approval of the top management, the same are also communicated to the
concerned units.
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Detailed circular for initiating the budget exercise is issued to all the units by Executive
Director (Finance) from Head office. The circular contains necessary information and
guidelines required for the purpose of preparation of budgets. Commercial Department at
Head office intimates anticipated rates and quantities of major raw material for adopting
the same in the units budgets proposals particularly in respect of the following items:
Imported Phos.Acid (P2O5)
Imported Ammonia
Imported MOP (Potash)
Bags and other packing materials.
Part of ammonia requirement for Kandla unit is met from Kalol unit. Balance
requirement is either imported or procured indigenously from KRIBHCO, GNFC and
other suppliers. Quantity requirements to be met for ammonia from different sources are
intimated by Head Office. Commercial department consults to Head Office finance
department. Urea requirement for Kandla unit is partially fulfilled from Kalol/Aonla
Plants & Partially by way of Import.
DELEGATION OF RESPONSIBILITY FOR FORMULATINGREVENUE
Budget proposals at unit level.
On receipt of the communication from Head office regarding formulation of budget, a
meeting is arranged by Unit Head with all Head of the Departments to explain various
important aspects of budget to be prepared. The compilation of revenue budget is
coordinated by Head of Finance and Accounts Department, who is responsible forcollecting the required data from all the concerned and compiled budget proposals,
discusses the same with the unit head and submits the budget proposal to Head Office
within the scheduled date prescribed in the Head office circular/communication.
Budgeting process at unit level:
Based on the preliminary discussion, detailed circular is issued by the Unit Head for
initiating budgeting exercise at unit level to all the Head of Department. The budgeting
exercise at unit level to all the concerned departments like sanctioned budget and actual
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expenditure up to the period of the year and other particulars/information are furnished to
the concerned departmental Heads and they are advised to formulate the budget
requirements for their activities on Conventional Budgeting Concept i.e. not by
adopting percentage increase or decrease on the past data but all activities proposed to be
taken up for the ensuring budget period, are required to be identified and budget
requirements are required to be furnished accordingly with complete details and working
separately item wise for each activity proposed to be taken in the ensuring budget period.
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CONTRIBUTION OF VARIOUS DEPARTMENTS IN BUDGETING PROCESS
Contribution of v