ASTUDYONFIXEDASSETSMANAGEMENTAT

KesoramCement

AProjectreportsubmittedtoJawaharlalNehruTechnologicalUniversity,
Hyderabad,fortheawardofdegree

MASTEROFBUSINESSADMINISTRATION

By

PRAVEENIRRINKI

Reg.No.10241E0017

UndertheGuidanceof

Prof.INDIRAMADAM

DepartmentofManagementStudies

GokarajuRangarajuInstituteofEngineering&Technology

(AffiliatedtoJawaharlalTechnologicalUniversity,Hyderabad)

Hyderabad

20102012

CERTIFICATE

ThisistocertifythattheprojectentitledAStudyonFixedAssetManagement

hasbeensubmittedbyMr.PRAVEENIRRINKI(Reg.No.10241E0017)inpartial

fulfillmentoftherequirementsfortheawardofMasterofBusinessAdministrationfrom

JawaharlalNehruTechnologicalUniversity,Hyderabad.Theresultsembodiedinthe

projecthasnotbeensubmittedtoanyotherUniversityorInstitutionfortheawardofany

DegreeorDiploma.

Smt.INDIRA

Sri.KVSRaju

InternalGuide Professor&HOD
AssociateProfessor

DepartmentofManagementStudies

DepartmentofManagementStudies GRIET
GRIET

Mr.S.RavindraChary
ProjectCoordinator

AssociateProfessor
DepartmentofManagementStudies

GRIET

DECLARATION

IherebydeclarethattheprojectentitledAstudyonfixedassetmanagementat

KesoramCementsubmittedinpartialfulfillmentoftherequirementsforawardofthe

degreeofMBAatGokarajuRangarajuInstituteofEngineeringandTechnology,
affiliatedtoJawaharlalNehruTechnologicalUniversity,Hyderabad,isanauthenticwork
andhasnotbeensubmittedtoanyotherUniversity/Instituteforawardofany
degree/diploma.

PRAVEENIRRINKI

(10241E0017)

MBA,GRIET

HYDERABAD

ACKNOWLEDGEMENT

FirstlyIwouldliketoexpressourimmensegratitudetowardsourinstitutionGokaraju
RangarajuInstituteofEngineering&Technology,whichcreatedagreatplatformtoattain
profoundtechnicalskillsinthefieldofMBA,therebyfulfillingourmostcherishedgoal.

IwouldthankallthefinancedepartmentofKesoramspeciallyMr.MURTHYASSTManager
Financeforguidingmeandhelpingmeinsuccessfulcompletionoftheproject

IamverymuchthankfultoourProf.INDIRA(InternalGuide)sirforextendinghiscooperation
indoingthisproject.

IamalsothankfultoourprojectcoordinatorProf.S.RAVINDRACHARYforextendinghis
cooperationincompletionofProject..

Iconveymythankstomybelovedparentsandmyfacultywhohelpedmedirectlyorindirectly
inbringingthisprojectsuccessfully.

PRAVEENIRRINKI(10241E0017)

INDEX

S.No:
CONTENTS
PAGENO.
CHAPTER1

18

INTRODUCTION

ScopeoftheStudy

ObjectivesoftheStudy

MethodologyoftheStudy

LimitationsoftheStudy

CHAPTER2

928

INDUSTRYPROFILE

COMPANYPROFILE

CHAPTER3

2944

REVIEWOFLITERATURE

CHAPTER4

4556

DATAANALYSISANDINTERPRETATION

CHAPTER5

5762

FINDINGS

CONCLUSION

SUGGESTION

BIBLIOGRAPHY

CHAPTERI

INTRODUCTION

INTRODUCTION

FixedAssetsaretheassetsheldwiththeintentionofbeingusedoncontinuousbasisforthepurposeof
producingorprovidinggoodsorservicesandarenotheldforresaleinthenormalcourseofbusiness.

E.g.:LandandBuildings,PlantandMachinery,MotorVehicles,FurnitureandFixtures.

Valuationoffixedassetsisimportanttohavefairmeasureofprofitorlossandfinancialpositionof
theconcern.Fixedassetsaremeantforuseformanyyears.Thevalueoftheseassetsdecreaseswith
theiruseorwithtimeormanyotherreasons.Aportionoffixedassetsarereducedbyusageare
convertedintocashthroughchargingdepreciation.Forcorrectmeasurementofincome,proper
measurementofdepreciationisessential,asdepreciationconstitutesaPartoftotalcostofproduction.

Financialtransactionsarerecordedinthebooks,keepinginviewthegoingconcernaspectofthe
businessunit.Ingoingconcernaspectitisassumedthatthebusinessunithasreasonableexpectation
ofcontinuingthebusinessforaprofitforanindefiniteperiodoftime.Thisassumptionprovidesmuch
ofthejustificationforrecordingfixedassetsatoriginalcostanddepreciatingtheminasystematic
mannerwithoutreferencetotheircurrentrealizablevalue.

Itisuselesstorecordthefixedassetsinthebalancesheetattheirestimatedrealizablevaluesifthereis
noimmediateexpectationofsellingthem.So,theyareshownattheirbookvalue(i.e.,Cost
Depreciation)andnotatcurrentrealizablevalue.Themarketvalueofthefixedassetsmaychange
withthepassageoftime,butforaccountingpurposeitcontinuestobeshowninthebooksinhistorical
cost.

Thecostconceptofaccountingstatesthatdepreciationcalculatedonthebasisofhistoricalcostofold
assetsisusuallylowerthantheamountcalculatedatcurrentvalue/replacementvalue.Theseresultsin
moreprofits,whichifdistributedinfullwillleadtoreductionincapital.

FIXEDASSETSMANAGEMENTCYCLE

Thefixedassetsmanagementcycleisthecycleofactivitiesfromtheacquisitionoftheassettothe
finaldispositionoftheassetsattheendoftheirusefullife.

Thecyclehas7steps:

Acquisition:Thecyclebeginswiththeacquisition,purchase,giftorotherwise,ofanassetandthe
determinationthattheassetistobecapitalized.Tobecapitalizedtheassethastomeettheagencys
capitalizationlimitandhaveausefullifeofoneyearormore.

Receiving:Theassetisformallyreceivedandacceptedbytheagency.Receiptmaybeverifiedby
entryintoanautomatedpurchasingsystemorbyhardcopydocument.Inthecaseofdonatedfixed
assets,receiptcanbeverifiedbyalettertothedonor.

Payment:Paymentismadefortheassetaccordingtothetermsofthepurchaseorderorrecognition of
acceptanceofagifttothedonor.Thepaymentincludestheacquisitioncost,freightandallothercoststo
puttheasset.Acquisitioncostofdonatedfixedassetsisdeterminedbyitsfairmarketvalue.

Identification:theassetisidentifiedasanasset,taggedorotherwiseidentifiedandenteredintothe
fixedassetsmanagementinventorysystem.Assetsareidentifiedwithapermanentlyattached
identificationtag,etchingorbypaintingontheidentificationnumber.

Inventory:Thelongeststepinthecycle.Theassetisusedoveritsusefullife.Assetsare
inventoriedandaccountedforduringthisstepuntiltheyarenolongerneeded.Theagencyspolicies
andproceduresdeterminetheinventoryinterval.

Excess:theassetisdeclaredasexcesstotheusersneeds.Theassetmaybetransferredtoanother
userwhereitwillcontinuetobeused,accountedforandinventoried.Assetsmaybedeclaredas
excessmorethanonceuntiltheassetisnolongerneeded.

Surplus:thelaststepinthefixedassetsmanagementcycle.Theassetisdeclaredtobesurplus
propertyandtohavenofurthervaluetotheagency.Theassetisdisposedofbysaleordiscarding
dependingontheresidualvalue.Salecanbebyauction,sealedbid,spotsale,orthroughasalesstore.

FIXEDASSETSMANAGEMENTCYCLE

NEEDANDIMPORTANCEOFTHESTUDY:

Asfixedassetsplayanimportantroleincompanysobjectives.Thesefixedarenotconvertibleornot
liquidableoveraperiodoftime.Theownersfundsandlongtermliabilitiesareinvestedinfixed
assets.

Iffirmsfixedassetsareidleandnotutilizedproperlyitaffectsthelongtermsustainabilityofthefirm,
whichmayaffectliquidityandsolvencyandprofitabilitypositionsofthecompany.

Fixedassetsaretheassetswhichcannotbeliquidatedintocashwithinoneyear.Thehugeamountsof
fundsofthecompanyareinvestedintheseassets.Everyyearcompanyinvestsanadditionalfundin
theseassetsdirectlyorindirectly.Thesurvivalandotherobjectivesofthecompanydependon
operatingperformanceofmanagementi.e.effectiveutilizationoftheseassets.

10

OBJECTIVESOFTHESTUDY:

Thefollowingaretheobjectivesofthestudy

Toassesstheamountofcapitalexpendituremadebythecompanyduringtheperiodofstudy200708
to201011.

ThestudyisconductedtoevaluatethefixedassetsturnoverofKESORAM.

Thestudyisconductedtoevaluatewhetherfixedassetsaregivingadequatereturnstothecompany.

Toevaluatethatiffixedassetsareliquidated,whatproportionofitwillcontributeforthepaymentof
ownersfundandlongtermobligations.

11

METHODOLOGY:

Thedatausedfortheanalysisandinterpretationisfromannualreportsofthecompanyi.e.,
secondaryformsofdata.Ratioanalysisisusedforcalculationpurpose.

Theprojectispresentedusingtables,graphsandwiththeirinterpretations.Nosurveyis
undertakenorobservationstudyisconductedbyevaluatingfixedassetsperformanceofthe
company.

SOURCESOFDATA:

Thedataneededforthisprojectiscollectedfromthefollowingsources:1.Thedataisadopted
purelyfromsecondarysources.

2.Thetheoreticalcontentsaregatheredpurelyfromeminenttextbooksandreferences.3.Thefinancial
dataandinformationisgatheredfromannualreportsofthecompany.

SCOPEOFTHESTUDY:

TheprojectiscoveredonfixedassetsofKESORAM.Drawnfromannualreportsofthecompany.
Thesubjectmatterislimitedtofixedassets,itsanalysisanditsperformancebutnottoanyother
areasofaccountingcorporate,marketingandfinancialmatters.

12

LIMITATIONS:

Thefollowingarethelimitationsforthestudy

ThestudyislimitedintothedateandinformationprovidedbytheKESORAManditsannual
reports.

ThereportmaynotprovideexactfixedassetsstatusandpositionofKESORAM;itmaybe
varyingfromtimetotimeandsituationtosituation.

ThisreportisnothelpfulininvestinginKESORAM

Eitherthroughdisinvestmentsorcapitalmarket.

Theaccountingprocedureandotheraccountingprinciplesarelimitedbythechangesmadeby
thecompany,mayvaryfixedassetsperformance.

13

CHAPTERII

INDUSTRYPROFILE
&
COMPANYPROFILE

14

INDUSTRYPROFILE
Inthemostgeneralsenseoftheword,acementisabinder,asubstancewhichsetsandhardens
independently,andcanbindothermaterialstogether.Theword"cement"tracestotheRomans,
whousedtheterm"opuscaementicium"todescribemasonrywhichresembledconcreteandwas
madefromcrushedrockwithburntlimeasbinder.Thevolcanicashandpulverizedbrick
additiveswhichwereaddedtotheburntlimetoobtainahydraulicbinderwerelaterreferredto
ascementum,cimentum,cmentandcement.Cementsusedinconstructionarecharacterizedas
hydraulicornonhydraulic.

Themostimportantuseofcementistheproductionofmortarandconcretethebondingof
naturalorartificialaggregatestoformastrongbuildingmaterialwhichisdurableinthefaceof
normalenvironmentaleffects.

Concreteshouldnotbeconfusedwithcementbecausethetermcementrefersonlytothedry
powdersubstanceusedtobindtheaggregatematerialsofconcrete.Upontheadditionofwater
and/oradditivesthecementmixtureisreferredtoasconcrete,especiallyifaggregateshavebeen
added.

Itisuncertainwhereitwasfirstdiscoveredthatacombinationofhydratednonhydrauliclime
andapozzolanproducesahydraulicmixture(seealso:Pozzolanicreaction),butconcretemade
fromsuchmixtureswasfirstusedonalargescalebyRomanengineers.Theyusedbothnatural
pozzolans(trassorpumice)andartificialpozzolans(groundbrickorpottery)intheseconcretes.
Manyexcellentexamplesofstructuresmadefromtheseconcretesarestillstanding,notablythe
hugemonolithicdomeofthePantheoninRomeandthemassiveBathsofCaracalla.Thevast
systemofRomanaqueductsalsomadeextensiveuseofhydrauliccement.Theuseofstructural
concretedisappearedinmedievalEurope,althoughweakpozzolanicconcretescontinuedtobe
usedasacorefillinstonewallsandcolumns.

Moderncement

ModernhydrauliccementsbegantobedevelopedfromthestartoftheIndustrialRevolution
(around1800),drivenbythreemainneeds:

Hydraulicrendersforfinishingbrickbuildingsinwetclimates

Hydraulicmortarsformasonryconstructionofharborworksetc,incontactwithseawater.
Developmentofstrongconcretes.

15

InBritainparticularly,goodqualitybuildingstonebecameevermoreexpensiveduringaperiod
ofrapidgrowth,anditbecameacommonpracticetoconstructprestigebuildingsfromthenew
industrialbricks,andtofinishthemwithastuccotoimitatestone.Hydrauliclimeswerefavored
forthis,buttheneedforafastsettimeencouragedthedevelopmentofnewcements.Most
famouswasParker's"Romancement."ThiswasdevelopedbyJamesParkerinthe1780s,and
finallypatentedin1796.Itwas,infact,nothinglikeanymaterialusedbytheRomans,butwasa
"Naturalcement"madebyburningseptarianodulesthatarefoundincertainclaydeposits,and
thatcontainbothclaymineralsandcalciumcarbonate.Theburntnodulesweregroundtoafine
powder.Thisproduct,madeintoamortarwithsand,setin515minutes.Thesuccessof
"RomanCement"ledothermanufacturerstodeveloprivalproductsbyburningartificial
mixturesofclayandchalk.

JohnSmeatonmadeanimportantcontributiontothedevelopmentofcementswhenhewasplanning
theconstructionofthethirdEddystoneLighthouse(17559)intheEnglishChannel.Heneededa
hydraulicmortarthatwouldsetanddevelopsomestrengthinthetwelvehourperiodbetween
successivehightides.Heperformedanexhaustivemarketresearchontheavailablehydrauliclimes,
visitingtheirproductionsites,andnotedthatthe"hydraulicity"ofthelimewasdirectlyrelatedtothe
claycontentofthelimestonefromwhichitwasmade.Smeatonwasacivilengineerbyprofession,
andtooktheideanofurther.ApparentlyunawareofSmeaton'swork,thesameprinciplewas
identifiedbyLouisVicatinthefirstdecadeofthenineteenthcentury.Vicatwentontodevisea
methodofcombiningchalkandclayintoanintimatemixture,and,burningthis,producedan
"artificialcement"in1817.JamesFrost,orkinginBritain,producedwhathecalled"Britishcement"
inasimilarmanneraroundthesametime,butdidnotobtainapatentuntil1822.In1824,Joseph
Aspdinpatentedasimilarmaterial,whichhecalledPortlandcement,becausetherendermadefrom
itwasincolorsimilartotheprestigiousPortlandstone.

Alltheaboveproductscouldnotcompetewithlime/pozzolanconcretesbecauseoffastsetting
(givinginsufficienttimeforplacement)andlowearlystrengths(requiringadelayofmanyweeks
beforeformworkcouldberemoved).Hydrauliclimes,"natural"cementsand"artificial"cementsall
relyupontheirbelitecontentforstrengthdevelopment.Belitedevelopsstrengthslowly.Because
theywereburnedattemperaturesbelow1250C,theycontainednoalite,whichisresponsiblefor
earlystrengthinmoderncements.ThefirstcementtoconsistentlycontainalitewasmadebyJoseph
Aspdin'ssonWilliamintheearly1840s.Thiswaswhatwecalltoday

16

"modern"Portlandcement.BecauseoftheairofmysterywithwhichWilliamAspdin
surroundedhisproduct,others(e.g.VicatandICJohnson)haveclaimedprecedenceinthis
invention,butrecentanalysisofbothhisconcreteandrawcementhaveshownthatWilliam
Aspdin'sproductmadeatNorthfleet,Kentwasatruealitebasedcement.However,Aspdin's
methodswere"ruleofthumb":Vicatisresponsibleforestablishingthechemicalbasisofthese
cements,andJohnsonestablishedtheimportanceofsinteringthemixinthekiln.

WilliamAspdin'sinnovationwascounterintuitiveformanufacturersof"artificialcements",
becausetheyrequiredmorelimeinthemix(aproblemforhisfather),becausetheyrequireda
muchhigherkilntemperature(andthereforemorefuel)andbecausetheresultingclinkerwas
veryhardandrapidlyworedownthemillstoneswhichweretheonlyavailablegrinding
technologyofthetime.Manufacturingcostswerethereforeconsiderablyhigher,buttheproduct
setreasonablyslowlyanddevelopedstrengthquickly,thusopeningupamarketforusein
concrete.Theuseofconcreteinconstructiongrewrapidlyfrom1850onwards,andwassoonthe
dominantuseforcements.ThusPortlandcementbeganitspredominantrole.itismadefrom
waterandsand

TypesofmoderncementPortlandcement

Cementismadebyheatinglimestone(calciumcarbonate),withsmallquantitiesofother
materials(suchasclay)to1450Cinakiln,inaprocessknownascalcination,wherebya
moleculeofcarbondioxideisliberatedfromthecalciumcarbonatetoformcalciumoxide,or
lime,whichisthenblendedwiththeothermaterialsthathavebeenincludedinthemix.The
resultinghardsubstance,called'clinker',isthengroundwithasmallamountofgypsumintoa
powdertomake'OrdinaryPortlandCement',themostcommonlyusedtypeofcement(often
referredtoasOPC).

Portlandcementisabasicingredientofconcrete,mortarandmostnonspecialitygrout.The
mostcommonuseforPortlandcementisintheproductionofconcrete.Concreteisacomposite
materialconsistingofaggregate(gravelandsand),cement,andwater.Asaconstruction
material,concretecanbecastinalmostanyshapedesired,andoncehardened,canbecomea
structural(loadbearing)element.Portlandcementmaybegrayorwhite.

Portlandcementblends

17

Theseareoftenavailableasintergroundmixturesfromcementmanufacturers,butsimilar
formulationsareoftenalsomixedfromthegroundcomponentsattheconcretemixingplant.

Portlandblastfurnacecementcontainsupto70%groundgranulatedblastfurnaceslag,with
therestPortlandclinkerandalittlegypsum.Allcompositionsproducehighultimatestrength,
butasslagcontentisincreased,earlystrengthisreduced,whilesulfateresistanceincreasesand
heatevolutiondiminishes.UsedasaneconomicalternativetoPortlandsulfateresistingandlow
heatcements.

Portlandflyashcementcontainsupto30%flyash.Theflyashispozzolanic,sothatultimate
strengthismaintained.Becauseflyashadditionallowsalowerconcretewatercontent,early
strengthcanalsobemaintained.Wheregoodqualitycheapflyashisavailable,thiscanbean
economicalternativetoordinaryPortlandcement.

Portlandpozzolancementincludesflyashcement,sinceflyashisapozzolan,butalso
includescementsmadefromothernaturalorartificialpozzolans.Incountrieswherevolcanic
ashesareavailable(e.g.Italy,Chile,Mexico,thePhilippines)thesecementsareoftenthemost
commonforminuse.

Portlandsilicafumecement.Additionofsilicafumecanyieldexceptionallyhighstrengths,
andcementscontaining520%silicafumeareoccasionallyproduced.However,silicafumeis
moreusuallyaddedtoPortlandcementattheconcretemixer.

Masonrycementsareusedforpreparingbricklayingmortarsandstuccos,andmustnotbeused
inconcrete.TheyareusuallycomplexproprietaryformulationscontainingPortlandclinkeranda
numberofotheringredientsthatmayincludelimestone,hydratedlime,airentrainers,retarders,
waterproofersandcoloringagents.Theyareformulatedtoyieldworkablemortarsthatallow
rapidandconsistentmasonrywork.SubtlevariationsofMasonrycementintheUSarePlastic
CementsandStuccoCements.Thesearedesignedtoproducecontrolledbondwithmasonry
blocks.

Expansivecementscontain,inadditiontoPortlandclinker,expansiveclinkers(usually
sulfoaluminateclinkers),andaredesignedtooffsettheeffectsofdryingshrinkagethatis

normallyencounteredwithhydrauliccements.Thisallowslargefloorslabs(upto60msquare)
tobepreparedwithoutcontractionjoints.

Whiteblendedcementsmaybemadeusingwhiteclinkerandwhitesupplementarymaterials
suchashighpuritymetakaolin.

18

Coloredcementsareusedfordecorativepurposes.Insomestandards,theadditionofpigments
toproduce"coloredPortlandcement"isallowed.Inotherstandards(e.g.ASTM),pigmentsare
notallowedconstituentsofPortlandcement,andcoloredcementsaresoldas"blendedhydraulic
cements".

Veryfinelygroundcementsaremadefrommixturesofcementwithsandorwithslagorother
pozzolantypemineralswhichareextremelyfinelygroundtogether.Suchcementscanhavethe
samephysicalcharacteristicsasnormalcementbutwith50%lesscementparticularlydueto
theirincreasedsurfaceareaforthechemicalreaction.Evenwithintensivegrindingtheycanuse
upto50%lessenergytofabricatethanordinaryPortlandcements.

NonPortlandhydrauliccements

Pozzolanlimecements.Mixturesofgroundpozzolanandlimearethecementsusedbythe
Romans,andaretobefoundinRomanstructuresstillstanding(e.g.thePantheoninRome).They
developstrengthslowly,buttheirultimatestrengthcanbeveryhigh.Thehydrationproductsthat
producestrengthareessentiallythesameasthoseproducedbyPortlandcement.

Slaglimecements.Groundgranulatedblastfurnaceslagisnothydrauliconitsown,butis
"activated"byadditionofalkalis,mosteconomicallyusinglime.Theyaresimilartopozzolan
limecementsintheirproperties.Onlygranulatedslag(i.e.waterquenched,glassyslag)is
effectiveasacementcomponent.

Supersulfatedcements.Thesecontainabout80%groundgranulatedblastfurnaceslag,15%
gypsumoranhydriteandalittlePortlandclinkerorlimeasanactivator.Theyproducestrength
byformationofettringite,withstrengthgrowthsimilartoaslowPortlandcement.Theyexhibit
goodresistancetoaggressiveagents,includingsulfate.

Calciumaluminatecementsarehydrauliccementsmadeprimarilyfromlimestoneandbauxite.
TheactiveingredientsaremonocalciumaluminateCaAl2O4(CaOAl2O3orCAinCement
chemistnotation,CCN)andmayeniteCa12Al14O33(12CaO7Al2O3,orC12A7inCCN).
Strengthformsbyhydrationtocalciumaluminatehydrates.Theyarewelladaptedforusein
refractory(hightemperatureresistant)concretes,e.g.forfurnacelinings.

Calciumsulfoaluminatecementsaremadefromclinkersthatincludeye'elimite(Ca4(AlO2)6SO4or
C4A3 inCementchemist'snotation)asaprimaryphase.Theyareusedinexpansivecements,in
ultrahighearlystrengthcements,andin"lowenergy"cements.Hydrationproducesettringite,and
specializedphysicalproperties(suchasexpansionorrapidreaction)are

19

obtainedbyadjustmentoftheavailabilityofcalciumandsulfateions.Theiruseasalowenergy
alternativetoPortlandcementhasbeenpioneeredinChina,whereseveralmilliontonnesper
yearareproduced.Energyrequirementsarelowerbecauseofthelowerkilntemperatures
requiredforreaction,andtheloweramountoflimestone(whichmustbeendothermically
decarbonated)inthemix.Inaddition,thelowerlimestonecontentandlowerfuelconsumption
leadstoaCO2emissionaroundhalfthatassociatedwithPortlandclinker.However,SO2
emissionsareusuallysignificantlyhigher.

"Natural"CementscorrespondtocertaincementsoftheprePortlandera,producedbyburning
argillaceouslimestonesatmoderatetemperatures.Thelevelofclaycomponentsinthelimestone
(around3035%)issuchthatlargeamountsofbelite(thelowearlystrength,highlatestrength
mineralinPortlandcement)areformedwithouttheformationofexcessiveamountsoffreelime.
Aswithanynaturalmaterial,suchcementshavehighlyvariableproperties.

Geopolymercementsaremadefrommixturesofwatersolublealkalimetalsilicatesand
aluminosilicatemineralpowderssuchasflyashandmetakaolin.

20

COMPANYPROFILE

KesoramCementIndustryisoneoftheleadingmanufacturesofcementinIndia.Itisaday
processcementPlant.Theplantcapacityis8.26lakhtonesperannumItislocatedat
BasanthnagarinKarimnagardistrictofAndhraPradesh.Basanthnagaris8kmawayfromthe
RamagundramRailwaystation,linkingMadrastoNewDelhi.TheChairmanoftheCompanyis
syt.B.K.Birla,

HISTORY:

ThefirstunitatBasanthnagarwithacapacityof2.1lakhtonesperannumincorporatinghumble
suspensionpreheatedsystemwascommissionerduringtheyear1969.Thesecondunitwassetup
inyear1971withacapacityof2.1lakhtonesperannumwentonstreamintheyear1978.The
coalforthiscompanyisbeingsuppliedfromSingereniColleriesandthepowerisobtainedfrom
APSEB.Thepowerdemandforthefactoryisabout21MW.Kesoramhasgot2DGsetsof4
MWeachinstalledintheyear1987.

KesoramCementhassetupa15KWcaptorpowerplanttofacilitateforuninterruptedpower
supplyformanufacturingofcementat24thaugust1997perhour12mw,actualpoweris15mw.

TheCompanywasincorporatedon18thOctober,1919undertheIndianCompaniesAct,1913,
inthenameandstyleofKesoramCottonMillsLtd.IthadaTextileMillat42,GardenReach
Road,Calcutta700024.ThenameoftheCompanywaschangedtoKesoramIndustries&
CottonMillsLtd.on30th

August,1961andthesamewasfurtherchangedtoKesoramIndustriesLimitedon9thJuly,
1986.ThesaidTextileMillatGardenReachRoadwaseventuallydemergedintoaseparate
company.

TheFirstPlantformanufacturingofrayonyarnwasestablishedatTribeni,DistrictHooghly,
WestBengalandthesamewascommissionedinDecember,1959andthesecondplantwas
commissionedintheyear1962enablingittomanufacture4,635metrictonsperannum(mtpa)of
rayonyarn.ThisUnithas6,500metrictonsperannum(mtpa)capacityason31.3.2009.

TheplantformanufacturingoftransparentpaperwasalsosetupatthesamelocationatTribeni,

21

DistrictHooghly,WestBengal,inJune,1961.Ithastheannualcapacitytomanufacture3,600

metric
tons
per
annum
(mtpa)
of
transparent
Paper.
TheCompanydiversified
intomanufacturing
ofcast
ironspun
pipesandpipe
fittingsat

Bansberia,DistrictHooghly,WestBengal,withaproductioncapacityof45,000metrictonsper
annum(mtpa)ofcastironspunpipesandpipefittingsinDecember,1964.

TheCompanysubsequentlydiversifiedintothemanufacturingofCementandin1969
establisheditsfirstcementplantunderthename'KesoramCement'atBasantnagar,Dist.
Karimnagar(AndhraPradesh)andtotakeadvantageoffavourablemarketconditions,in1986
anothercementplant,knownas'VasavadattaCement',wascommissionedbyitatSedam,Dist.

Gulbarga(Karnataka).Thecementmanufacturingcapacitiesatboththeplantswereaugmented
fromtimetotimeaccordingtothemarketconditionsandason31.3.2009KesoramCementand
VasavadattaCementhaveannualcementmanufacturingcapacitiesof1.5millionmetrictonsand

4.1

million metric tons

respectively.

TheCompanyinMarch1992,commissionedaplantatBalasoreknownasBirlaTyresinOrissa,
formanufacturingof10lacMTp.a.automotivetyresandtubesinthefirstphaseincollaboration
withPirelliLtd.,U.K.,asubsidiarycompanyoftheworldfamousPirelliGroupofItalya
pioneerinproductionanddevelopmentofautomotivetyresintheworld.

Thecapacityatthesaidplantwasfurtheraugmentedduringtheyearby19MTperday
aggregatingto271MTperdayproductionfacility.TheGreenfieldProjectof257MTperday
capacityintheStateofUttarakhandwithacapexofaboutRs.760crorescommencedthe
commercialproductioninphasesduringthefinancialyear200809.TheCompanyason
31.3.2009hadthemanufacturingcapacitiesof3.71milliontyres,2.95milliontubesand1.53
millionflapsperannuminthePlantsincludingatUttarakhandPlant.

IthassmallmanufacturingcapacitiesofvariousChemicalsatKhardaintheStateofWest
Bengalalso.Ithastheannualmanufacturingcapacitiesof12,410mtpaofCausticSodaLye,

22

5,045mtpaofLiquidChlorine,6,205mtpaofSodiumHypochlorite,8,200mtpaofHydrochloric
Acid,3,200mtpaofFerricAlum,18,700mtpaofSulphuricAcidand1,620,000m3paof
purifiedHydrogenGas.

TheCompanyisawelldiversifiedentityinthefieldsofCement,Tyre,RayonYarn,Transparent
Paper,SpunPipesandHeavyChemicalswithtwocorebusinesssegmentsi.e.CementandTyres.
InSpunPipes&Foundries,aunitoftheCompany,worksuspendedfrom2ndMay,2008still
commencestillfurthernotice.TheCompanyasofnowislistedonthreemajorStockExchanges
inIndiai.e.BombayStockExchangeLtd.,Mumbai,CalcuttaStockExchangeAssociationLtd.,
KolkataandNationalStockExchangeofIndiaLtd.,MumbaiandattheSocietedelaBoursede
Luxembourg,Luxembourg.

Afurtherexpansionupto1.65milliontonsofcementperannuminVasavadattaCementat
SedaminKarnatakaasunitIVatthesamesiteisinprogress,witha17.5MWCaptivePower
Plant,involvingacapitalexpenditureofaboutRs.783.50crores(includingthecostofCaptive
PowerPlant).

ThecommercialproductionofcementintheaforesaidunitIVhascommencedinJune2009.The
workforthefurtherexpansionintheTyresSectionatUttarakhandforradialtyreswith100MT
perdaycapacityandbiastyreswith125MTperdaycapacityinvolvinganestimatedaggregate
capitaloutlayofaboutRs.840croresisunderprogress.TheBoardhasfurtherapprovedaMotor
CycleTyreProjectof70MTperdaycapacityatthesamesiteinvolvingacapitaloutlayof
Rs.190crore.ThecivilconstructionofboththeProjectsisinfullswing.Thecommercial
productioninboththeProjectsislikelytostartbyDecember2009/January2010.

BirlaSupremeinpopularbrandofKesoramcementfromitsprestigiousplantofBasantnagarin
APwhichhasoutstandingtrackrecord.Inperformanceandproductivityservingthenationfor
thelasttwoandhalfdecades.Ithasproveditsdistinctionbybaggingseveralnationalawards.It
alsohasthedistinctionofachievingoptimumcapacityutilization.

Kesoramoffersachoiceoftopqualityportionedcementforlight,heavyconstructionsandallied
applications.Qualityisbuilteveryfactoftheoperations.

Theplantlayoutisrationaltobeginwith.Thelimestoneisrichincalciumcarbonateakey
factorthatinfluencethequalityoffinalproduct.Thedayprocesstechnologyusesinthelatest
computerizedmonitoringoverseasthemanufacturingprocess.Samplesaresentregularly

23

Kerala
0.29%
Maharashtra
2.81%

ProcessandQualityControl:

IthasbeentheendeavorofKesoramtoincorporatetheWorldslatesttechnologyintheplantand
todaytheplanthasthemostsophisticated.

Xrayanalysis:

FullycomputerizedXRFandXRDXRAYAnalyserskeepaconstantroundtheclockvigilon
quality.

Supremeperformance:

OneofthelargestCementPlantsinAndhraPradesh,theplantincorporatethelatesttechnology
inCementmaking.

ItisprofessionallymanagedandwellestablishedCementManufacturingCompanyenjoyingthe
confidenceoftheconsumers.Kesoramhasoutstandingtrackrecordinperformanceand
productivitywithquiteafewnationalandstateawardstoitscredit.

BIRLASUPREME,the43GradeCement,isawidelyacceptedandpopularbrandinthemarket,
commandingapremium.

Howevertomeetthespecificdemandsoftheconsumer,Kesoramboughtoutthe53grade
BIRLASUPREMEGOLD,whichhasspecialqualitieslikehigherfineness,quicksetting,high
compressivestrengthanddurability.

SupremeStrength:

KesoramCementhashugecaptiveLimestoneDeposits,whichmakeitpossibletofeedhigh
gradelimestoneconsistently,ItsnaturalGreycolourisanionborningredientandgivesgood
shade.

BoththeproductsofferedbyKesoram,i.e.BIRLASUPREME43GradeandBIRLA
SUPREMEGOLD53Gradecementareoutstandingwithmuchhighercompressivestrengthand
durability.

25

Thefollowingcharacteristicsshowtheirdistinctivequalities.

Comprehensive
Opc43
Birla
Opc43gr
Birla
Strength
grls8112
Supreme43
Is1226987
Supreme

1989
grade

Gold53gr

3daysmpa
Min.23
31+
Min.27
38+

7daysmpa
Min.23
42+
Min.37
48+

28daysmpa
Min.43
50+
Min.53
60+

D.C.SYSTEM:

Clinkermakingprocessisakeystepintheoverallcementmakingprocess.InthecaseofBIRLA
SUPREME/GOLD,theclinkermakingprocessistotallycomputer.control.TheDistributed
ControlSystem(DCS)constantlymonitorstheprocessandensuresoperatingefficiency.This
eliminatesvariationandensuresconsistencyinthequalityofClinker.

SUPREMEEXPERTISE:

TheBestTechnicalTeam,exclusivetoKesoram,mansthePlantandmonitorstheprocess,to
blendthecementinjusttherequiredproportions,tomakeBIRLASUPREME/GOLDOFRock
Strength.

18MILLIONTONESOFSOLIDFOUNDATION:

StayingatthetopforoveraQuarterCentury,QuarterCenturyisnolessanachievement.Infact.
Kesoramissynonymouswithforover28years.

Overtheyears,Kesoramhasdispatched18milliontonesofcementtothenookandcornersofthe
countryandjoinedhandsinstrengtheningtheNation.NooneelseinAndhraPradeshhasthis
distinction.TheprestigiousWorldBankaidedRamagundamSuperThermalPowerProjectof
NTPCandMannairDamofPochampadprojectinAParcacoupleofprojectsforwhichKesoram
Cementwasexclusivelyuses:tociteanexample.

26

CHEMICALCHARACTERISTICS:

Opc43gr
Birla
Ope53gr
Birla

Is81132989
Supreme
Is12269
Supreme

43grade
87
Gold53gr.

Lossoninflection%
Max5
<1.6
Max4.0
<1.5

Insolubleresidue%
Max2.0
<0.8
Max2.0
<0.6

Magnesiumoxide%
Max6.0
<1.3
Max6.0
<1.3

Limesaturationfactor
0.661.02

0.80.9
0.81.02
0.880.9

Alumna:ironratio
MinO.66
1.51.7
MinO.66
1.51.7

Sulfuricanhydride%
Max2.5/3
1.62.0
Max2.5/3
1.62.0

AlkalisChlorides
Max0.05
Max0.01
Max0.05
Max0.4

KesoramCementadvantages:

Helpsindesigningsleekerandmoreelegant.Structures,givinggreaterflexibilityindesign
concept.

Duetoitsfinequality,superfineconstructioncanbeachieved..Itsgivesmaximumstrengthat
Minimumuseofcementwithwaterinthewatercementratio,especiallythe53gradeBirlas
supremegold.

FeathersinKesoram'scap:

Kesoramhasoutstandingtrackrecord,achievingover100%capacityutilizationIproductivity
andenergyconservation.Ithasproveditsdistinctionbybaggingseveralnationalandstate
awards,noteworthybeing.

27

NATIONAL:

Nationalproductivityawardfor198586

Nationalproductivityawardfor198687

Nationalawardforminessafetyfor198586

Nationalawardforminessafetyfor198687

Nationalawardforenergyconservation198990

STATE

A.P.Stateproductivityawardfor1988

Stateawardforbestindustrialmanagement198889.

BestindustrialproductivityawardofFAPCCI(federationofA.P.chamberofcommerceand
industry),1991

BestmanagementawardofthestateGovt.1993

FAPCCIawardfortheworkerswelfare,199596.

I.S.O.9002

AllqualitysystemsofKesoramhavebeencertifiedunderI.S.O.9002/1.S.4002,whichproves
theworldwideacceptanceoftheproducts.

AllqualitysystemsinproductionandmarketingoftheproducthavebeencertifiedbyB.I.S.
underISO9002/1S14002.

Thefirstunitwasinstalledatbasanthnagarwithacapacityof2.5lakhsTPA(tonesperannum)
incorporatinghumblesupervision,preheatedsystem,duringtheyear1969.

Thesecondunitfollowedsuitwithaddedacapacityof2lakhsTPAin1971.

Theplantwasfurtherexpandedto9lakhsbyadding2.5lakhstonesinaugust1978,1.13lakhs
tonesinJanuary1981and0.87lakhstonesinSeptember1981.

Power:

Singareincollieriesmakethesupplyofcoalforthisindustryandthepowerwasobtainedfrom
APTRANSCO.Thepowerdemandforthefactoryisabout21MW.Kesoramhasgot2diesel
generatorseatsof4MWeachinstalledintheyear1987.

Kesoramcementnowhasa15MWcaptivepowerplanttofacilitiesforuninterruptedpower
supplyformanufacturingofcement.

28

Performance:

Theperformanceofkersoramcementindustryhasbeenoutstandingachievingovercentpercent
capacityutilizationallthroughdespitemanyoddslikepowercutsandwhichmost40%was
wastedduetowagonshortageetc.

Thecompanybeingacontinuousprocessindustryworksroundtheclockandhasexcellent
recordsofperformanceachievingover1005capacityutilization.

Kesoramhasalwayscombinedtechnicalprogresswithindustrialperformance.Thecompanyhad
glorioustrackrecordforthelast27yearsintheindustry.

Technology:

Kesoramcementusesmostmoderntechnologyandthecomputerizedcontrolintheplant.A
teamofdedicatedandwellexperiencedexpertsmanagestheplant.

ThequalityismaintainedmuchabovethebureauofIndianstandards.Therawmaterialsusedfor
manufacturingcementare:

LimestoneBauxiteHematiteGypsum

EnvironmentalandSocialObligations:

Forenvironmentalpromotionandtokeepuptheecologicalbalancae,thissectionhasplanted
overtwolakhstrees.onsocialobligationfront,thissectionhasundertakenvarioussocialwelfare
programsbyadoptingtennearlyvillages,organizingfamilywelfarecampus,surgicalcamps,
animalhealthcampsblooddonationcamps,childrenimmunizationcamps,seeds,trainingfor
farmersetcwerearranged.

WelfareandRecreationFacilities:

Forthepurposeofrecreationfacilities2auditoriumswereprovidedforplayingindoorgames,
culturalfunctionandactivitieslikedrama,musicanddanceetc.

Theindustryhasprovidedlibrariesandreadingrooms.About1000booksareavailableinthe
library.Allkindsofnewspaper,magazinesaremadeavailable.

Canteenisprovidedtocatertotheneedsoftheemployeesforsupplyofsnacks,tea,coffeeand
mealsetc.

29

OneEnglishmediumandoneTelugumediumschoolareprovidedtomeettheeducational
requirements.

Thecompanyhasprovidedadispensarwithaqualifiedmedicalofficeandparamedicalstafffor
thebenefitoftheemployees.TheemployeescoveredunderESIschemehavetoavailthe
medicalfacilitiesfromtheESIhospital.

Competitionsinsportsandgamesareconductedeveryearforaugust15thIndependenceDayand
January26th,republicdayamongtheemployees.

Electricity:

Thepowerconsumptionpertonofcementhascomedownto108unitsagainst113unitslast
year,duetoimplementationofvariousenergysavingmeasures.Theperformanceofcaptive
powerplantofthissectioncontinuestobesatisfactory.Totalpowergenerationduringtheyear
was84millionunitslastyear.Thiscaptivepowerplantisamajorroleinkeepingpowercosts
withineconomiclevels.

ThemanagementhasintroducedvariousHRDprogramsfortraininganddevelopmentandhas
takenvariousothermeasuresforthebettermentofemployeesefficiency.

ThesectionhasinstalledadequateairpollutioncontrolsystemandequipmentandisISO14001
suchasEnvironmentmanagementsystemisunderimplementation.

Awards:

Kesoramcementbaggedmanyprestigiousawardsincludingnationalawardsforproductivity,
technology,conservationandseveralstateawardssince1984.Thefollowingarethesomeof
importantawards.

30

AWARDSOFKESORAMCEMENT:

National/
No
Year
Awards
state

1
198990
Managementawardcommunity
State

Development

1991
Energyconservationmaydayawardofthe
State

Govt.

3
1991
PanditJawaharlalNehrurollingtrophyfor
State

best

4
1993
NationalproductivityeffortindiraGandhi
State

nationalaward

5
1994
Bestmanagementaward
State

6
1994
Bestindustrialrebellionaward
State

1995

7
1995
Ruraldevelopmentbychiefminister
State

Environmentandmineralconservation

award

8
1995
Bestindustrialrebellionaward
State

9
1995

Besteffortofanindustrialunitto
National

1996
developmentruraleconomyshri.s.r.rungta

awardforsocial

10
1996
Awarenessforbestruraldevelopment
State

efforts

11

1999
Bestworkerswelfarebestfamilywelfare
State

award

12
2001
Firstprizeformineenvironment&pollution
State

controlforthe3rdyearinsuccession

13
2002
VanamithraawardfromAPGovt
State

31

14
2003
CompanyhasgotOHSAS18001
State

15
2005
CertificationfromDNV,NewDelhi.
State

16
2006
Awardforpollutioncontroland
State

environmentalprotectionFAPCCIaward

forbestruraldevelopmentinthestate

32

Productsoftheorganization:

33

CHAPTERIII

REVIEWOFLITERATURE

34

REVIEWOFLITERATURE
Fixedasset:

Fixedasset,alsoknownasanoncurrentassetorasproperty,plant,andequipment(PP&E),isaterm
usedinaccountingforassetsandpropertywhichcannoteasilybeconvertedintocash.Thiscanbe
comparedwithcurrentassetssuchascashorbankaccounts,whicharedescribedasliquidassets.In
mostcases,onlytangibleassetsarereferredtoasfixed.

Moreover,afixed/noncurrentassetcanalsobedefinedasanassetnotdirectlysoldtoafirm's
consumers/endusers.Asanexample,abakingfirm'scurrentassetswouldbeitsinventory(inthis
case,flour,yeast,etc.),thevalueofsalesowedtothefirmviacredit(i.e.debtorsoraccounts
receivable),cashheldinthebank,etc.Itsnoncurrentassetswouldbetheovenusedtobakebread,
motorvehiclesusedtotransportdeliveries,cashregistersusedtohandlecashpayments,etc.Each
aforementionednoncurrentassetisnotsolddirectlytoconsumers.

Theseareitemsofvaluewhichtheorganizationhasboughtandwilluseforanextendedperiodof
time;fixedassetsnormallyincludeitemssuchaslandandbuildings,motorvehicles,furniture,office
equipment,computers,fixturesandfittings,andplantandmachinery.Theseoftenreceivefavorable
taxtreatment(depreciationallowance)overshorttermassets.AccordingtoInternationalAccounting
Standard(IAS)16,FixedAssetsareassetswhosefutureeconomicbenefitisprobabletoflowintothe
entity,whosecostcanbemeasuredreliably.

Itispertinenttonotethatthecostofafixedassetisitspurchaseprice,includingimportdutiesand
otherdeductibletradediscountsandrebates.Inaddition,costattributabletobringingandinstallingthe
assetinitsneededlocationandtheinitialestimateofdismantlingandremovingtheitemiftheyare
eventuallynolongerneededonthelocation.

Theprimaryobjectiveofabusinessentityistomakeprofitandincreasethewealthofitsowners.In
theattainmentofthisobjectiveitisrequiredthatthemanagementwillexerciseduecareanddiligence
inapplyingthebasicaccountingconceptofMatchingConcept.Matchingconceptissimply
matchingtheexpensesofaperiodagainsttherevenuesofthesameperiod.

35

Theuseofassetsinthegenerationofrevenueisusuallymorethanayearthatislongterm.Itis
thereforeobligatorythatinordertoaccuratelydeterminethenetincomeorprofitforaperiod
depreciationischargedonthetotalvalueofassetthatcontributedtotherevenuefortheperiodin
considerationandchargeagainstthesamerevenueofthesameperiod.Thisisessentialinthe
prudentreportingofthenetrevenuefortheentityintheperiod.

Netbookvalueofanassetisbasicallythedifferencebetweenthehistoricalcostofthatassetand
itassociateddepreciation.Fromtheforegoing,itisapparentthatinordertoreportatrueandfair
positionofthefinancialjurisprudenceofanentityitisrelatabletorecordandreportthevalueof
fixedassetsatitsnetbookvalue.ApartfromthefactthatitisenshrinedinStandardAccounting
Statement(SAS)3andIAS16thatvalueofassetshouldbecarriedatthenetbookvalue,itisthe
bestwayofconsciouslypresentingthevalueofassetstotheownersofthebusinessandpotential
investor.

DepreciatingaFixedAsset

Depreciationis,simplyput,theexpensegeneratedbytheuseofanasset.Itisthewearandtear
ofanassetordiminutioninthehistoricalvalueowingtousage.Furthertothis;itisthecostof
theassetlessanysalvagevalueoveritsestimatedusefullife.Itisanexpensebecauseitis
matchedagainsttherevenuegeneratedthroughtheuseofthesameasset.Depreciationisusually
spreadovertheeconomicusefullifeofanassetbecauseitisregardedasthecostofanasset
absorbedoveritsusefullife.Invariablythedepreciationexpenseischargedagainsttherevenue
generatedthroughtheuseoftheasset.Themethodofdepreciationtobeadoptedisbestleftfor
themanagementtodecideinconsiderationtothepeculiarityofthebusiness,prevailing
economicconditionoftheassetsandexistingaccountingguidelineandprinciplesasimpliedin
theorganizationalpolicies.

Itisworthnotingthatnotallfixedassetsdepreciateinvalueyearoveryear.Landandbuildings,
forexample,mayoftenincreaseinvaluedependingonlocalrealestateconditions.

Alongtermtangiblepieceofpropertythatafirmownsandusesintheproductionofitsincome
andisnotexpectedtobeconsumedorconvertedintocashanysoonerthanatleastoneyear's
time.

36

Fixedassetsaresometimescollectivelyreferredtoas"plant".

Balancesheetaccountingforfixedassets

Introduction

Animportantdistinctionismadeinaccountingbetween"currentassets"and""fixedassets".

Currentassetsarethosethatformpartofthecirculatingcapitalofabusiness.Theyarereplaced
frequentlyorconvertedintocashduringthecourseoftrading.Themostcommoncurrentassets
arestocks,tradedebtors,andcash.

Comparecurrentassetswithfixedassets.Afixedassetisanassetofabusinessintendedfor
continuinguse,ratherthanashortterm,temporaryassetsuchasstocks.

Fixedassetsmustbeclassifiedinacompany'sbalancesheetasintangible,tangible,or
investments.Examplesofintangibleassetsincludegoodwill,patents,andtrademarks.Examples
oftangiblefixedassetsincludelandandbuildings,plantandmachinery,fixturesandfittings,
motorvehiclesandITequipment.

Howshouldthechangingvalueofafixedassetbereflectedinacompany'saccounts?

Thebenefitsthatabusinessobtainsfromafixedassetextendoverseveralyears.Forexample,a
companymayusethesamepieceofproductionmachineryformanyyears,whereasacompany
ownedmotorcarusedbyasalesmanprobablyhasashorterusefullife.

Byacceptingthatthelifeofafixedassetislimited,theaccountsofabusinessneedtorecognise
thebenefitsofthefixedassetasitis"consumed"overseveralyears.

Thisconsumptionofafixedassetisreferredtoasdepreciation.

Definitionofdepreciation

FinancialReportingStandard15(coveringtheaccountingfortangiblefixedassets)defines
depreciationasfollows:

37

"thewearingout,usingup,orotherreductionintheusefuleconomiclifeofatangiblefixed
assetwhetherarisingfromuse,effluxionoftimeorobsolescencethrougheitherchangesin
technologyordemandforgoodsandservicesproducedbytheasset.'

Aportionofthebenefitsofthefixedassetwillbeuseduporconsumedineachaccounting
periodofitslifeinordertogeneraterevenue.Tocalculateprofitforaperiod,itisnecessaryto
matchexpenseswiththerevenuestheyhelpearn.

Indeterminingtheexpensesforaperiod,itisthereforeimportanttoincludeanamountto
representtheconsumptionoffixedassetsduringthatperiod(thatis,depreciation).

Inessence,depreciationinvolvesallocatingthecostofthefixedasset(lessanyresidualvalue)
overitsusefullife.Tocalculatethedepreciationchargeforanaccountingperiod,thefollowing
factorsarerelevant:

thecostofthefixedasset;

the(estimated)usefullifeoftheasset;

the(estimated)residualvalueoftheasset.

Whatistherelevantcostofafixedasset?

Thecostofafixedassetincludesallamountsincurredtoacquiretheassetandanyamountsthat
canbedirectlyattributabletobringingtheassetintoworkingcondition.

Directlyattributablecostsmayinclude:

Deliverycosts

Costsassociatedwithacquiringtheassetsuchasstampdutyandimportduties

Costsofpreparingthesiteforinstallationoftheasset

38

Professionalfees,suchaslegalfeesandarchitects'fees

Notethatgeneraloverheadcostsoradministrationcostswouldnotbeincludedaspartofthe
total

costsofafixedasset(e.g.thecostsofthefactorybuildinginwhichtheassetiskept,orthecost
ofthemaintenanceteamwhokeeptheassetingoodworkingcondition)

Thecostofsubsequentexpenditureonafixedassetwillbeaddedtothecostoftheasset
providedthatthisexpenditureenhancesthebenefitsofthefixedassetorrestoresanybenefits
consumed.

Thismeansthatmajorimprovementsoramajoroverhaulmaybecapitalisedandincludedaspart
ofthecostoftheassetintheaccounts.

However,thecostsofrepairsoroverhaulsthatarecarriedoutsimplytomaintainexisting
performancewillbetreatedasexpensesoftheaccountingperiodinwhichtheworkisdone,and
chargedinfullasanexpenseinthatperiod.

WhatistheUsefulLifeofafixedasset?

Anassetmaybeseenashavingaphysicallifeandaneconomiclife.

Mostfixedassetssufferphysicaldeteriorationthroughusageandthepassageoftime.Although
careandmaintenancemaysucceedinextendingthephysicallifeofanasset,typicallyitwill,
eventually,reachaconditionwherethebenefitshavebeenexhausted.

However,abusinessmaynotwishtokeepanassetuntiltheendofitsphysicallife.Theremay
beapointwhenitbecomesuneconomictocontinuetousetheasseteventhoughthereisstill
somephysicallifeleft.

Theeconomiclifeoftheassetwillbedeterminedbysuchfactorsastechnologicalprogressand
changesindemand.Forpurposesofcalculatingdepreciation,itistheestimatedeconomiclife
ratherthanthepotentialphysicallifeofthefixedassetthatisused.

39

WhatabouttheResidualValueofafixedasset?

Attheendoftheusefullifeofafixedassetthebusinesswilldisposeofitandanyamounts
receivedfromthedisposalwillrepresentitsresidualvalue.This,again,maybedifficultto
estimateinpractice.However,anestimatehastobemade.Ifitisunlikelytobeasignificant
amount,aresidualvalueofzerowillbeassumed.

Thecostofafixedassetlessitsestimatedresidualvaluerepresentsthetotalamounttobe
depreciatedoveritsestimatedusefullife.

FixedAssetControls

Thissectioncontainstwodozencontrolsthatcanbeappliedtotheacquisition,valuation,and
disposaloffixedassets.Ofthisgroup,13areconsideredprimarycontrolsandareincludedinthe
flowchartinfigureSystemofFixedAssetControls.Theremaining11controlseitherdonotfit
intothevariousfixedassettransactionflowsorareconsideredsecondarycontrolsthatcan
bolstertheprimarycontrolsasneeded.

Inessence,thesystemofcontrolsforanassetacquisitionrequiresthatinitialfundingapproval
comefromtheannualbudget,aswellasadditionalapprovalthroughaformalcapitalinvestment
formjustpriortotheactualacquisition.Thereshouldalsobeapostinstallationanalysisofhow
actualprojectresultscomparedtotheestimatesshownintheoriginalcapitalinvestmentform.
Thekeycontrolsusedonceanassetisinstalledaretotagit,assignspecificresponsibilityforit,
andensurethatanyassettransfersareapprovedbytheshippingandreceivingmanagers.Finally,
assetdispositioncontrolscallforregulardispositionreviewstoensurethatdispositionsoccur
whileassetsstillretainsomeresalevalue,aformaldispositionapprovalprocess,andproper
trackingofanyresultingreceipts.

40

SystemofFixedAssetControls

Thecontrolsnotedintheflowchartaredescribedatgreaterlengthnext,insequencefromthetop
oftheflowcharttothebottomforeachofthethreetypesoffixedassettransactions.

Obtainfundingapprovalthroughtheannualbudgetingprocess.Theannualbudgetingprocessis
anintensivereviewofoverallcompanyoperationsaswellasofhowcapitalexpendituresare
neededtofulfillthecompanysstrategicdirection.Assuch,capitalexpenditurerequestsshould
beincludedintheannualbudget,therebyensuringthattheywillbeanalyzedinsomedetail.
Expenditurerequestsincludedintheapprovedbudgetstillshouldbesubjectedtosome
additionalapprovalatthepointofactualexpenditure,toensurethattheyarestillneeded.How
ever,expenditurerequestsnotincludedintheapprovedbudgetshouldbesubjectedtoa
considerablyhigherlevelofanalysisandapproval,toensurethatthereisajustifiableneedfor
them.

41

Requireasignedcapitalinvestmentapprovalformpriortopurchase.Giventhesignificant
amountoffundsusuallyneededtoacquireafixedasset,therealwaysshouldbeaformal
approvalprocessbeforeapurchaseorderisissued.Anexampleisshowninfigurebelow.
Dependingonthesizeoftheacquisition,anumberofapprovalsignaturesmayberequired,
extendinguptothecompanypresidentoreventhechairoftheboardofdirectors.

Useprenumberedacquisitionanddisposalforms.Ifthecompanyusesamanualsystemfor
fixedassetacquisitionsanddisposals,thenitshouldacquireasetofprenumberedacquisition
anddisposalforms.Bydoingso,itcankeeptrackofformnumberstoensurethatnoneislost
priortocompletion.Thisisalsoagoodwaytoensurethatemployeesdonotattemptto
submitmultipleacquisitionauthorizationformsforthesameasset,allowingthemtoorder
duplicateassetsandmakeoffwiththeextraitems.Forthistobeafullyfunctionalcontrol,
someonemustbeassignedthetaskofstoringtheformsinasecurelocationandmonitoring
whichformnumbershavebeenreleasedforuse.

Requirereturnoninvestmentcalculationpriortoapproval.Giventheconsiderablesizeof
somefixedassetinvestments,areasonablecontrolistocalculatetheestimatedreturnon
investmenttoseeiftheinvestmentexceedsthecorporatehurdlerate.Thereturncalculation
caninvolveavarietyofapproaches,suchasthepaybackperiod,netpresentvalue,orinternal
rateofreturn.Allthreecalculationsareincludedinthecapitalinvestmentproposalform
showninfigurebelow.

Conductapostcompletionprojectanalysis.Managershavebeenknowntomakeoverly
optimisticprojectionsinordertomakefavorablecasesforassetacquisitions.Thisissuecan
bemitigatedbyconductingregularreviewsoftheresultsofassetacquisitionsincomparison
toinitialpredictionsandthentracingthesefindingsbacktotheinitiatingmanagers.This
approachcanalsobeusedatvariousmilestonesduringtheconstructionofanassettoensure
thatcostsincurredmatchoriginalprojections.

Comparefixedassetserialnumberstotheexistingserialnumberdatabase.Thereisa
possibilitythatemployeesareacquiringassets,sellingthemtothecompany,thenstealingthe
assetsandsellingthemtothecompanyagain.Tospotthisbehavior,alwaysenterthe

42

serialnumberofeachacquiredassetinthefixedassetmasterfile,andthenrunareport
comparingserialnumbersforallassetstoseeifthereareduplicateserialnumbersonrecord.

Independentlyreviewfixedassetmasterfileadditions.Anumberofdownstreamerrorscan
arisewhenfixedassetinformationisenteredincorrectlyinthefixedassetmasterfile.For
example,anincorrectassetdescriptioncanresultinanincorrectassetclassification,whichin
turnmayresultinanincorrectdepreciationcalculation.Similarly,anincorrectassetlocation
codecanresultinthesubsequentinabilitytolocatethephysicalasset,whichinturnmay
resultinanimproperassetdisposaltransaction.Further,anincorrectacquisitionpricemay
resultinanincorrectdepreciationcalculation.Tomitigatetheriskofalltheseerrors,havea
secondpersonreviewallnewentriestothefixedassetmasterfileforaccuracy.

Affixanidentificationplatetoallfixedassets.Ifacompanyacquiresassetsthatarenoteasily
differentiated,thenitisusefultoaffixanidentificationplatetoeachonetoassistinlater
audits.Theidentificationplatecanbeametaltagifdurabilityisanissue,orcanbea
laminatedbarcodetagforeasyscanning,orevenaradiofrequency(RFID)tag.Theperson
responsiblefortaggingshouldrecordthetagnumberandassetlocationinthefixedasset
masterfile.

Assignresponsibilityforassets.Thereisasignificantriskthatassetswillnotbetracked
carefullythroughthecompanyoncetheyareacquired.Toavoidthis,formallyassign
responsibilityforeachassettothedepartmentmanagerwhosestaffusestheasset,andsend
allmanagersaquarterlynotificationofwhatassetsareundertheircontrol.Evenbetter,
persuadethehumanresourcesmanagertoincludeassetcontrolasalineitemintheformal
performancereviewforallmanagers.

Useaformaltransferdocumenttoshiftassetlocations.Iftheprecedingcontrolis
implementedthatassignsresponsibilityforspecificassetstodepartmentmanagers,thenthe
transferofanassettoadifferentdepartmentcallsfortheformalapprovalofthesendingand
receivingdepartmentmanagers.Otherwise,managerscanclaimthatassetsarebeingshifted
withouttheirapproval,sotheyhavenoresponsibilityfortheassets.

43

Conductregularassetdispositionreviews.Fixedassetsdeclineinvalueovertime,soitis
essentialtoconductaregularreviewtodetermineifanyassetsshouldbedisposedofbeforethey
losetheirresalevalue.Thisreviewshouldbeconductedatleastannually,andshouldinclude
representativesfromtheaccounting,purchasing,anduserdepartments.Analternativeapproach
istocreatecapacityutilizationmetrics(whichismosteasilyobtainedforproductionequipment)
andreportonutilizationlevelsaspartofthestandardmonthlymanagementreportingpackage;
thistendstoresultinmoreimmediatedecisionstoeliminateunusedequipment.

Requireasignedcapitalassetdispositionformpriortodisposition.Thereisariskthat
employeescouldselloffassetsatbelowmarketratesordispositionassetsforwhichan
alternativeinhouseusehadbeenplanned.Also,ifassetsareinformallydisposedof,the
accountingstaffprobablywillnotbenotifiedandsowillcontinuetodepreciateanassetno
longerownedbythecompany,ratherthanwritingitoff.Toavoidtheseproblems,requirethe
completionofasignedcapitalassetdispositionform,suchastheoneshowninfigurebelow.

Verifythatcashreceiptsfromassetsalesarehandledproperly.Employeesmaysella
companysassets,pockettheproceeds,andreporttothecompanythattheassetactuallywas
scrapped.Thiscontrolissuecanbereducedbyrequiringthatabillofsaleorreceiptfroma
scrappingcompanyaccompanythefileforeveryassetthathasbeendisposedof.

Theprecedingcontrolswereprimaryonesrequiredaspartofthebasicfixedassettransaction
flows.Inaddition,thenextancillarycontrolseitheraregeneralcontrolsthatoperateoutsideof
anyspecifictransactionoraredesignedtoprovideadditionalriskmitigation.

Segregateresponsibilitiesrelatedtofixedassets.Ifthepersonpurchasinganassetalsoreceives
it,thereisaconsiderableriskthatthepersonwillalterthepurchasingdocumentstoeliminate
evidenceofthereceiptandthenstealtheasset.Thesameconcernappliestoseveralaspectsof
fixedassetstransactions.Acontroloverthissituationistosegregatethesetypesof
responsibilities:
O

Fixedassetacquisition

Fixedassettransactionrecording

Custodyofthefixedasset

44

Fixedassetdisposal

Reconciliationofphysicalassetstoaccountingrecords

Restrictaccesstothefixedassetmasterfile.Thefixedassetmasterfilecontainsallbaseline
informationaboutanassetandisthesourcedocumentfordepreciationcalculationsaswellas
assetlocationinformation.Ifpeopleweretogainillicitaccesstothisfile,theycouldmake
modificationstochangedepreciationcalculations(therebychangingfinancialresults)aswell
asmodifylocations(possiblyresultingintheftoftheassets).Toavoidtheseproblems,
alwaysusepasswordcontrolstorestrictaccesstothefixedassetmasterfile.

Restrictfacilityaccess.Ifthecompanyownsfixedassetsthatcanbeeasilymovedandhavea
significantresalevalue,thereisariskthattheywillbestolen.Ifso,considerrestricting
accesstothebuildingduringnonworkhoursandhireasecuritystafftopatroltheperimeter
oratleasttheexits.

InstallanalarmsystemtodetectRFIDtaggedassets.Ifthecompanyhasespeciallyvaluable
fixedassetsthatcanbemoved,thenconsideraffixingaRFIDtagtoeachoneandthen
installingatransceiverneareverybuildingexitthatwilltriggeranalarmiftheRFIDtag
passesbythetransceiver.

Reconcilefixedassetadditionswithcapitalexpenditureauthorizations.Agooddetective
controltoensurethatallacquisitionshavebeenauthorizedproperlyistoperiodically
reconcileallfixedassetadditionstothefileofapprovedcapitalexpenditureauthorizations.
Anyacquisitionsforwhichthereisnoauthorizationpaperworkarethenflaggedfor
additionalreview,typicallyincludingreportingofthecontrolbreachtomanagement.

Increasethecapitalizationlimit.Akeyproblemwithfixedassettrackingisthatitinvolvesa
considerableamountofadditionalpaperworkaswellasongoingdepreciationcalculations,
whichmaysooverwhelmtheaccountingstaffthattheyarestrugglingtokeepupwiththe
paperworkratherthanfocusingonpropercontroloftheassetsthemselves.This
recommendedcontrolmayseemcounterintuitive,butincreasingthecapitalizationlimit
reducesthenumberofassetsdesignatedasfixedassets,therebyallowingtheaccountingstaff
tofocusitsattentionontheproperapproval,tracking,and

45

dispositionofasmallernumberoflargedollarassets.Thus,oversightofsmallerassetsis
abandonedinfavorofgreaterinspectionoflargedollarassettransactions.

Conductaperiodicfixedassetaudit.Theinternalauditstaffshouldscheduleaperiodicaudit
offixedassets,reconcilingtheonhandinventorytotheaccountingrecords.Giventhe
considerablequantityoffixedassetsthatmanycompaniesmaintain,itisacceptabletofocus
onthe20percentoffixedassetsthattypicallyaccountfor80percentoftheinvestedcostof
allfixedassets.Anexampleofareportsuitableforafixedassetauditisshowninfigure
below.

Verifythefairvalueassumptionsondissimilarassetexchanges.Accountingrulesallowone
torecordagainorlossontheexchangeofdissimilarassets.Sincethiscalculationisbasedon
thefairvalueoftheassetsinvolved(whichisnotstatedintheaccountingrecords),the
possibilityexistsforsomeonetoartificiallycreateanassetfairvaluethatwillresultinagain
orloss.Thissituationcanbeavoidedbyhavinganoutsideappraiserreviewthefairvalue
assumptionsusedinthistypeoftransaction.

Testforassetimpairment.Thereareavarietyofcircumstancesunderwhichthenetbook
valueofanassetshouldbereducedtoitsfairvalue,whichcanresultinsignificantreductions
intherecordedvalueofanasset.Thistestrequiresasignificantknowledgeofthetypesof
marketsinwhichacompanyoperates,theregulationstowhichitissubject,andtheneedfor
itsproductswithinthosemarkets.Consequently,onlyaknowledgeablepersonwhoisatleast
atthelevelofacontrollershouldbereliedontodetectthepresenceofassetswhosevalues
arelikelytohavebeenimpaired.

Verifythatcorrectdepreciationcalculationsarebeingmade.Thoughthereisnopotential
lossofassetsifincorrectdepreciationcalculationsarebeingmade,itcanresultinan
embarrassingadjustmenttoacompanysfinancialstatementsatsomepointinthefuture.
Thiscontrolshouldincludeacomparisonofcapitalizeditemstotheofficialcorporate
capitalizationlimittoensurethatitemsarenotbeinginappropriatelycapitalizedand
depreciated.Thecontrolshouldalsoincludeareviewoftheassetcategoriesinwhicheach
individualassethasbeenrecorded,toensurethatanassethasnotbeenmisclassifiedand
thereforeincorrectlydepreciated.

46

Verifythatallchangesinassetretirementobligationassumptionsareauthorized.Acompanycan
artificiallyincreaseitsshorttermprofitabilitybyalteringtheassumedamountoffuturecashflows
associatedwithitsassetretirementobligations.Sincedownwardrevisionstotheseassumptionswillbe
reflectedinthecurrentperiodsincomestatementasagain,anychangestotheseassumptionsshould
beapprovedpriortoimplementation.

MANAGEMENTOFFIXEDASSETS:

Theselectionofvariousfixedassetsrequiredforcreatingthedesiredproductionfacilitiesandthe
decisionregardingthedeterminationofleveloffixedassetsinthecapitalstructureisanimportant
decisionforthecompanytotakeforthesmoothrunningofbusiness.Thedecisionsrelatingtofixed
assetsinvolvehugefundsforlongperiodoftimeandaregenerallyofirreversiblenatureaffectingthe
longprofitabilityofthebusiness.Thus,managementoffixedassetisofvitalimportancetoany
organization.

TheprocessofFixedAssetsManagementinvolves:

Selectionofmostworthyprojectsfromthedifferentalternativesoffixedassets.

Arrangingtherequisitefunds/capitalforthesame.

Thefirstimportantconsiderationistoacquireonlythatamountoffixedassets,whichwillbejust
sufficienttoensuresmoothandefficientrunningofthebusiness.Insomecasesitmaybeeconomical
tobuycertainassetsinalotsize.Anotherimportantconsiderationtobekeptinmindispossible
increaseinthedemandofthefirmsproductneedstheexpansionofactivities.Henceafirmshould
havethatamountoffixedassets,whichcouldadjusttoincreasedemand.

Anotheraspectoffixedassetsmanagementisthatafirmmustensurebufferstocksofcertainessential
equipmentstoensureuninterruptedproductionintheeventsofemergencies.Sometimes,theremay

somebreakdowninsomeequipmentsorservicesaffectingtheentireproduction.Itisalwaysbetterto
havesomealternativearrangementstodealwithsuchsituationsbutatthesametimethecostof
carryingsuchbufferstockshouldalsobeevaluated.Effortsshouldalsobemadetominimizethelevel
ofbufferstockoffixedassetssothattherewillbemaximumutilizationduringthatperiod.

Fixedassetsmanagementisanaccountingprocessthatseekstotrack

47

Fixedassetsforthepurposesoffinancialaccounting,preventive

Maintenance,andtheftdeterrence.

Manyorganizationsfaceasignificantchallengetotrackthelocation,

quantity,condition,maintenanceanddepreciationstatusoftheirfixed

assets.Apopularapproachtotrackingfixedassetsutilizesserial

numberedAssetTags,oftenwithbarcodesforeasyandaccuratereading.

Periodically,theowneroftheassetscantakeinventorywithamobile

Barcodereaderandthenproduceareport.

Offtheshelfsoftwarepackagesforfixedassetmanagementaremarketed

tobusinessessmallandlarge.SomeEnterpriseResourcePlanning

Systemsareavailablewithfixedassetsmodules.

Investmentmanagementistheprofessionalmanagementofvarious

securities(shares,bondsetc)andotherassets(e.g.realestate),tomeet

specifiedinvestmentgoalsforthebenefitoftheinvestors.Investorsmay

beinstitutions(insurancecompanies,pensionfunds,corporationsetc.)or

privateinvestors(bothdirectlyviainvestmentcontractsandmore

commonlyviacollectiveinvestmentschemeseg.mutualfunds).

Thetermassetmanagementisoftenusedtorefertotheinvestment

managementofcollectiveinvestments,whilstthemoregenericfund

48

managementmayrefertoallformsofinstitutionalinvestmentaswellas

investmentmanagementforprivateinvestors.Investmentmanagerswho

specializeinadvisoryordiscretionarymanagementonbehalfof

(normallywealthy)privateinvestorsmayoftenrefertotheirservicesas

wealthmanagementorportfoliomanagementoftenwithinthecontext

ofsocalled"privatebanking".

Theprovisionof'investmentmanagementservices'includeselementsof

financialanalysis,assetselection,stockselection,planimplementation

andongoingmonitoringofinvestments.

Investmentmanagementisalargeandimportantglobalindustryinits

ownrightresponsibleforcaretakingoftrillionsofdollars,euros,pounds

andyen.Comingundertheremitoffinancialservicesmanyofthe

world'slargestcompaniesareatleastinpartinvestmentmanagersand

employmillionsofstaffandcreatebillionsinrevenue.

Fundmanager(orinvestmentadvisorintheU.S.)referstobothafirm

thatprovidesinvestmentmanagementservicesandanindividual(s)who

directs'fundmanagement'decisions

49

CHAPTERIV

DATAANALYSIS
&
INTERPRETATION

50

DATAANALYSIS&INTERPRETATION
TRENDANALYSIS:

Infinancialanalysisthedirectionofchangeoveraperiodofyearsisofinitialimportance.Timeseries
andtrendanalysisofratioindicatesthedirectionofchanges.Thiskindofanalysisisparticularly
applicabletotheprofitandlossaccount.Itisadvisablethattrendsofsalesandnetincomemaybe
studiedinthelightoftwofactors.Thegeneralpricelevelthatmightbefoundinpracticeisthata
numberoffirmswouldbeshownatpersistentgrowthoverperiodofyearsbuttogeta

truetrendofgrowth,thesalesfigureshouldbeadjustedbyasuitableindexofgeneralprices.

Inotherwords,salesfiguresshouldbedeflatedforraisingpricelevel.Anothermethodofsecuring
trendofgrowthandtheonewhichcanbeusedinsteadofadjustedsalesfigureorastocheckonthem
istotabulateandlottheoutputofphysicalvolumeofthesalesexpressedinsuitableunitsofmeasure.
Thegeneralpricelevelisnotconsideredwhileanalyzingtrendingrowthasitcanmislead
management.Theymaybecomeundulyoptimisticinperiodofprosperityandpessimisticindual

periods.

Fortrendanalysistheuseofindexnumbersisgenerallyadvocated,theprocedurefollowedistoassign
thenumberstoitemsofbaseyearsandatcalculatedpercentagechangeineachitemofother

yearsinrelationtobaseyear.ThisproceduremaybecalledasFixedpercentagemethod.

This

margindeterminesthedirectionofupwardordownwardandinvolvestheimplementationofthe
percentagerelationshipofeachstatementitemmeansonthesameinthebaseyear.Generallythefirst
yearistakenasthebaseyear.Thefiguresofthebaseyeararetakenas100andtrendratiofortheother

yearsiscalculatedonthebasisoffirstyear.Hereanattemptismadetoknowthegrowthrateintotal
investmentandfixedassetsoftheKESORAMfor4yearsthatis200607to200910.

51

GROWTHRATEINFIXEDASSETS:

YEAR
FIXEDASSETS
TREND

(INCR)
PERCENTAGE

200708
1718.84
100.00

200809
2669.20
110.06

200910
3844.65
124.43

201011
4129.53
132.36

GROWTHRATEINFIXEDASSETS

INTERPRETATION:

Theabovetableshowsthattheinvestmentsinfixedassetsareincreasing.Sothisisagoodsignforthe
company.Whencomparedto20072011itisbeencontinuouslyincreasedintheratio100percentto
132.36%

52

RATIOANALYSIS:

Ratioanalysisisapowerfultooloffinancialanalysis.AratioisdefinedastheindicatedQuotientof
twomathematicalexpressionsandRatioslookattherelationshipbetweenindividualvaluesandrelate
themtohowacompanyhasperformedinthepast,andmightperforminthefuture.

Theabsoluteaccountingfigurereportedinfinancialstatementdoesnotprovideameaningful
understandingoftheperformanceandfinancialpositionofthefirm.Ratioshelpustosummarizelarge
quantitiesoffinancialdataandtomakequalitativejudgmentaboutfirmsfinancialperformance.

1.

FIXEDASSETSTONETWORTHRATIO:

Thisratioestablishestherelationshipbetweenfixedassetsandnetworth.Networth=sharecapital+
reservesandsurplus+retainedearningsFixedassetstonetworthratio=Fixedassets

Networth

TheratioofFixedassetstoNetworthindicatestheextenttowhichshareholdersfundsaresunk
intothefixedassets.Generally,shareholdersshouldfinancefor

Purchasingfixedassetsandequityincludingthereservesandsurplusesandretainedearnings.Ifthe
ratioislessthan100%itimpliesthatownersfundsaremorethantotalfixedassetsandtheshare
holderprovideapartofworkingcapital.

Whentheratioismorethan100%itimpliesthatownersfundsarenotsufficienttofinancethefixed
assetsandfinancierhastodependuponoutsiderstofinancethefixedassets.ThereisnoRuleof
Thumbtointerpretbut60%65%isconsideredtobesatisfactoryratioincaseofindustrial
undertaking.

2.FIXEDASSETRATIO:

Thisratioexplainswhetherthefirmhasraisedadequatelongtermfundtomeetitsfixedassets
requiredandiscalculatedasunder:

=Fixedassets(afterdepreciation)Capitalemployed

Thisratiogivesanideaastowhatpartofthecapitalemployedhasbeenusedinpurchasingthefixed
assetsfortheconcern.Iftheratioislessthan1itisgoodfortheconcern.

53

3.FIXEDASSETSASAPERCENTAGETOCURRENTLIABILITIES:

Theratiomeasurestherelationshipbetweenfixedassetsandthefundeddebtsandisveryusefultothe
longtermerection.Theratiocanbecalculatedasshownbelow

Fixedassetsasapercentofcurrentliabilities=FixedAssetsCurrentliabilities

3.TOTALASSETSTURNOVERRATIO:

Theratioiscalculatedbydividingthenetsalesbythevalueoftotalassetsthatis(netsales/total
investment)or(sales/totalinvestment).Ahighratioisanindicatorofovertradingoftotalassetswhile

alowratiorevealsidlecapacity.Thetraditionalstandardfortheratioistwotimes.

=
Netsales

TotalAssets

4.FIXEDASSETSTURNOVERRATIO:

Theratioexpressestheno.oftimesfixedassetsarebeingturnedoverinastatedperiod.Itis
calculatedunder.

_____________sales_____________

Netfixedassets(afterdepreciation)

Thisratioshowshowwellthefixedassetsarebeingusedinbusiness.Theratioisimportantincaseof
manufacturingconcernbecausesalesareproducednotonlybyuseofcurrentassetsbutalsoby
amountinvestedinfixedassetsthehigherratio,thebetteristheperformance.Ontheotherhand,alow
ratioindicatesthatfixedassetsarenotbeingeffectivelyutilized.

5.RETURNONTOTALASSETS:=Profitaftertax

Totalassets

Thisratioiscalculatedtomeasuretheprofitaftertaxagainstinvestedintotalassetstoascertain
whetherassetsarebeingutilizedproperlyornot.

Thehighertheratiothebetteritisfortheconcern.

54

Letususeratiosinthe(KESORAM)information:

FIXEDASSETSTONETWORTHRATIO

Theratioindicatestheextenttowheretheshareholdersfundsarestruckinthefixedassets.The
formulatocomputefixedassetstonetworthiscalculatedasfollows:

Fixedassets(afterdepreciation)Networth

NETWORTH=sharecapital+reservesandsurplus+retainedearningsnetloss.

Iftheratioislessthan100%itimpliesthatownersfundsaremorethanthefixedassetsandthe
shareholdersandviceversaprovideapartofworkingcapital.

Fixedassetstonetworthratio=NetfixedassetsNetworth

YEAR
NETFIXEDASSETS
NETWORTH
RATIOIN%

200708

981.92

1.75

1718.84

200809

1330.10
2.01

2669.20

200910

1540.24
2.50

3844.65

201011

1300.25
3.18

4129.53

FIXEDASSETSTONETWORTHRATIO

55

INTERPRETATION:

Theabovetableshowsacontinuousincreaseinnetworthandfixedassets.Thisshowsthe

satisfactorypositionofthecompany.

FIXEDASSETRATIO:

Capitalemployed=shareholdersfund+LongTermborrowings

Fixedassets(afterdepreciation)

CapitalEmployed

YEAR
NETFIXEDASSETS
CAPITALEMPLOYED
RATIOIN%

200708
1718.84
936.18
1.84

200809
2669.20
1284.36
2.08

200910
3844.65
1494.50
2.57

201011
4129.53
1254.51
3.29

56

INTERPRETATION

Theabovetableshowsgrowthinfixedassetssatisfactorypositionoffixedassetsinthetotalcapital
employedinthecompany.Thehighestpercent3.29recordedintheyear201011.Thatshowsthe
positionofthecompanyissatisfactory.

TOTALINVESTMENTTURNOVERRATIO:

Thetotalinvestmentturnoverratiocanbecalculatedbytheformulaasgivenunder

Sales

Totalinvestmentratio=

Totalinvestment

YEAR
SALES
INVESTMENT
RATIOIN%

200708

3440.32
47.83
71.93

200809
4292.07
61.78
69.47

200910
5020.63
51.43
97.62

201011
5750.72
65.82

87.37

57

INTERPRETATION

FromtheabovetablewecanseethatsaleshadanincreaseInvestmentvariesfrom20082011that
signifiesthecompanypositionissatisfactory.

FIXEDASSETSTURNOVERRATIO:

Thefixedassetsturnoverratioisarelationbetweenthesalesorcostofgoodsandfixed/capitalassets
employedinabusiness.

sales

Fixedassetsturnoverratio=

Totalfixedasset

YEAR
SALES(cr)
NETFIXED
RATIOIN%

ASSETS(cr)

200708
3440.32
1718.84
2.00

200809
4292.07
2669.20
1.61

200910
5020.63
3844.65
1.31

201011
5750.72

4129.53
1.39

58

INTERPRETATION

Theabovetableshowsincreasesinfixedassetsturnoverfrom20072011.Thisshowsthefavorable
positionofthecompany.

RETURNONFIXEDASSETS:

Thereturnonfixedassetscancalculateasunder:

Returnonfixedassets=

profitaftertax

TotalAssets

YEAR

PROFIT
AFTER
TOTAL
RATIOIN%

TAX(cr)

ASSETS(cr)

200708

641.80

2972.92
0.22

200809

520.99

3992.67
0.13

200910

648.29

5753.21

0.11

201011

120.24

6453.10
0.02

59

INTERPRETATION

Theabovetableshowsincreaseinprofit20082011profithasgoneup.Thisshowsthefavorable

positionofthecompany.

VALUATIONOFFIXEDASSETS:

KESORAMFollows

Historicalcostmethodinthevaluationoffixedassets.

ThefixedassetsdonotincludeassetsacquiredonsalecumleasebasisfromvariousFinancial
Institutionswhereontheleaserentpaidfortheyearischargedtorevenue.

PlantandMachineryincludesthevalueofAirConditioningPlantsatvariousunitswhichwere
transferredandvestedwiththeCorporationunderthetransferscheme.Thegrossvalueand
depreciationthereonarenotsegregatedintheabsenceofbreakupdetailsunderthetransferscheme.
Thevaluethereof,however,isinsignificant.

Investmentsareintendedforlongtermandarecarriedatcost.Incomeoninvestmentisaccountedon
accrualbasis.

CapitalexpenditureonassetsnotownedbythecompanyisreflectedasadistinctitemsincapitalWIP
tilltheperiodofcompletionandthereforeintheFixedassets.

TheCompanyevaluatestheimpairmentoflossesonthefixedassetswhenevereventsorchangesin
circumstancesindicatethattheircarryingamountsmaynotberecoverable.Ifsuchassetsare

60

consideredtobeimpairedtheimpairmentlossisthenrecognizedfortheamountbywhichthecarrying
amountoftheassetsexceedsitsrecoverableamount,whichisthehigherofanasset'snetsellingprice
andvalueinuse.Forthepurposeofassessingimpairment,assetsaregroupedatthesmallestlevelfor
which,thereareseparatelyidentifiablecashflows.

Fixedassetsisadjustedintheircarryingcostinrespectofforeigncurrencytransactionsenteredbefore
142008andthatrelatedtocurrentassetsisrecognizedasrevenue/expenditureduringtheyear.

Incaseofcommissionedassets,wherefinalsettlementofbillswithcontractorsisyettobeeffected,
capitalizationisdoneonprovisionalbasissubjecttonecessaryadjustmentintheyearoffinal
settlement.

CALCULATIONOFDEPRECIATION:

DepreciationmethodsfollowedbyKesoramind.ltdisasfollows:

DepreciationischargedonstraightlinemethodasperratesnotifiedbytheGovernmentofIndia
exceptwhereactualcostdoesnotexceedRs.5000inwhichcaseitischarged100%inthesameyear.
Inrespectofassets,whererateisnotlaiddown,depreciationisprovidedonstraightlinemethodunder
thescheduleXIVoftheCompaniesAct1956.

Depreciationisprovidedonproratabasisintheyearinwhichtheassetbecomesavailableforuse.

Wherethecostofdepreciableassetshasundergoneachangeduringtheyearduetoincrease/decrease
inlongtermliabilitiesonaccountofexchangefluctuation,priceadjustment,changeindutiesor
similarfactors,theunamortizedbalanceofsuchassetisdepreciatedprospectivelyoverresiduallife
determinedonthebasisoftherateofdepreciation.

Internalelectricalwiring,fittingsetc.,aretreatedaspartofbuildingsandassuchdepreciation
applicabletobuildingsischargedthereon.

61

CHAPTERV

FINDINGS,SUGGESTION&CONCLUSION

62

FINDINGS

AfteranalyzingthefinancialpositionofKESORAMandevaluatingitsfixedassetsmanagement
orcapitalbudgetingtechniquesinrespectoftrendanalysisandratioanalysis.Thefollowing
conclusionsaredrawnfromtheprojectpreparation.

TheprogressofKESORAMshowsthatthereisanincreaseinNetblockconsiderablyoverthe
yearthattheinvestmentinthenetblockisinincreasetrend.Itincreasedduringtheyear200811
andithas69.80%.

Regardingtothefixedassetstonetworthratioshowsacontinuousincreaseinnetworthandfixed
assets.Thisshowsthesatisfactorypositionofthecompany.

Regardingthelongtermfundstofixedassetstheyshowanincrease.

Regardingthetotalinvestmentturnoverratioitisobservedsaleshadanincreasefrom200811

RegardingtheFixedAssetturnoverratio,saleshadanincreased.

RegardingtheReturnontotalassetsratioithasbeenobservedthatThereisprofit.Thisshowsthe
favorablepositionofthecompany.

FromtheabovestudyitcanbesaidthattheKESORAMoverallfinancialpositiononfixedassets
issatisfactory.

63

SUGGESTION

Itissuggestedtoimprovethepositionofthecompanybyeffectivesutilizationoffixedassets.

Growthrateinfixedassetscanbeincreasebyemployingmoreinvestment.

Totalinvestmenttosalescanbeimproved.

Insteadofdisclosingthecombinedflowsofdebtorsandloansadvancesasdecrease/(increase)in
tradeandotherreceivables,theirseparatedisclosurewillbemoremeaningful.

Globalizationofeconomiesandtherequirementofsharesfrominvestorsincapitalmarket,diverse
anddemandingaudiencetothecompany,needaclearandindepthininformationaboutthe
companysfinancialpositioninAnnualreport.

64

CONCLUSION

TheFixedassetmanagementofKesoramisquitecomfortablewithajudiciousmixofdebtand
equity.Theoverallassessmentoffinancialstatementsignifiesefficientutilizationofthe
investments,loansandadvances.Theprofitabilityofthecompanyappearstobeimpressive,as
judgedbyincreaseinreservesandsurplus.

ThemanagementdiscussionsandanalysisbyDirectorsreportandopinionsexpressedby
AuditorsreportthroughFixedassetmanagementstatementsistrueandfairviewinaccordance
withtheprovisionsofthecompaniesActs,andAccountingstandards.

Theoverallfixedassetmanagementofthecompanyappearstobemorethansatisfactory.

65

BIBLIOGRAPHY

1.

Khan,MYandPKJain,FinancialManagement,TataMcGrawHill

PublishingCo.,NewDelhi,2007.

IMPandey,EssentialsofFinancialManagement,VikasPublishingHousePvtLtd,NewDelhi,
1995.

Ramesh,SandAGupta,VentureCapitalandtheIndianFinancialSector,Oxforduniversity
press,NewDelhi,1995.

Anthony,RNandJSReece,ManagementAccountingPincipls,Taraporewala,Bombay.

Jain,PK,JosettepeyrardandSurendraSYadav,InternationalFinancialManagement,
MacmillanIndiaLtd,NewDelhi,1998.

PrasannaChandra,financialManagement,TataMcGrawHillPublishingCo.,NewDelhi,2007.

www.kesoram.com

www.indiancements.com

www.fixedassectsmanagement.com

www.googlefinance.com

66

ANNEXURE

BalanceSheetofKesoram

Years

Particulars
2008
2009
2010
2011
Liabilities

ShareCapital
45.74
45.74
45.74
45.74
Reserves&Surplus

930.85
1280.24
1491.11
1251.62
RevaluationReserves
5.33
4.12
3.39
2.89
Loans

SecuredLoans
971.06
1536.27
1863.72
2371.83
UnSecuredLoans
121.29
434.16
1262.5
1627.44
DeferredTaxLiabilities
0

0
0
0
CurrentLiabilities

Provisions
330.39
345.29
357.34
14.94
CurrentLiabilities
570.67
665.87
1076.88
1139.02
Total
2975.33
4311.69
6100.68
6453.48
Assets

NetBlock
1084.24
1804.35
3431.82
3691.72
CapitalWIP
634.59
864.85
412.83
437.81
Investments
47.83
61.78
51.43
65.82
CurrentAssets

Inventories
442.17
589.06
916.19
1118.55
SundryDebtors

273.07
380.17
542.89
631.34
Cash&BankBalances
40.36
56.57
80.14
71.88
TotalCurrentAssets
755.6
1025.8
1539.22
1821.77
Loans&Advances
452.89
554.62
665.06
434.6
FixedDeposits
0.18
0.28
0.31
1.76
Total
2975.33

4311.69
6100.68
6453.48

67