Working Capital Management

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ACKNOWLEDGEMENT
I am going to make a modest attempt to thank everybody who helped me in doing this Project directly or indirectly.
My sincere thanks to Mr. K.D. Kulkarni (Senior Manager Of Finance), Mr.S.N. Pandit, Executive Finance of Electronica Machine Tools Limited for guiding me and giving me a support in carrying this project. And also my project guide of V.I.M. Mr. S.K. Vaze for giving his support.
I would also like to give thanks to the whole organisation as they gave me opportunity to conduct this project and also extending hours in doing this project.
Lastly I would like to give thanks to all my friends who helped and took initiative in my project.
Thanking you,
Shreshma Saxena
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PREFACE
I have done my project on Working Capital in Electronica Machine Tools Limited.There i prepared Consolidated Balance Sheet of the company and made Trial Balance.
I have also studied about tax, how to prepare Income tax for tax deducted at source from Income chargeable under the head Salaries.
In Accounting, Working Capital is the difference between the inflow and outflow of funds. In other words, it is the net cash inflow. It is defined as the excess of current assets over current liabilities and provisions. In other words, it is capital . A study of Working Capital is of major importance to internal and external analysis because of its close relationship with the day-to-day operations of a business. Working Capital is the portion of the assets of a business which are used on or related to current operations, and represented at any one time by the operating cycle of such items as against receivables, inventories of raw materials, stores, work-nprocess and finished goods, merchandise, notes or bill receivables and cash. net current assets or net working
Working Capital comprises current assets which are distinct from other assets. In the first instance, current assets consists of these assets which are of short duration. For example, cash is held idle for a week or so, accounts receivables may not have a life span of more than three months and inventories may be held for one to three months.
Working Capital may be regarded as the life blood of a business. Its effective provision can do much to ensure the success of a business while its ineffcient management can lead not only to loss of profits
but
also
to
the
ultimate
downfall
of
what
otherwise
might
be
considered as a promising concern.
Working
Capital
is
rightly
an
adjuct
of
fixed
capital
capital
investment. It is a financial lubricant which keeps business operations going. In fact working capital management is concerned with handling problems arising in course of managing interrelationships between current assets and current liabilities. Those, who are to pay off current liabilities and the quantum of funs which will be required by the firm to fund the excess portion of current assets, will find the net concept significantly useful.
As far as taxation is concerned, Taxation, system of raising money to finance government. All government require payments of money-taxes from people. Governments use tax revenues to pay soldiers and police, to build dams and roads, to operate schools and hospitals, to provide food to the poor and medical care to elderly, and for hundreds of other purposes. Without taxes to fund its activities, government could not exist.
Government impose many types of taxes. In most developed countries individuals pay Income Taxes when they earn money, consumption taxes when they spend it, property taxes when they own a home or land and in some cases estate tax when they die.
Thus, I learned about Working Capital and Taxation in Electronica Machine Tools Ltd. Duration of the project was two months in which I made a detailed study of Taxation and Working Capital. Again I would like to give thanks to Mr. S.K. Vaze our project guide of V.IM. Without his guidance I would not be able to complete this project.
I am sure that readers will find a project in easy language and will be benefited by reading this project.
OBJECTIVE OF PROJECT
To understand the concept of Working Capital.
To understand the concept of Balance Sheet.
To study the concept of current liabilities and current assets.
To study the financing of Working Capital Requirements.
To understand the preparation of Consolidated Balance Sheet.
To study the concept of Taxation.
To understand the terms used in tax.
COMPANY PROFILE
Introduction The company was started as a small scale industry,way back in early 70 s by the Promotors.To use the Promotors knowledge in diverse discipline of mechanical and electrical engineering they decided to go for a product which will be technically advanced and in Frontier Technology.The choice came Electric Discharge Machine. Initially they developed their own machines but to reduce the time of development and to come up with
international level,they decided to go for foreign knowhow.In 1982, company took up the project for expansion at Saswad in Pune District.
In the year 1992 the status and the name of the company was changed from private to public limited and it came to be known by the name Electronica Machine Tools Limited.
Group Companies Electronica group consists of five main concerns as listed below
Electronica Machine Tools Limited. Electronica Mechatronics System Private Limited. Electronica Plastic Machine Private Limited. Electronica Electronica Leasing and finance Limited.
Details of Electronica have already been given.
Electronica Mechatronics Systems Private Limited is engaged in manufacture of capital goods equipment such as component incertion machines, wave soldering machine, and surface mount devices.
Electronica Plastics Machines Private Limited manufactures plastic injection moulding machines. Electronica is partnership firm. Its main activity is marketing and servicing of products manufactured by other group of companies. It is also engaged in marketing products of number of foreign manufacturers.
Electronica
Leasing
and
Finance
Limited
is
engaged
in
besides leasing and hire purchase many other financial services.
Electronica Machine Tools is in the production of high-tech tool room machines required by automobile industry, forging industry and plastic industry.
Existing Products: Computerised numerically controlled ( CNC ) wire cut machines. Conventional and CNC Electrical discharge machines. CNC lathe. Special purpose machine ( SPM ) Tungsten Carbide Products
The first two products are used in making dies for automobile industry,forging industry,plastic industry and other industries were die making is essential.CNC lathe is production machine and has a wide application in engineering industry.SPM are manufactured customers. as per the specific requirement of different
For example if there is requirement for special component then the requirement can be fulfilled by manufacturing SPM. Tungsten carbide are used as consumable in the tool rooms of engineering organization.
Origin and set up plant at Saswad
The company set its plant at Saswad in the year 1982.Companies registered office is at Electra House 691/ 1A Pune Satara
Road,Pune 411037.So at Head Office generator and controller is made but Saswad is set only for manufacturing machine tools and then all these i.e. machine tools,generator controller is attatched and E.D.M. is made.Saswad Plant is a manufacturing unit where wire cut C.N.C is manufactured.
In Saswad Plant no. of peoples are employed is around 150 peoples,and department. their they have R & D department,shop,stores
Details Of Annual Report of Electonica Machine Tools Ltd
Management expects the growth trends in both machine tool and tungsten company carbide has segments set up to its continue own in current for year.The domestic
also
division
marketing.It is also proposed to amalgamate Electronica Plastic Machines Pvt. Ltd. into Electronica Machine Tools Ltd.
These activities will help company to take care of increased volume of business and offer better service to customer.A good increase in profitability is therefore expected in current year also.
AUDITORS Auditors of the company retire at the Annual General Meeting and are eligible for re-appointment. The company has received a certificate from the auditors to the effect that their appointment if made will be in conformity with the provisions of Section 224(1)(B) of the Companies Act, 1956.
STATUTORY DISCLOSURES
The information as required under Section 217 (2A) of the Companies Act,1956,forms part of this report.However as per the provisions of Section 219(1)(b)(IV) of the Companies Act 1956,the report is being sent excluding the statements will be sent to the shareholders, who may be desirous of having the same,on Secretary. Information in accordance with Section 217(i)(e) of the specific written request addressed to Company
Companies Act1956, read with the Companies Rules 1988 is given in Annexure I forming part of this report.
CORPORATE GOVERNANCE
The
company
is
committed
to
good
corporate
corporate
governance.The company has achieved a reputation for integrity and transparency.
DIRECTORS RESPONSIBILITY STATEMENT
As required under Section 217 of the Companies Act,1956 the Directors hereby confirm that: 1. In the preparation of the annual accounts, the applicable accounting standards had been followed alongwith proper explanation relating to material departures.
2. The Directors had selected such accounting policies and applied them consistently and made judgements and
estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company at the end of the financial year and of the profit of the Company for that period.
3. The Directors had prepared the annual accounts on a going concern basis.
AUDITORS REPORT
have
attatched
the
audited
Balance
Sheet
2004-
2005.These financial statements are the responsibility of the Company s management.
An audit also includes examining on a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statements
presentation.
I have obtained all the information and explanations, which to the best of our knowledge and belief were necessary for the purposes of our audit. Proper books of account as required by law have been kept by the company so far as appears from our examination of those books.
The Balance Sheet,Profit and loss Account and Cash Flow Statement referred to in this report are in agreements with the books of account.
The Balance Sheet referred to in this report comply with the accounting standards.
On the basis of written representations received from the directors,and taken on record by the Board of Directors,none of the directors is disqualified from being appointed as a director as per the Companies Act 1956.
The Balance Sheet give the information required by the Companies Act 1956,in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India.
AUDITORS REPORT IN RESPECT OF FIXED ASSETS:
1.
The Company has maintained proper records showing full particulars including quantitative details and situation of the fixed assets.
2.
Most of the assets have been physically verified by the management during the year,which in our opinion is reasonable,having regard to the size of the Company and the nature of its fixed assets.
3.
During the year,substantial part of fixed assets have not been disposed off by the company.
IN RESPECT OF INVENTORIES:
4.
The
inventory
of
the
Company
has
been
physically
verified by the management at regular intervals during the year.
5.
The procedure of physical verification of inventories followed by the management are reasonable and adequate in relation to the size of the Company and the nature of its business.
6.
The Company is maintaining proper records of inventory.
IN RESPECT OF LOANS:
7.
There is an unsecured loan accepted from one party and repaid during the and year other by the Company covered in from the
companies,firms Register.
parties
8.
The rate of interest and other terms and conditions on which loans have been taken from companies,firms or other parties have been listed in the registers.
9. The Company is regular in repaying the principal amounts and has been regular in the payment of interest.
10. There
is
no
overdue
amount
of
loans
taken
from
companies,firms or other parties listed in the registers.
IN RESPECT OF INTERNAL CONTROL 11. There are adequate internal control procedures
commensurate with the size of the company and the nature of its business with regard to purchases of the inventory,fixed assets and with regard to the sale of goods.During the course of our audit.no weakness were observed inn the internal controls.
12. The
transactions
made
in
pursuance
of
contracts
or
arrangements has been entered into the registers as per the Companies Act 1956.
13. The transactions of purchase of goods and materials or services and sale of goods and materials or sevices made in pursuance of contracts or arrangements has been
entered in the registers maintained under the Companies Act 1956.
IN RESPECT OF PUBLIC DEPOSITS 14. The Company has compiled with the provisions of the Companies Act 1956 and the Companies (Acceptance of Deposits) Rules 1975 with regard to the deposits accepted from the public.
IN RESPECT OF INTERNAL AUDIT 15. The Company has an internal audit system commensurate with the size and nature of its business.
IN RESPECT OF COST RECORDS 16. The Government of India,Ministry of Law,Justice and Company Affairs ( Department of Company Affairs )
Wide Notification has notified Cost Accounting Records ( Machine Tools ) Rules.The inventory valuation is
certified by practicing Cost Accontant.
IN RESPECT OF STATUTORY DUES 17. According undisputed to the relevant records of the company Provident
statutory
dues
including
Fund,Employees State Insurance,Income Tax,Wealth Tax, Custom Duty,Excise Duty,and any other dues have been regularly deposited with the appropriate
authorities.According to the information and explanations given to us,no undisputed amounts,payable in respect of the aforesaid dues were outstanding from the date of becoming payable.
18. According to the records of the Company,there are no dues of sales tax,income tax,customs duty,wealth
tax,excise duty which have not been deposited on account of any disputes.
IN RESPECT OF LOSSES 19. The Company does not have any accumulated losses at the end of financial year and has not incurred cash losses in the financial year and in the financial year
immediately preceding such financial year.
IN REPECT OF OTHERS 20. The Company has not defaulted in repayment of dues to a financial institution and banks nor issued debentures by the Company.
21. The Company has not granted loans and advances on the basis of security by way of pledge of shares, debentures and other securities.
22. The
Company
is
not
dealing,
or
trading
in
shares,
securities, debentures and other investments.
23. The Company has not given any guarantee for loans taken by others from bank or financial institutions.
24. The term loans have been applied for the purpose for which they were raised.
25. The Company has not applied short term borrowings for long term use and vice versa.
26. The Company has not made any preferential allotment of shares to parties and companies are covered in the
registers.
27. The Company has not raised any money by way of public issue during the year. 28. No fraud on or by the Company has been noticed or reported during the year.
THEORY OF WORKING CAPITAL MANAGEMENT AND TAXATION
CONCEPT AND DEFINITION OF WORKING CAPITAL
In accounting,
Working capital is the difference between the
inflow and outflow of funds.In other words,it is the net cash inflow.It is defined as the excess of current assets over current liabilities and provisions.In other words,it is net current assets or net working capital.
A study of working capital is of major importance to internal and external analysis because of its close relationship with the day-to-day operations of a business. Working Capital is the
portion of the assets of a business which are used on or related to current operations,and represented at any one time by the operating cycle of such items as against receivables,inventories of raw materials,stores,work in process and finished
goods,merchandise,notes or bill receivables and cash.
Working capital comprises current assets which are distinct from other assets.In the first instance,current assets consists of these assets which are of short duration.
Working
capital
may
be
regarded
as
the
life
blood
of
business.Its effective provision can do much to ensure the success of a business while its inefficient management can lead not only to loss of profits but also to the ultimate downfall of what otherwise might be considered as a promising concern.
The funds required and acquired by a business may be invested to two types of assets: 1. Fixed Assets. 2. Current Assets
Fixed assets are those which yield the returns in the due course of time. The various decisions like in which fixed assets funds should be invested and how much should be invested in the fixed assets etc. are in the form of capital budgeting decisions. This can be said to be fixed capital management.
Another types of assets are equally important i.e. Current Assets.These types of assets are required to ensure smooth and fluent business operations and can be said to be life blood of the business.
There are two concepts of working capital
Gross and Net.
Gross working capital refers to gross current assets.Net working capital refers to the difference between current assets and current liabilities.
The term current assets refers to those assets held by the business which can be converted into cash within a short period of time of say one year,without reduction in value.The main types of current assets are stock,receivables and cash.The term current liabilities refers to those liabilities which are to be paid off during the course of business,within a short period of time say one year.They are expected to be paid out of current assets or earnings of the business.The current liabilities mainly
consists of sundry creditors,bill payable,bank overdraft or cash credit,outstanding expenses etc.
NEED FOR WORKING CAPITAL:
The need of gross working capital or current assets cannot be overemphasized.The object of any business is to earn
profits.The main factor affecting the profits is the magnitude of sales of the business.But the sales cannot be converted into cash immediately.There is a time lag between the sale of goods and realization of cash.There is a need of working capital in the form of current assets to fill up this time lag.Technically,this is called as operating cycle or working capital cycle,which is the heart of need for working capital.This working capital cycle can be described in the following words.
If the company has a certain amount of cash,it will be required for purchasing the raw material though some raw material may be available on credit basis.Then the company has to spend some amount for labour and factory overheads to convert the raw material in work in progress,and ultimately finished goods. These finished goods when sold on credit basis get converted in the form of sundry debtors.Sundry debtors are converted in cash only after the expiry of credit period.Thus,there is a cycle in which the originally available cash is converted in the form of cash again but only after following the stages of raw
material,work in progress,finished goods and sundry debtors. Thus, there is a time gap for the original cash to get converted in form of cash again. Working Capital needs of company arise to cover the requirement of funds during this time gap, and the quantum of working capital needs varies as per the length of this time gap.
Thus, some amount of funds is blocked in raw materials,work in progress,finished goods,sundry debtors and day to day
requirements.However some part of these current assets may be financed by the current liabilities also.Eg. Some raw material may be available on credit basis,all the expenses need not be paid immediately,workers are also to be paid periodically
etc.But still the amounts required to be invested in these current assets is always higher than the funds available from current liabilities.This is precise reason why the needs for working capital arise.
From the Financial management point of view,the nature of fixed assets and current assets differ from each other :
1.
The fixed assets are required to be retained in the business over a period of time and they yield the returns over their life,whereas the current assets loose their identity over a short period of time,say one year.
2.
In the case of current assets.it is always necessary to strike a proper balance between the liquidity and
profitability principles which is not the case with fixed assets.Eg. If the size of current assets is large, it is always beneficial from the liquidity point of view as it ensures smooth and fluent business operations. Sufficient raw material is always available to cater to the
production needs, sufficient finished goods are available to cater to any kind of demand of customers, liberal credit period can be offered to the customers to improve the sales, sufficient cash is available to pay off the creditors and so on.
However,if the investment in current assets is more than what is ideally required,it affects the profitability as it may not be able to yield sufficient rate of return on investment.On the other hand,if the size of current assets is too small,it always involves the risk of frequent stock out,inability of the company to pay its dues in time etc.As such,the investment in current assets should be optimum.Hence,it is necessary to manage the individual components of current assets in a proper way.Thus,working capital management refers to proper administration of all
aspects of current assets and current liabilities.
Working Capital Management is concerned with the problems arising out of the attempts to manage current assets,current liabilities and inter-relationship between them.The intention is not to maximize the investment in working capital nor is it to minimize the same.The intention is to have optimum investment in working capital.In other words,it can be said that the aim of working capital management is to have minimum investment in working capital without affecting the regular and smooth flow of operations.The level of current assets to be maintained should be suffiucient enough to cover its current liabilities with a reasonable margin of safety.
Moreover,the various sources available for financing working capital requirements should be properly managed to ensure that they are obtained and utilized in the best possible manner.
FACTORS AFFECTING WORKING CAPITAL MANAGEMENT
The amount of working capital required depends upon a number of factors which can be stated as below
Nature of Business: Some businesses are such, due to their very nature, that their requirement of fixed capital is more rather than working capital. These business sell services and not the commodities and not the commodities and that too on cash basis. As such, no funds are blocked in piling inventories and also no funds are blocked in receivables.Eg.Public utility services like railways, electricity boards, infrastructure oriented projects etc. Their requirement of working capital is less. On the other hand, there are some business like trading activity, where the requirement of fixed capital is less but more money is blocked in inventories and debtors. Their requirement of the working capital is more.
Length of Production Cycle: In some business like machine tool industry, the time gap between the acquisition of raw material till the end of final production of finished product itself is quite high. As such more amount may be blocked either in raw materials, or work in progress or finished goods or even in debtors. Naturally, their needs of working capital are higher. On the other hand, if the production cycle is shorter, the requirement of working capital are also less.
Size and Growth of Business: In very small companies the working capital requirements are quite high overheads, higher buying and selling costs etc. As such, the medium sized companies positively have an edge over the small companies. But if the business starts growing after a certain limit, the working capital requirements may be adversely affected by the increasing size.
Business / Trade Cycles: If the company is operating in the period of boom, the working capital requirements may be
more as the company may like to buy more raw material, may increase the production and sales to take the benefits of favorable markets, due to the increased sales, there may be more and more amount of funds blocked in stock and debtors etc. Similarly, in case of depression also, the working capital requirements may be high as the sales in terms of value and quantity may be reducing, there may be unnecessary piling up of stocks without getting sold, the receivables may not be recovered in time etc.
Terms of Purchase and Sales: Sometimes, due to competition or custom, it may be necessary for the company to extend more and more credit to the customers, as a result of which more and more amount is locked up in debtors or bills receivables which increases working capital requirements. On the other hand, in case of purchases, if credit is offered by the suppliers of goods and services, a part of working capital requirement may be financed by them, but if it is necessary to purchase these goods or services on cash basis, the working capital requirement will be higher.
Profitability: The profitability of the business may vary in each and every individual case, which in its turn may depend upon numerous factors. But high profitability will positively reduce the strain on working capital requirements of the company, because the profits to the extent that they are earned in cash may be used to meet the working capital requirements of the company. However, profitability has to be considered from one more angel so that it can be considered as one of the ways in which strain on working capital requirements of the company may be relieved. And these angles are:
Taxation Policy : How much is required to be paid by the company towards its tax liability? Dividend Policy : How much of the profits earned by the company are distributed by way of dividend? Effect of Inflation on Working Capital Requirement:
The phase of inflation can be identified with the situation of increasing price levels,increasing demand and increasing
supply.As such,the working capital requirements multiply during the phase of inflation due to increasing cost of production and increasing level of sales turnover.
However,in order to control the increasing demand for working capital during the period of inflation,the following measures may be applied. Possibility of using cheaper substitute raw material,without affecting the quality,should be explored.For this purpose,research activities may be conducted.
Attempts should be made to reduce the production costs to maximum possible extent.For this purpose,the techniques like time and motion study,insentive schemes,cost reduction programmes etc.may be implemented.
Attempts should be made to reduce the operating cycle to the maximum possible extent.Aiming at greater turnover at short intervals will go a long way to reduce the stress on working capital requirements.
Attempts should be made to reduce the locked up working capital in non-moving or obsolete inventories.A clearcut policy should be formulated and followed for timely disposal of nonmoving and obsolete inventories.Similarly,efficient management information system should be developed to reflect the position of inventory from the various angles.
Attempts should be made to reduce the amount looked up in receivables.Quicker realization of debts will go a long way to reduce the stress on working capital requirements.
Attempts should be made to made the creditors in time.This helps the business to reputation and increases its bargaining power period of credit of credit for payment and other
pay ments of to build up good with respect to conditions.
Attempts should be made to match the projected cash inflows and projected cash outflows. If they do not match, some of the payments should be postponed or purchases of certain avoidable items should be deferred.
Estimation of Working Capital Requirements:
First of all estimates of all current assets should be made. These current assets may include stock, debtors. Cash/Bank balance prepaid expenses etc.
Difference between the estimated current assets and current liabilities will represent the working capital requirements.To this sometime a standard percentage may be added to take care of the contingencies.This technique is known as Cash Cost technique of estimating of working capital requirements.
There is another technique available for estimating working capital requirements also and that is in the form of Balance Sheet Method.In this the forecast is made of various assets and liabilities,the difference between assets and liabilities indicating either the surplus or deficiency of cash.
Financing The Working Capital Requirements : There are various methods available for financing the working capital requirements:
Fixed or Permanent or Core Working Capital: This indicates the amount of minimum working capital which is required to be maintained by every business at any point of time, in order to carry on the business on permanent and uninterrupted basis.
Variable or Temporary Working Capital: This indicates that amount of working capital required by the business which is over and above fixed or permanent or core working capital. This need of the working capital may vary depending upon the fluctuations in demand as a result of changes in production or sales.
As far as financing of the fixed or permanent needs of working capital are concerned, these needs should be met out of the long term sources of funds, Own generation of funds, out of the profits earned, shares or debentures.
As far as financing of the variable or temporary needs of working capital are concerned, these needs can be met from the various sources:
1. A part of these needs may be financed by way of the credits available from the suppliers of material or services and of delayed payment of expenses.
2. A part of these needs may be financed by way of long term sources of funds in the form of own generation of funds, out of profits earned, shares, debentures and other long term borrowings, public deposits etc.
3. A part of these needs may be financed by way of long term sources of funds in the form of own generation of funds, out of profits earned, shares, debentures and other long term borrowing.
4. A major portion of these working capital needs are financed by the Banks.In financing the working capital needs of the business, the credit obtained from Banks plays a very important role.
Bank Credit as Requirements:
Source
of
Meeting
Working
Capital
While bank credit is considered as a major source of meeting the working capital requirement of the industry, the banks have to consider the following factors before meeting their requirements.
A].What should be the amount of working capital assistance? B].What should be the form in which working capital assistance may be extended? C].What should be the security that should be obtained for extending the working capital assistance?
Amount of Assistance: To obtain the bank credit for meeting the working capital requirements, the company will be required to estimate the working capital requirements and will be required to approach the banks along with the necessary supporting data. On the basis of the estimates submitted by the company, the bank may decide the amount of assistance which may be extended, after considering the margin requirements. This margin is to provide the cushion against the reduction in the value of security. If the company fails to fulfill its obligations, the bank may be required to realize the security for recovering the dues. Margin money is meant to take care of the possible reduction in the value of security. The percentage of margin money may depend upon the credit standing of the company, fluctuations in the price of security or the directives of Reserve Bank Of India from time to time.
Form of Assistance: After deciding the amount of overall assistance to be extended to the company, the bank can disburse the amount in any of the following formsNon-Fund Based Lending Fund Based Lending
Non-Fund Based Lending In case of Non-Fund Based Lending, the lending bank does not commit any physical outflow of funds. As such, the funds position of the lending bank remains intact. The Non-Fund Based Lending can be made by the banks in two forms-
a. Bank Guarantee: Suppose Company A is the selling company and Company B is the purchasing company. Company A does not know Company B and as such is concerned whether Company B will make the payment or not. In such circumstances, D who is the Bank of Company B, opens the Bank Gurantee in favour of Co mpany A in which it undertakes to make the pay ment to Company A if Company B fails to honour its commitment to make the payment in future. As such, interests of Company A are protected as it is assured to get the payment, either from Company B or from its Bank D. As such, Bank Gurantee is the mode which will be found typically in the seller s market. As far as Bank D is concerned, while issuing the gurantee in favour of Company A, it does not commit any outflow of funds. As such, it is a Non-Fund Based Lending for Bank D. If on due date, Bank D is required to make the payment to Company A due to failure on account of Company B to make the payment, this Non-Fund Based Lending becomes the Fund Based Lending for Bank D which can be recovered by Bank D from Company B. For issuing the Bank Gurantee, Bank D charges the Bank Gurantee Commission from Company B which gets decided on the basis of two factors-what is the amount of Bank Gurantee and what is the period of validity of Bank Gurantee. In case of this conventional for of Bank Gurantee, both company A as well as Company B get benefited as it is able to make the credit purchases from Company A without knowing Company A. As such, Bank Gurantee transactions will be applicable in case of credit transactions.
In some cases, interests of purchasing company are also to be protected. Suppose that Company A which manufactures capital goods takes some advance from the purchasing Company B. If Company A fails to fulfill its part of contract to supply the capital goods to Company B, there needs to be to be some protection available to Company B. In such circumstances, Bank C which is the banker of Company A opens a Bank Gurantee in
favour of Company B in which it undertakes that if Company A fails to fulfill its part of the contract, it will reimburse any losses incurred by Company B due to this nonfulfillment of contractual obligations. Such Bank Gurantee is technically referred to as performance Bank Gurantee and it ideally found in the buyer s market.
b. Letter of Credit: The non-fund based lending in the form of letter of credit is very regularly found in the international trade. In case the exporter and the importer are unknown to each other. Under these circumstances, exporter is worried about getting the payment from the importer and importer is worried as to whether he will get the goods or not. In this case, the importer applies to his bank in his country to open a letter of credit in favour of the exporter whereby the importer s bank undertakes to pay the exporter or accept the bills or drafts drawn by the exporter on the exporter fulfilling the terms and conditions specified in the letter of credit.
Fund Based Lending In case of Fund Based Lending, the lending bank commits the physical outflow of funds. As such, the funds position of the lending bank gets affected.The Fund Based Lending can be made by the banks in the following forms-
Loan: - In this case, the entire amount of assistance is disbursed at one time only, either in cash or by transfer to the company s account. It is a single advance. The loan may be repaid in installments, the interests will be charged on outstanding balance.
Overdraft: - In this case, the company is allowed to withdraw in excess of the balance standing in its Bank account. However, a fixed limit is stipulated by the Bank beyond which the company will not be able to overdraw the account. Legally, overdraft is a demand assistance given by the bank i.e. bank can ask for the repayment at any point of time. However in practice, it is in the form of a continuous types of assistance due to annual renewal of the limit. Interest is payable on the actual amount drawn and is calculated on daily product basis.
Cash Credit: - In practice, the operations in cash credit facility are similar to those of overdraft facility except the fact that the company need not have a formal current account. Here also a fixed limit is stipulated beyond which the company is not able to withdraw the amount. Legally, cash credit is a demand facility, but in practice, it is on continuous basis. The interests is payable on actual amount drawn and is calculated on daily product basis.
Bills Purchased or Discounted: - This form of assistance is comparatively of recent origin. This facility enables the company to get the immediate payment against the credit bills raised by the company. The bank holds the bill as a security till the payment is made by the customer. The entire amount of bill is not paid to the company. The Company gets only the present worth of the amount of bill, the difference between the face value of the bill and the amount of assistance being in the form of discount charges. On maturity, bank collects the full amount of bill from the customer. While granting this facility to the company, the bank inevitably satisfies itself about the credit worthiness of the customer. A fixed limit is stipulated in case of the company, beyond which the bills are not purchased or discounted by the bank.
Working Capital Term Loans: - To meet the working capital needs of the company, banks may grant the working capital term loans for a period of 3 to 7 years, payable in yearly or half yearly installments.
Packing Credit: - This type of assistance may be considered by the bank to take care of specific needs of the company when it receives some export order. Packing credit is a facility given by the bank to enable the company to buy the goods to be exported. If the company holds a confirmed export order placed by the overseas buyer or a letter of credit in its favour, it can approach the bank for packing credit facility.
Main Constituents of Working Capital:
The Net Working Capital represents current assets minus current liabilities. Current assets refer to those assets which are used for day-to-day activities of the firm.
A] Current Assets: These assets constitute the following: 1. Inventories: It represents raw materials and components work in progress and finished goods.
2. Trade Debtors: It comprise credit sale to customers.
3. Prepaid expenses: These are those expense which have been paid for goods and services whose benefits have yet to be received.
4. Loans and Advances: They represent loans and advances given by a firm to other firms for a short period of time.
5. Investment: These assets comprise short-term surplus funds invested in government securities, shares and shortterm bonds.
6. Cash and bank balances: These assets represent cash in hand and at bank which are used for meeting operational requirements. This kind of current assets is purely liquid but nonproductive.
Current Liabilities: Current Liabilities represent that part of obligations which the firm has to clear to the outside parties in a short-period, generally within a year. These liabilities comprise the following:
Sundry Creditors: These liabilities stem out of purchase of raw materials on credit terms usually for period of one to two months.
Bank overdrafts: These include withdrawals in excess of credit balance standing in the firm s current accounts with banks.
Short-term loans: Short-term borrowings by the firm from banks and others form part of current liabilities as short-term loans.
Provisions: These include provisions proposed dividends and contingencies.
for
taxation,
Managing Working Capital
1. Working Capital Cycle: Cash flows in a cycle into, around and out of a business. It is the business s life blood and every manager s primary task is to help keep it flowing and to use the cash flow to generate profits. If a business is operating profitably, then it should, generate cash surpluses. If it doesn t generate surpluses, the business will eventually run out of cash and expire. The faster a business expands, the more cash it will need for working capital and investment. The cheapest and best sources of cash exist as working capital right within business. Good management of working capital will generate cash will help improve profits and reduce risks. Bear in mind that the cost of providing credit to customers and holding stock can represent a substantial proportion of a firm s total profits.
2.
Sources of Additional Working Capital: It may include the followingExisting cash reserves Profits Payables (credit from suppliers) New equity or loans from shareholders Bank overdrafts or lines of credit
Long-term loans
3. Handling Receivables (Debtors): Cash flow can be significantly enhanced if the amounts owing to a business are collected faster. Every business needs to know, who owes them money, how much is owed, how long it is owing and for what it is owed. Slow payment has a crippling effect on business, in particular on small businesses who can least afford it. If you don t manage debtors, they will begin to manage your business as you will gradually lose control due to reduced cash flow and can experience an increased incidence of bad debt.
4. Managing Payables (Creditors): Creditors are a vital part of effective cash management and should be managed carefully to enhance the cash position. Purchasing initiates cash outflows and an over-zealous purchasing function can create liquidity problems. There is an old adage in business that if you can buy well then you can sell well. Management of your creditors and suppliers is just as important as the management of our debtors. It is important to look after creditors-slow payment by the customer may create ill-feeling and can signal that the company is inefficient. A good supplier is someone who will work with you to enhance the future viability and profitability of the company.
5.
Inventory Management: Excessive stocks can place a heavy burden on the cash resources of a business. Insufficient stocks can result in lost sales, delays for customers etc. The key is to know how overall stock is moving or, how long each item of stock sit on shelves before being sold. Average stock holding periods will be influenced by the nature of the business. For e.g., a fresh vegetable shop might turn over its entire stock every few
days while a motor factor would be much slower as it may carry a wide range of rarely-used spare parts in case somebody needs them. Nowadays, many large manufacturers operate on a just-in-time (JIT) basis whereby all the components to be assembled on a particular today, arrive at the factory early that morning, no earlier-no later. This helps to minimize manufacturing costs as JIT stocks take up little space, minimize stockholding and virtually eliminate the risks of obsolete or damaged stock. Because JIT manufacturers hold stock for a very short time, they are able to conserve substantial cash.
6.
Introducing Invest-Tech & Plan Ware: Invest-Tech develops and sells a range of financial planning packagesCash flow Plan- for businesses of all sizes and types.
CONCLUSION
Working Capital refers to the cash a business requires for dayto-day operations, or for financing the conversions of raw materials into finished goods, which the company sells for payment. Among the most important items of working capital
are levels payable.
of
inventory,
accounts
receivable,
and
accounts
We will take a case: a sauce company uses $100 to build its inventory of tomatoes, onions, garlic, spices, etc. A week later, the company assembles the ingredients into sauce and ships it out. A week after the checks arrive from customers. That $100, which has been tied up for two weeks, is the company s working capital. The quicker the company sells the sauce, the quicker the company can go out and buy new ingredients, which will be made into more sauce sold at a profit. If the ingredients sit in inventory for a month, company cash stays tied-up and can t be used to grow the business.
The better a company manages its working capital, the less the company needs to borrow. Even companies with cash surpluses need to manage working capital to ensure that those surpluses are invested in ways that will generate suitable returns for investors.
Thus Working Capital is the money used to make goods and attract sales. The less working capital used to attract sales, the higher is likely to be the return on investment. Working Capital is about the commercial and financial aspects of Inventory, Credit, purchasing, marketing, and royalty and investment policy.
Income from Salary
What your employer offers you as a gross salary package is no indication of what you will take home at the end of the month. A hefty gross salary can get pruned at the net level in the wake
of a high tax incidence. And your tax incidence, depends on how your salary is structured.
What is Salary? Under Section 17(1) of the Income Tax Act, salary includes the following: Wages
Annuity or pension
Gratuity
Any fee, commission, perquisite in lieu of or in addition to any salary or wages.
Any advance of salary
The amount contributed by an employer towards a Recognised Provident Fund (RPF) in excess of 12 per cent of the employee s salary and the interests in excess of 12 per cent on the balance in the RPF.
Any payment received in respect of any period of leave not availed.
The value of any perquisites and benefits to the employee provided by the employer.
Any profit in lieu of salary, that is, any amount or compensation due to or received by an employee from her employer, or former employer, at or in connection with the termination of her employment or modifications of the terms and conditions of the employ ment.
Any taxable amount in the RPF transferred from one employer to the other.
Leave Salary As an employee you are entitled to different kinds of leave, you will have to earn the leave during the year, it can lapse, be encashed or even be accumulated, depending on the service rules of the organization you work for.
Gratuity According to the Shorter Oxford English Dictionary, the word gratuity means a gift or present, often in return for favours or services. In the literary sense, it denotes a gratuitous payment made by an employer to an employee. In the real world, it is no more a gratuitous payment.
Gratuity is exempt from tax to the following extent: a. Gratuity payments received on the death or retirement of the central/state government and local authorities is exempt without any limit.
b. Gratuity received under the Gratuity Act, 1972, is exempt to the extent it does not exceed 15 days wages for every completed year of service, calculated on the basis of the last wage drawn, subject to a maximum of aggregate gratuity payment of Rs. 3.5 lakh.
c. For those who are not covered by the provisions of the Gratuity Act, 1972, gratuity is exempt to the extent it does not exceed half-a-month s salary for each year of completed service, calculated on the basis of the average salary for 10 immediately
preceding months, subject to a maximum of Rs. 3.5 lakh.
Pension Pension is a periodical payment received by an employee after her retirement, and is taxed as salary. While pension earned and received abroad but remitted in India, is exempt from tax in the case of a non-resident, it is chargeable to tax if the pensioner is resident in the country.
Allowances An allowance is a fixed sum of money/benefit doled out regularly to meet the expenses for a service rendered to the employer or as compensation for the unusual conditions of that service. The various allowances are: a. City Compensatory Allowance (CCA)
b. House Rent Allowance (HRA)
c. Special Allowance
d. Allowances to government employees posted outside India.
e. Tiffin Allowance
f. Fixed medical allowance
g. Servant allowance Perquisites A perquisite is an incidental gain or profit from employment in addition to regular salary or wages. It is a personal benefit in cash or in kind provided by an employer.
Valuation of Perquisites Finance Bill 2001 seeks to tax all perquisites, except car and rent free accommodation, on the basis of the cost to the employer .
Provident Fund The Provident Fund is a retirement benefit scheme, under which a stipulated sum is deducted from the salary of the employee as her contribution towards the fund. The contributions of the employer and the employee are then invested in government securities. The interest earned on those securities is credited to the Provident Fund account.
The accumulated sum is paid to the employee at the time of her retirement or resignation. If the employee were to die before getting the accumulated balance, the corpus would be given to the employee s legal heirs. Under section 88 of the Income Tax Act, the employee gets a tax rebate of 20 per cent on her contribution. The three types of Provident Fund are:
Statutory Provident Fund
Recognised Provident Fund
Unrecognised Provident Fund
Salary Income Income from salary consists of all remuneration due or paid to a person for services rendered by her as an employee. For an
income to be termed as salary , you should share an employeeemployer relationship with the payer. Salary is chargeable to tax on a due or receipt basis, whichever is earlier.
Salary from more than one source If an individual receives salary income from than one employer during the year, the income from each source is taxable in aggregate in the employee s hands.
Standard Deduction For the Financial year 2001-2002, standard deduction will be available as follows:
Where the total salary income of the assessee does not exceed Rs.1.5 lakh: One-third of the salary or Rs. 30,000, whichever is less
Where the salary income is between Rs. 1.5 lakh and Rs. 3 lakh: Rs25,000
Where the salary income is between Rs 3 lakh and Rs 5 lakh: Rs20,000
Where the salary income exceeds Rs 5 lakh: nil
HOUSE PROPERTY
A roof over your head. It s a symbol of financial security, the dream that motivates many of us-and is, perhaps, the biggest
spending decision in the lives of many. It also has tax angles that you perhaps didn t know about.
What is Income from house property?
The annual value of any property you own is taxable under income from house property . While there are a few deductions available from this income, income from a property is not taxable under the head income from house property when
a. The property is used for one s own business or profession.
b. The property is self-occupied.
c. It is income from a farmhouse.
d. It is the property income of a local authority.
e. It is the property income of a university or an educational institution.
f. It is the property income of a trade union.
g. It is property held for charitable or religious purposes.
h. It is the property income of a political party.
i. It is the property income research association.
of
an
approved
scientific
Annual value of the house property
The annual value of house property has been defined as the amount for which the property may reasonably be expected to be let out for a year .
However, if your property is let out for the whole or a part of the financial year, the gross annual value will be the amount received during the year as a result of the letting out of the house property. This shall also exclude the rent that the taxpayer is unable to realize in the financial year.
The following four factors have to be taken into consideration while determining the annual property:
a. Rent payable by the tenant.
b. Municipal valuation of the property.
c. Fair rental value of the property.
d. Standard rent payable under the Rent Control Act.
What is gross annual value? In the case of self-occupied property, the annual value is taken to be nil.
In the case of property that is rented out, the gross annual value is the municipal value, the de facto rent or the fair rental value, whichever is highest. If the Rent Control Act applies to the property, the gross value cannot exceed the de facto rent or the standard rent under the Rent Control Act, whichever is higher.
Deductions from the annual value No deduction is available from the net annual value of a selfoccupied house property, since the net annual value of a self-
occupied house property works out to be nil. The only exemption is in the case of interest payments on borrowed capital.
Business & Profession
Whether you are a sole proprietor or a professional, one of the smartest ways of conducting business is by acquainting yourself with the tax laws to see how they affect your financial outgo. The savings in tax will be well worth the effort.
What is Income from business or profession?
The following income is chargeable under the head gains from business or profession .
profits and
Gains from any business carried on by the assessee during the year.
Income derived from trade, profession or any other similar service.
Export-oriented units that are now to be taxed only to the extent of 20 per cent of the total profits spread over five years.
Interest, salary, bonus, commission or remuneration due or receivable by the partner from the partnership firm.
Capital Gains
What is a capital asset?
A capital asset is property of any kind held by a person, irrespective of whether it is connected with the business. However, this does not include:
a. Stock-in-trade, raw materials and stores held for business purposes.
b. Personal effects, that is, movable property, including clothes and furniture, but excluding jewellery for personal use.
c. Rural agricultural land.
d. Gold Deposit Bonds issued under the Gold Deposit Scheme 1999.
Capital Gains:
In simple terms, a capital gain is the profit from the sale of a capital asset. The loss on the sale of such assets is treated as a capital loss. A capital gain on the sale of an asset is chargeable to tax as capital gains in the year in which it is sold.
Under the Income Tax Act, capital gains are taxed on even the transfer of a capital asset, not merely on sale.
ALLOWANCES
House Allowances
The exemption of House Rent Allowance (HRA) received is exempt to the least of the following:
HRA received the period during which the rental accommodation is occupied but the employee in the previous year.
Excess of rent paid over 10 percent salary.50% of the salary, if the rented accommodation is situated at Mumbai, Calcutta, Delhi or Chennai and 40% of salary in other cities. The salary is taken for the period during which the rental accommodation is occupied by the employee in the previous year.
Entertainment Allowances Any amount received by the employee, as entertainment allowance is taxable as salary. However, deduction is available to the employee if he has been: In continuous service with the present employer from a date before April 1, 1955, and April 1, 1955 till the year for which the income is to be taxed.
Transport Allowances Transport allowance provided to an employee for commuting between his residence and the place of his duty shall be exempt up to Rs. 800 per month.
However, in case blind or orthopaedically handicapped employee s, a sum of Rs. 1600 per month is exempt from tax.
Education Allowances Education Allowance of Rs. 50 per month per child for up to 2 children of the employee is exempted. In case the children are in hostel, the exemption available is Rs. 150 per month per child for up to 2 children. Leave Travel Assistance
LTA is paid for meeting traveling expenses incurred by an individual as also family members (this includes only the spouse, two children and dependant parents, brothers and sisters) while on holiday in India. The amount of exemption depends upon the modes of journey. This exemption is available in respect of 2 journeys undertaken in a block of four calendar years.
Medical Allowances
This exemption is available in respect of: Reimbursement upto Rs. 15000 for medical treatment of the employee and family members.
Reimbursement of expenditure incurred by an employee and family members in approved hospitals, dispensaries etc.
Group medical insurance for an employee and family members or reimbursement of premium paid by an employee for medical insurance.
Special Allowance
The following allowances are exempt from tax:
Expenses incurred on conveyance in the performance of duties of office; Cost of travel on tour or on transfer;
Daily ordinary charges incurred by the employee on account of absence from his normal place of duty during a tour; Expenditure on a helper where such helper is engaged for the performance of the duties of office;
Allowances granted for encouraging the academic research and training pursuits in educational and research institutions; or
Expenditure incurred on the purchase or maintenance of uniform for wear during the performance of the duties of office.
Lunch and Refreshment Refreshment at free or concessional rate is not taxable is not taxable.
Exemptions of medical expenses incurred by or on behalf of the employee.
The following medical facilities provided to an employee are exempt are exempt from income tax:
Treatment of an employee maintained by the employer;
or
his
family
in
any
hospital
Reimbursement of any medical expenditure actually incurred by the employee for himself or his family:
In any hospital maintained or approved by the Government, any local authority; or
Up to Rs. 15,000, actually incurred by the employee on medical. Premium paid by the employer towards medical insurance on the health of such employee.
COMPANIES BALANCE SHEET
ELECTRONICA MACHINE TOOLS LTD. PUNE BALANCE SHEET AS AT 31.03.2005
S.N O. I 1
PARTICULARS Sources of Funds Share Holder s Funds Capital Reserves & Surplus Loan Funds Secured Loans Unsecured Loans
SCH. NO.
2005 (RUPEES)
2004 (RUPEES)
1 2
19760000.00 258580883.81 278340883.81 62752648.18 24714555.29 87467203.47 365808087.28
19760000.00 154269097.11 174029097.11 65842298.74 33429396.68 99271695.42 273300792.53
3 4
II 1
2 3
Application of Funds Fixed Assets Gross Block Less: Depreciation Net Block Investments Current Assets, Loans & Advances Less: Current Liabilities & Provision Net Current Assets Miscellaneous Expenditure (To the extent not written of or adjusted) Notes Forming Part of the Accounts
6 7 8
189856368.50 76630776.56 113225591.94 22275000.00 309210603.38 78903108.04
162742586.59 75397062.40 87345524.19 22275000.00 258269089.43 103480231.63
230307495.34 0.00
154788857.80 8891410.54
16
365808087.28 0.00
273300792.53 0.00
PROFIT & LOSS ACCOUNT FOR THE YEAR ENDED ON 31.03.2005
PARTICULARS INCOME Sales (inclusive of Excise duty/ Sales Tax) Less: Excise Duty / Sales Tax Export Sales Other Income Expenditure Cost of Material Consumed Employee Cost Establishment Expenses Marketing Expenses Interest Depreciation Profit/(loss) before tax Less: Tax Provision Less: Deferred Tax Add: Income Tax Profit/(loss) after Tax Surplus brought forward Balance available for Appropriation Appropriations Transfer to General Reserve Surplus carried to Balance Sheet Notes Forming Part Of The Accounts
SCH. NO. A AH B 10
2005 (RUPEES) 451518064.27 81756756.72 369761307.55 96055672.39 1995327.25 467812307.19 226411385.81 53624161.72 43878418.71 22511974.84 4707396.49 7734103.24 358867440.81 108944866.38 0.00 0.00 0.00 108944866.38 4910299.78 113855166.16
2004 (RUPEES) 340613662.32 60467221.50 280146440.82 102894114.93 1606471.30 384647027.05 209792299.08 43489794.73 24063095.37 57082549.29 7452920.46 6044218.99 347924877.92 36722149.13 2450000.00 652000.00 77479.35 33697628.48 4010750.98 37708379.46
11 12 13 14 15 5
0.00 0.00 0.00 16
0.00 0.00 0.00
SCHEDULE FORMING PART OF THE BALANCE SHEET Schedule 1- Share Capital PARTICULARS
SCH.
2005
2004
NO. Authorised 29,70,000 Equity Shares of Rs, 10/- each 30,000 4% Redeemable Preference Shares of Rs. 10/each
(RUPEES)
(RUPEES)
29700000.00
29700000.00
300000.00
300000.00
30000000.00 Issued, Subscribed & Paid Up 19,76,000 Equity Shares of Rs, 10/- each fully paid Notes: 19760000.00
30000000.00
19760000.00
1. Of the above shares 2500 Equity Shares of Rs. 10/- each are issued for a consideration other than Cash, Pursuant to Contracts. 2. Of the above shares 15,78,000 Equity Shares of Rs. 10/- each are issued as fully paid Bonus Shares by way of Capitalisation of Reserves. Schedule 2- Reserves and Surplus PARTICULARS SCH. NO. Capital Reserve Per last Balance Sheet Add: Transfer from General Reserve General Reserve Per last Balance Sheet Add: Transferred from Profit & Loss Account Less: Transferred to Capital Reserve Government Subsidy Per last Balance Sheet
2005 (RUPEES) 20606477.61 0.00 20606477.61 119957293.00 0.00 0.00 119957293.00 3209947.04 3209947.04 300000.00 300000.00 113855166.16 257928883.81
2004 (RUPEES) 1141770.61 19464707.00 20606477.61 110500000.00 0.00 19464707.00 91035293.00 3966947.04 3966947.04 300000.00 300000.00 37708379.46 153617097.11
Capital Redemption Reserve Per last Balance Sheet Profit & Loss Account
Deferred Tax
652000.00 258580883.81
652000.00 154269097.11
Schedule 3-Secured Loans PARTICULARS From Banks From Banks / HP Finance
SCH. NO. Q AO
2005 (RUPEES) 45336276.45 17416371.73 62752648.18
2004 (RUPEES) 43342298.74 22500000.00 65842298.74
Schedule-4- Unsecured Loans PARTICULARS From Government of Maharashtra (SICOM Ltd.) Special Capital Inventive Loan Sales Tax Loan Sales Tax Loan from Govt. of Karnataka Fixed Deposits: From Public From Share Holders Interest on above Overdue from Public Inter Corporate Deposit Alta leasing and Finance Ltd.
SCH. NO.
2005 (RUPEES)
2004 (RUPEES)
138214.00 P 22144164.02 0.00
138214.00 25715739.02 378924.00
1889000.00 300000.00 243177.27 0.00 0.00 0.00 24714555.29
6493000.00 300000.00 403519.66 0.00 0.00 0.00 33429396.68
SCHEDULE-6-INVESTMENTS PARTICULARS 1 A Non-Trade Unquoted at Cost In Government Securities
SCH. NO.
2005 (RUPEES)
2004 (RUPEES)
I)
National Saving Certificate / Indira Vikas Patra In Fully Paid Equity Shares 100 Equity Shares of Rs. 10/- each fully paid of Shree Suvarna Sahakari Bank Ltd. 2500 Equity Shares of Rs. 10/each fully paid of the Saraswat Coop. Bank Ltd. 150 B Class Equity Shares of Rs. 100/- each fully paid of Janata Sahakari Bank Ltd. Pune. 4000 Equity Shares of Rs. 25/each fully paid of Rajashri Shahu Sahakari Bank Ltd. 78400 A Class Equity Shares of Rs. 10/- each fully paid of M/s Electronica Mechatronics Systems (India) Pvt. Ltd. 4,75,000 Equity Shares of Rs. 10/each fully paid of Electronica Securities Pvt. Ltd. 4,85,000 Equity Shares of Rs. 10/each fully paid of Electronica Consultants Pvt. Ltd. 6,75,000 Equity Shares of Rs.10/each fully paid of Electronica Leasing & Fin 4,40,000 Equity Shares of Rs. 10/each fully paid of Audumbar leasing And Finance Pvt. Ltd. 5,000 Preference Shares of Rs. 10/each fully paid of Electronica Securities Pvt. Ltd. 5,000 Preference Shares of Rs. 10/each fully paid of Electronica Consultants Pvt. Ltd. 25,000 Equity Shares of Rs. 20/-
0.00
0.00
I)
1000.00
1000.00
II)
25000.00
25000.00
III)
15000.00
15000.00
IV)
100000.00
100000.00
V)
784000.00
784000.00
VI)
4750000.00
4750000.00
VII)
4850000.00
4850000.00
VIII)
6750000.00
6750000.00
XI)
4400000.00
4400000.00
X)
50000.00
50000.00
XI)
50000.00
50000.00
XII)
500000.00
500000.00
each fully paid of the Cosmos Coop. Bank Ltd. 22275000.00 22275000.00
SCHEDULE-7- CURRENT ASSETS, LOANS & ADVANCES PARTICULARS SCH. 2005 NO. (RUPEES) A CURRENT ASSETS Inventories at cost as certified by the management Raw material 45855393.41 Work in Progress 40253624.13 Finished Goods 11417614.42 97526631.96 B Sundry Debtors (Unsecured, Good) I) Over six months 0.00 II) Other Debts AA 67283638.32 67283638.32 C Cash and Bank Balance Cash on hand 161719.00 Bank Balances With Scheduled Bank a. In Current Account K 244196.65 b. In Fixed Deposit 8668862.00 With Non-Scheduled Bank in L 0.00 Current Account 9074777.65 D Loans & Advances (Unsecured, Good) Advances recoverable in cash or in kind or for value to be received Assets Under H.P. & Lease Advance Payment of Tax Balance with Govt. Authorities
2004 (RUPEES)
33668287.74 32199386.05 1909981.80 67777655.59
37007277.95 27432323.28 64439601.23 229600.00
3750974.15 5113081.00 0.00 9093655.15
89460386.00
104638127.13
2023185.94 41269905.00 2572078.51 135325555.45 309210603.38
2388908.65 5270048.00 4661093.68 116958177.46 258269089.43
SCHEDULE-8-CURRENT LIABILITIES & PROVISIONS PARTICULARS SCH. 2005 NO. (RUPEES) A Current Liabilities Sundry Creditors
2004 (RUPEES)
Small Scale Industrial Undertakings Others Others Liabilities Advance from Customers B Provisions Taxation
0.00 Y N O 56525000.64 7232221.02 12657856.38 76415078.04 2488030.00 2488030.00 78903108.04
2479925.00 64057149.40 6338171.51 27002670.72 99877916.63 3602315.00 3602315.00 103480231.63
SCHEDULE-9-DEFFERED REVENUE EXPENSES PARTICULARS SCH. 2005 NO. (RUPEES) Opening Balance 8891410.54 8891410.54 Less: Amortised during the 8891410.54 year 0.00
2004 (RUPEES) 11855214.05 11855214.05 2963803.51 8891410.54
SCHEDULE-10-OTHER INCOME PARTICULARS Dividend Profit on Sale of Assets & Investments Rent Received Prior year Income Other Income Lease Rent Received
SCH. NO.
2005 (RUPEES) 429000.00 854710.25 9533.00 -89807.00 186020.00 605871.00 1995327.25
2004 (RUPEES) 95478.00 561841.00 5400.00 111795.65 26680.00 805276.65 1606471.30
SCHEDULE-11-COST OF MATERIAL CONSUMED PARTICULARS SCH. 2005 NO. (RUPEES) Consumption of Material Opening Stock- Raw Material 33668287.74 Work in Progress
2004 (RUPEES) 47274695.53
Finished Goods
Add: Purchases Less: Excise Rebate / Sales Tax Set Off Less: Closing Stock Raw Material Work in Progress Finished Goods
C A1
32199386.05 1909981.80 67777655.59 286098892.72 353876548.31 29938530.54 323938017.77 45855393.41 40253624.13 11417614.42 97526631.96 226411385.81
37189226.77 2898572.22 87362494.52 212882339.60 300244834.12 22674879.45 277569954.67 33668287.74 32199386.05 1909981.80 67777655.59 209792299.08
SCHEDULE-12-EMPLOYEE COST PARTICULARS Payment to and Provision for Employees Salary, Wages and Bonus Cont. to Provident Fund & Other Funds Welfare Expenses Deffered Revenue Expenses Amortised Employees Compensation Expenses
SCH. NO.
2005 (RUPEES)
2004 (RUPEES)
D E F G
39273879.17 4373362.55 1085510.00 0.00 8891410.00 53624161.72
32591832.53 6936939.58 997219.11 2963803.51 0.00 43489794.73
SCHEDULE-13-ESTABLISHMENT EXPENSES PARTICULARS SCH. 2005 NO. (RUPEES) 1 Repairs & Maintenance Building 3552187.86 Plant & Machinery 2542594.70 Others 497534.41 6592316.97 2 Outside Processing Charges 0.00 3 Power & Fuel 3010755.13 4 Consumables 3944275.47 5 Rent 381996.00 6 Rates & Taxes 394000.00 7 Insurance 392071.00 8 Payment to Auditors- Audit Fees 130000.00 Research and Development 9 Expenses 5923580.78
2004 (RUPEES) 191858.00 1588707.93 218462.68 1999028.61 0.00 2306524.45 1682842.00 295810.00 403613.00 347010.00 54000.00 5860266.00
10 11 12 13 14 15 16 17
Printing & Stationery Postage, Telephone Loss on Sale of Assets(net) General Adm. Expenses Bank Charges Assets Discarded Key Man Insurance Sales Tax Paid
I J
1328948.50 2295753.01 0.00 11159410.72 1190112.89 3370776.24 3500000.00 264422.00 43878418.71
791752.40 1518360.55 0.00 7778194.35 1025694.01 0.00 0.00 0.00 24063095.37
SCHEDULE-14-MARKETING EXPENSES PARTICULARS SCH. NO. 1 Commission / Discount and X Warranty Service Charges 2 Advertisement & Exhibition 3 Travelling and Conveyance G 4 Packing, Freight & Forwarding H Expenses 5 Turnover Tax & Surcharge 6 Discount & Remissions(net)
2005 (RUPEES) 3222669.86 694824.00 6947063.51 11539765.47 0.00 107652.00 22511974.84
2004 (RUPEES) 38652677.76 2823637.06 6086889.74 9086535.78 0.00 432808.95 57082549.29
SCHEDULE-15-INTEREST PARTICULARS On term loan Working Capital (Net of interest received) On Fixed Deposits Finance Charges on Lease A/c
SCH. NO. U
2005 (RUPEES) 2558623.50 1470236.65 469353.61 209182.73 4707396.49
2004 (RUPEES) 3523419.67 2716834.95 1212665.84 0.00 7452920.46
ELECTRONICA MACHINE TOOLS LTD. GROUPING AS ON 31st MARCH 2005 PARTICULARS SCH. NO. 2005 (RUPEES) 2004 (RUPEES)
Domestic Sales Machine Sale Carbide Sale EMTL Service Centre Spare Part Sale Service Spare Part Sales Sales Return Duties and Taxes Sub-Total-(A) Export Sales Export Sales Export Spares Sales-OW Export Spares Sales-WW Duty Drawback Less: Sales Returns Sub Total- (B) Total Purchase Bought Out (Local) Freight Inward (Indigenous) Freight Inward on Import Purchase Inward Inspection exp Purchase Tax on URD Consumables Insurance on Material Purchased Bought Out (Import) Material Sent to EMTL service center Manufactured Parts L/c opening charges Custom Duty & Clearing Charges Material Repairing Charges Outside processing Charges
J V AH
348230118.00 0.00 635350.00 24097666.34 43006.00 -3244832.79 81756756.72 451518064.27 92576380.72 2074858.15 0.00 1404433.52 0.00 96055672.39 547573736.66 132953122.61 3387308.30 3186869.00 10044.00 80366.00 0.00 46791.00 52920153.00 0.00 54239015.67 547583.00 21943489.00 124523.31 16659627.83 286098892.72
270515960.60 0.00 1327031.00 12528668.09 28634.00 -4253852.87 60467221.50 340613662.32 95056057.26 4943837.74 0.00 2924684.93 -30465.00 102894114.93 443507777.25 101915559.04 2716247.00 2312713.00 6414.00 53625.00 0.00 51508.00 39671227.00
36066022.21 708281.00 18924906.20 0.00 10455837.15 212882339.60
Salary, Wages & Directors Remuneration Wages (Incld. Provision for Incentive / Exgratia Apprentice Stipend Dearness Allowance House Rent Allowance Overtime Medical Allowance Attendance Bonus Conveyance Allowance Other Allowance to Staff Bonus LTA Director Remuneration Canteen Allowance Leave Encashment Educational Allowance Gift MISC Earning Incentive Allowance Task Oriented Objective Mediclaim Expenses Fixed Dearness Allowance Presently Bonus Medical / Books Reimbursement Medical Reimbursement (Directors) Performance pay
10483354.08 564454.00 413200.00 6633523.69 3040277.43 0.00 548925.00 50667.50 1877031.25 45593.60 462743.00 1274712.00 2151200.00 107686.00 2408635.00 1021240.06 249737.00 429233.66 4936923.94 755284.16 268511.00 0.00 95456.00 728225.00 43106.00 684159.80 39273879.17
9210822.25 656279.00 313064.00 6514934.92 2784794.77 3909.67 595426.66 57337.50 1711724.94 28099.79 469002.00 518218.00 1250480.00 119250.00 1326908.00 1026714.33 126881.00 506608.76 3864629.71 0.00 0.00 108882.44 103507.10 644012.00 26340.00 624005.69 32591832.53
Contribution to P.F. & Other Funds Co s Cont. to P.F. Co s Cont. to ESI Co s Cont. to LWF Co s Cont. to Gratuity Contribution to Super Annuation Fund Workmen and Staff Welfare Function Expenses Staff Welfare Canteen Expenses Personal Insurance Medical Expenses
2824465.43 59076.24 5622.00 889447.01 594751.87 4373362.55
2593046.70 18560.65 5715.00 3656626.36 662990.87 6936939.58 0.00 176030.11 569312.00 217513.00 34364.00 997219.11
18859.00 274843.00 654252.00 108667.00 28889.00 1085510.00
Travelling Travelling Expenses Conveyance Expenses Foreign Travelling Freight Out, Packing & Forwarding Exp. Packing and Forwarding Freight outward Insurance on Material Despatch
1902429.80 384289.00 4660344.71 6947063.51
1566758.10 270608.30 4249523.34 6086889.74
5133242.07 6197383.40 209140.00 11539765.47
3328433.48 5500293.30 257809.00 9086535.78 263745.00 1254615.55 1518360.55 9295.00 9336.00 2099730.30 91120.00 0.00 1104574.00 150001.75 1811642.50 491909.00 74879.80 48950.00 0.00 16175.00 3600.00 39213.00 78164.00 2377.00 1021365.00 202708.00 102362.00 21240.00 17744.00 349572.00 32236.00 0.00 0.00 0.00 7778194.35
Postage, Telephone & Telex Postage Expenses Telephone Expenses General Charges Garden Expenses Meeting Fees Vehicle Maintenance Courses, Seminar and Conference Duties and Taxed Written Off Watch and Ward Legal Expenses Professional and Consultancy Charges Business Promotion Subscription and Membership License Fees Duties & Taxes Written off Books and Periodicals Filing Fees Wealth Tax Sales Tax Paid Income tax paid Cleaning & Sweeping Water Charges Certification fees Recruitment Interpretation Charges Lease rent Brokerage Donation Transportation Misc. Balances Written off
472613.00 1823140.01 2295753.01 106213.00 11500.00 2684080.22 470224.00 1150.00 1104950.70 110766.00 3734351.80 395408.00 129757.00 31051.00 0.00 53376.00 14800.00 38778.00 38873.00 37993.00 674306.00 289052.00 28178.00 0.00 3100.00 87393.00 14100.00 1100000.00 0.00 0.00 11159410.72
Bank Balances: Current A/c State Bank of India-20030 State Bank of India- Saswad State Bank of India- Urban State Bank of India- Dividend1997-98 State Bank of India- Sahar State Bank of India- Dividend1996-97 State Bank of India- Bangalore State Bank of India- Dividend1995-96 State Bank of India- Nasik United Western Bank LtdBangalore United Western Bank Ltd Hyderabad United Western Bank Ltd.- 266 (FD) Indian Bank, Chennai United Western Bank ltdMadras Bank of Maharashtra, Deccan Indusind Bank ltd. A/c 503339050 HDFC Bank ltd. CC A/c (Pune) HDFC Bank ltd. CMS HDFC Bank ltd- Nasik Corporation Bank The Saraswat Co-op Bank ltd. EEFC Bank 09 NFF 00 5002 Bank of India-Ballard Estate
0.00 28285.59 35197.00 22165.00 92117.00 0.00 0.00 0.00 0.00 0.00 0.00 45715.06 10784.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 9933.00
0.00 98277.59 15796.00 22165.00 38519.00 34438.00 0.00 0.00 0.00 0.00 0.00 262686.06 0.00 0.00 104216.86 0.00 3164772.64 0.00 0.00 0.00 0.00 0.00 10103.00
244196.65 L Bank Balances: With NonScheduled Bank Rajarshi Shahu Sahakari Bank ltd.
3750974.15
0.00 0.00
0.00 0.00
Loans & Advances Electronica Tough Carb ltd. EMTL (BGD) Investment in EMTL ltd Advance to Supplier Advance to Staff Deposit Prepaid Expenses Accrued Income Duty draw back receivable Stock in Transit Service Tax Saswad Service Tax Credit Pune Edu. Cess on Service Tax Credit Pune Service Tax Credit Saswad Service Tax [Freight Inward] Edu. Cess on Service Tax [Freight Inward] Edu. Cess on Service Tax Credit Saswad MST 2000-01 CST 1991-92 CST 1996-97 CST 2001-02 MST- 1996-97
66279190.09 12715370.96 1512118.00 2439039.83 106766.00 1608405.00 2224710.00 82096.00 918674.52 38389.00 117850.00 142031.00 2916.00 263790.00 6173.00 127.00 5274.00 58592.00 0.00 242989.00 144919.00 550965.60 89460386.00
99050708.77 0.00 613372.73 123601.00 1356905.00 329777.03 1901875.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 58592.00 264422.00 242989.00 144919.00 550965.60 104638127.13
Other Current Liabilities Accrued Expenses Provision for Leave Encashment Unpaid Salary Bonus Payable & Incentives Salary Saving Scheme Deposit from Trainees Deposit received Commission payable to Directors Dividend Payable Turnover & Surcharge Tax Payable Ex-Gratia Payable Retention Money HDFC Salary Deduction Canteen Deduction Employees Loan Deduction MISC deduction MST 2003-04 CST 2003-04 TOT 2003-04 Surcharge 2003-04 Service Tax 2003-04 MST 2004-05 CST 2004-05 TOT 2004-05 Surcharge 2004-05 MST 2001-02 Unclaim Interest on F.D. TDS 194 A Salary Provident Fund Society Deduction
2878772.49 3234128.00 0.00 515206.00 0.00 250496.50 5000.00 0.00 23165.00 7243.00 637902.00 0.00 0.00 6971.00 0.00 0.00 3614.00 0.00 0.00 0.00 -333132.97 1095.00 0.00 0.00 0.00 0.00 1761.00 0.00 0.00 0.00 7232221.02 5433309.57 7224546.81 12657856.38
2848866.27 1877783.00 0.00 571846.00 0.00 98657.50 5000.00 180000.00 57603.00 7243.00 755114.00 0.00 0.00 4298.00 10972.00 0.00 3614.00 0.00 0.00 0.00 -84586.26 0.00 0.00 0.00 0.00 0.00 1761.00 0.00 0.00 0.00 6338171.51 10363327.61 16639343.11 27002670.72
Advance from Customer Advance from Customer Advance from Sundry Debtors
Sales Tax Loan Loan-I Loan-II Loan-III Loan-IV Total Cash Credit Account-WCDL United Western Bank Ltd.Sinnar Cosmos Co-op Bank Ltd. State Bank of India- IF Branch, Pune United Western Bank Ltd.- Pune Cash Credit Account State Bank of India- Sinnar State bank of India- IF Branch, Pune United Western Bank ltd. Pune United Western Bank ltd- Sinnar United Western Bank ltd.- Nasik Cosmos Co-op. Bank ltd.
406742.02 8779107.00 12958315.00 0.00 22144164.02 0.00 0.00 46590000.00 0.00 46590000.00 0.00 7345713.10 -8599436.65 0.00 0.00 0.00 -1253723.55 0.00 0.00 45336276.45
864787.02 12118275.00 12732677.00 0.00 25715739.02 0.00 0.00 0.00 45456497.00 45456497.00 0.00 -1416875.34 -1042730.43 0.00 0.00 345407.51 -2114198.26 0.00 0.00 43342298.74 4661093.68 0.00 0.00 4661093.68 0.00 28634.00 28634.00 0.00 0.00 3622145.87 0.00 3622145.87 663114.92 242196.00
State Bank of India [Packing Credit]
Balance with GovtAuthority Basic Duty Edu.Cess on Excise (Saswad) Edu.Cess on Excise (Pune) Service Spares Sales Service Spares Sales Other Sales Labour & ErrectionCharges Marine Insurance Interest on Working Capital Cash Credit Exchange Fluctuation Sub total (A) Less: Interest Received from Bank Interest Received from Others
2306364.76 242804.55 22909.2 2572078.51 0.00 43006.00 43006.00 0.00 0.00 2014899.94 0.00 2014899.94 142154.00 402509.29
Sub-Total (B) Grand total (A-B) Sales Returns Sales Returns Warranty Claim Export Sales Return Export Warranty Claim
544663.29 1470236.65 2417280.00 827552.79 3244832.79 0.00 0.00 0.00 0.00 709947.04 2500000.00 0.00 3209947.04
905310.92 2716834.95 3574700.00 679152.87 4253852.87 0.00 0.00 0.00 757000.00 709947.04 2500000.00 0.00 3966947.04
Government Subsidy Bangalore Pune Pune (Saswad) Nasik Commission & Service Charges On Domestic Sales On Export Sales
Free Sample Less: On Sales Return Y Sundry Creditors Pune Bangalore Nasik Bill Discounting Electronica Leasing & Finance ltd. Pushpa Khedekar Rajarshi Shahu Bank Ranka Jain Z Advance to Suppliers Pune Nasik Sundry Debtors Pune Nasik Sundry Debtors Credit Side Pune Nasik
846385.86 2376284.00 3222669.86 0.00 0.00 3222669.86 56525000.64 0.00 0.00
37004498.49 2184384.27 39188882.76 0.00 0.00 38652677.76 66537074.40 0.00 0.00
0.00 0.00 0.00 0.00 0.00 56525000.64 2439039.83 0.00 2439039.83 67283638.32 0.00 67283638.32 7224546.81 0.00 7224546.81
0.00 0.00 0.00 0.00 0.00 66537074.40 613372.73 0.00 613372.73 64439601.23 0.00 64439601.23 16639343.11 0.00 16639343.11
AA
AB
AC
Gross Block Pune EMTL Service Centre Nasik Closing Stock(RawMaterial) Pune Bangalore Nasik Nasik (Stores & Spares) Closing Stock (WIP) Pune Bangalore Nasik Closing Stock (Finished Goods) Pune Nasik Purchase Consumables TCD Duties & Taxes Sales Tax (Nasik) Excise Duty (Nasik) Duties & Taxes [Pune] Rebate Received Central Excise Modvat Sales Tax Set off Press Tool Opening Stock Add: Purchases Less: Closing Stock
189856368.50 0.00 0.00 189856368.50 45855393.41 0.00 0.00 0.00 45855393.41 40253624.13 0.00 40253624.13
162742586.59 0.00 0.00 162742586.59 33668287.74 0.00 0.00 0.00 33668287.74 32199386.05 0.00 32199386.05
AD
AE
AF
11417614.42 0.00 11417614.42 0.00 0.00 0.00 0.00 81756756.72 81756756.72 19511450.54 10427080.00 29938530.54 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
1909981.80 0.00 1909981.80 0.00 0.00 0.00 0.00 60467221.50 60467221.50 15443996.45 7230883.00 22674879.45 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
AG
AH
AI
AJ
AK
Stores & Spares Opening Stock Add: Purchase Consumables Spares Press Tools Write off Less: Closing Stock
AL
Duties & Taxes [Pune] Sales Tax Excise Duty Duties & Taxes [Sinnar] Sales Tax Excise Duty Closing Stock [Sinnar] Press Tools Stores & Spares Term Loans KBC Bank N.V. Belgium Term Loan from SBI Loan from Kotak Mahindra Primus ltd. Loan from Ford Credit Kotak Mahindra Loan from H.D.F.C. Bank-Car UWB No Lien A/c
24694155.00 57062601.72 81756756.72 0.00 0.00 0.00 0.00 0.00 0.00 0.00 12500000.00 2467037.00 745941.00 1703393.73 0.00 17416371.73
18337640.00 42129581.50 60467221.50 0.00 0.00 0.00 0.00 0.00 0.00 0.00 22500000.00 0.00 0.00 0.00 0.00 22500000.00
AM
AN
AO
CONCLUSION
As I made a project on Working Capital and Taxation within two months, I found it a very challenging task.
A study of working capital is of major importance to internal and external analysis because of its close relationship with the day-to-day operations of a business. Working Capital may be regarded as the life blood of a business. Its effective provision can do much to ensure the success of a business while its inefficient management can lead not only to loss of profits but also to the ultimate downfall of what otherwise might be considered as a promising concern.
As well as taxation is concerned it is a system of raising money to finance government. And every individual has to pay the tax. Without taxes to fund its activities, government could not exist.
BIBILOGRAPHY
1. Financial Management: Prof. Dr. Mahesh A. Kulkarni
2. Financial Management: Prof. Satish Inamdar
A PROJECT REPORT ON
WORKING CAPITAL MANAGEMENT AND TAXATION
IN
ELECTRONICA MACHINE TOOLS LTD.
BY
SHRESHMA SAXENA
IN PARTIAL FULFILLMENT OF THE REQUIREMENT OF MASTER OF BUSINESS ADMINISTRATION
2004-2006
VISHWAKARMA INSTITUTE OF MANAGEMENT [AFFILATED TO PUNE UNIVERSITY] KONDHWA, PUNE
COMPANIES PROFILE
TAXATION
INTRODUCTION
The Government of every country has to spend considerable amount of money for the common benefit of its citizens. Similarly, a State Government incurs expenditure on public services such as police, roads, public health, public education, etc. In order to meet its expenditure the Government needs huge funds. One main source of Government funds [called public revenue] is taxes. Donations, borrowings, foreign aid, etc. are other sources from which a Government collects funds to meet its expenditure. Funds raised by Government through taxes is known as tax revenue. In India, taxes contribute about 10 per cent of the Gross Domestic Product [GDP].
Taxes have become an important source of public revenue. A modern Government needs funds both for routine expenditure and development expediture. It requires considerable funds for the economic and social development of the country. Therefore it imposes taxes on the people. Tax refer to the compulsory contributions which the citizens of a country are required to pay to the Government.
There are six sources of Income Tax namely: Income from Salary Capital Gains Income from business and Profession Income from other sources Income from House Property.
Now we will study in detail of each head of Income Tax Sources.
COMPANIES PROFILE
AUDITORS REPORT

Working Capital Management

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considered as a promising concern.

To understand the concept of Working Capital.

To understand the concept of Balance Sheet.

To study the concept of current liabilities and current assets.

To study the financing of Working Capital Requirements.

To understand the preparation of Consolidated Balance Sheet.

To study the concept of Taxation.

To understand the terms used in tax.

Details of Electronica have already been given.

besides leasing and hire purchase many other financial services.

Origin and set up plant at Saswad

Details Of Annual Report of Electonica Machine Tools Ltd

governance.The company has achieved a reputation for integrity and transparency.

DIRECTORS RESPONSIBILITY STATEMENT

2005.These financial statements are the responsibility of the Company s management.

AUDITORS REPORT IN RESPECT OF FIXED ASSETS:

verified by the management at regular intervals during the year.

The Company is maintaining proper records of inventory.

companies,firms or other parties listed in the registers.

entered in the registers maintained under the Companies Act 1956.

certified by practicing Cost Accontant.

immediately preceding such financial year.

securities, debentures and other investments.

THEORY OF WORKING CAPITAL MANAGEMENT AND TAXATION

CONCEPT AND DEFINITION OF WORKING CAPITAL

Working capital is the difference between the

goods,merchandise,notes or bill receivables and cash.

There are two concepts of working capital

Gross and Net.

consists of sundry creditors,bill payable,bank overdraft or cash credit,outstanding expenses etc.

NEED FOR WORKING CAPITAL:

aspects of current assets and current liabilities.

FACTORS AFFECTING WORKING CAPITAL MANAGEMENT

pay ments of to build up good with respect to conditions.

Estimation of Working Capital Requirements:

Bank Credit as Requirements:

Main Constituents of Working Capital:

2. Trade Debtors: It comprise credit sale to customers.

Provisions: These include provisions proposed dividends and contingencies.

Managing Working Capital

are levels payable.

Income from Salary

Any fee, commission, perquisite in lieu of or in addition to any salary or wages.

Any advance of salary

Any payment received in respect of any period of leave not availed.

preceding months, subject to a maximum of Rs. 3.5 lakh.

b. House Rent Allowance (HRA)

d. Allowances to government employees posted outside India.

f. Fixed medical allowance

Statutory Provident Fund

Recognised Provident Fund

Unrecognised Provident Fund

Where the salary income is between Rs 3 lakh and Rs 5 lakh: Rs20,000

Where the salary income exceeds Rs 5 lakh: nil

What is Income from house property?

a. The property is used for one s own business or profession.

b. The property is self-occupied.

c. It is income from a farmhouse.

d. It is the property income of a local authority.

e. It is the property income of a university or an educational institution.

f. It is the property income of a trade union.

g. It is property held for charitable or religious purposes.

h. It is the property income of a political party.