final modified project
TRANSCRIPT
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1.1 Introduction:
Fixed Assets are the assets held with the intention of being used on continuous
basis for the purpose of producing or providing goods or services and are not held for
resale in the normal course of business.
E.g.: Land and Buildings, Plant and achiner!, otor "ehicles, Furniture and
Fixtures.
"aluation of fixed assets is important to have fair measure of profit or
loss and financial position of the concern. Fixed assets are meant for use for man!
!ears. #he value of these assets decreases with their use or with time or man! other
reasons. A portion of fixed assets are reduced b! usage are converted into cash
through charging depreciation. For correct measurement of income, proper
measurement of depreciation is essential, as depreciation constitutes a Part of total
cost of production.
Financial transactions are recorded in the boo$s, $eeping in view the going
concern aspect of the business unit. %n going concern aspect it is assumed that the
business unit has reasonable expectation of continuing the business for a profit for an
indefinite period of time. #his assumption provides much of the &ustification for
recording fixed assets at original cost and depreciating them in a s!stematic manner
without reference to their current reali'able value.
%t is useless to record the fixed assets in the balance sheet at their estimated
reali'able values if there is no immediate expectation of selling them. (o, the! are
shown at their boo$ value )i.e., *ost +epreciation- and not at current reali'able
value. #he mar$et value of the fixed assets ma! change with the passage of time, but
for accounting purpose it continues to be shown in the boo$s in historical cost.
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#he cost concept of accounting states that depreciation calculated on the basis of
historical cost of old assets is usuall! lower than the amount calculated at current
value/ replacement value. #hese results in more profits, which if distributed in full
will lead to reduction in capital.
ACCOUNTING STANDARD FOR FIXED ASSETS (AS-10):
A(01 on Accounting for Fixed Assets has been made mandator! with effect from
1.12.33. According to the A(01, 4Fixd A!!t is an asset held with the intention
of being used on continuous basis for the purpose of producing or providing goods or
services and is not held for resale in the normal course of action5. Gross book value of
fixed asset is its historical cost or other amount substituted for historical costs in the
boo$s of accounts or financial statements. 6hen the amount of depreciation is
deducted from gross boo$ value then it is Net Book Value.
Co!t o" Fixd A!!t! should consist of purchase price including import
duties etc., and attributable cost of bringing the asset to its wor$ing condition for its
intended use. Financing costs relating to borrowed funds attributable to construction
or ac7uisition of fixed assets for the period up to the ac7uisition or completion.
Expenditure incurred in start0up and commissioning of the pro&ect including test runs.
R#$%u$tion o" $!!t!: Fixed assets ma! be restated in the value with the
help of appraisal under ta$en b! the competent value8s .(uch valuation of assets is
called revaluation.
FIXED ASSETS &ANAGE&ENT C'CE
#he fixed assets management c!cle is the c!cle of activities from the
ac7uisition of the asset to the final disposition of the assets at the end of their useful
life. #he c!cle has 9 steps:
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Acui!ition: #he c!cle begins with the ac7uisition, purchase, gift or otherwise, of
an asset and the determination that the asset is to be capitali'ed. #o be capitali'ed the
asset has to meet the agenc!8s capitali'ation limit and have a useful life of one !ear or
more.
Rci#in*: #he asset is formall! received and accepted b! the agenc!. ;eceipt ma!
be verified b! entr! into an automated purchasing s!stem or b! hard cop! document.
%n the case of donated fixed assets, receipt can be verified b! a letter to the donor.
+$,nt: Pa!ment is made for the asset according to the terms of the purchase
order or recognition of acceptance of a gift to the donor. #he pa!ment includes the
ac7uisition cost, freight and all other costs to put the asset. Ac7uisition cost of donated
fixed assets is determined b! its fair mar$et value.
Idnti"ic$tion: the asset is identified as an asset, tagged or otherwise identified and
entered into the fixed assets management inventor! s!stem. Assets are identified with
a permanentl! attached identification tag, etching or b! painting on the identification
number.
In#ntor,: #he longest step in the c!cle. #he asset is used over its useful life.
Assets are inventoried and accounted for during this step until the! are no longer
needed. #he agenc!8s policies and procedures determine the inventor! interval.
Exc!!: the asset is declared as excess to the user8s needs. #he asset ma! be
transferred to another user where it will continue to be used, accounted for and
inventoried. Assets ma! be declared as excess more than once until the asset is no
longer needed.
Sur%u!: the last step in the fixed assets management c!cle. #he asset is declared to
be surplus propert! and to have no further value to the agenc!. #he asset is disposed
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of b! sale or discarding depending on the residual value. (ale can be b! auction,
sealed bid, spot sale, or through a sales store.
FIXED ASSETS &ANAGE&ENT C'CE
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1./ NEED AND I&+ORTANCE OF TE STUD':
As fixed assets pla! an important role in compan!8s ob&ectives. #hese
fixed are not convertible or not li7uidable over a period of time. #he owner8s funds
and long term liabilities are invested in fixed assets. (ince, fixed assets pla! dominant
role in the business and the firm has utili'ation of fixed assets. (o, ratio contributes in
anal!'ing and evaluating the performance of the business.
%f firms fixed assets are idle and not utili'ed properl! it affects the long0
term sustainabilit! of the firm, which ma! affect li7uidit! and solvenc! and
profitabilit! positions of the compan!. #he idle of fixed assets leads to a tremendous
loss in financial cost and intangible cost associate of it. (o, this will lead to evaluation
of fixed assets performance. *omparing with similar compan! and comparison with
industr! standards.
Fixed assets are the assets which cannot be li7uidated into cash within
one !ear. #he huge amounts of funds of the compan! are invested in these assets.
Ever! !ear compan! invests an additional fund in these assets directl! or indirectl!.
#he survival and other ob&ectives of the compan! depend on operating performance of
management i.e. effective utili'ation of these assets.
Firm has evaluated the performance, of fixed assets with proportion of
capital emplo!ed on net assets turnover and other parameters which are helpful for
evaluating the performance of fixed assets.
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1. SCO+E OF TE STUD':
#he pro&ect is covered on fixed assets of U%tr$Tc2 Cnt iitd. rawn
from annual reports of the compan!. #he sub&ect matter is limited to fixed assets, its
anal!sis and its performance but not to an! other areas of accounting corporate,
mar$eting and financial matters. Firm has evaluated the performance, of fixed assets
with proportion of capital emplo!ed on net assets turnover and other parameters
which are helpful for evaluating the performance of fixed assets.
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1.3 O45ECTI6ES OF TE STUD':
#he following are the ob&ectives of the stud!
. #he stud! is conducted to $now the amount of capital expenditure made b! the
compan! U%tr$Tc2 Cnt iitd during stud! period 11301 to1
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1.7 &ETODOOG':
#he data used for the anal!sis and interpretation is from annual reports
of the compan! i.e., secondar! forms of data. ;atio anal!sis is used for calculation
purpose.
#he pro&ect is presented using tables, graphs and with their
interpretations. ?o surve! is underta$en or observation stud! is conducted b!
evaluating fixed assets performance of the compan!.
SOURCES OF DATA:
#he data needed for this pro&ect is collected from the following sources:
. #he data is adopted purel! from secondar! sources.
. #he theoretical contents are gathered purel! from eminent text boo$s and
references.
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/.1 TEORITICA 4AC8GROUND
Fixd $!!t
Fixd $!!t, also $nown as a non-currnt $!!t or as rort,9 %$nt9 $nd
uint )PPE-, is a term used in accounting for assets and propert! which
cannot easil! be converted into cash. #his can be compared with current assets such as
cash or ban$ accounts, which are described as li7uid assets. %n most cases, onl!
tangible assets are referred to as fixed.
oreover, a fixed/non0current asset can also be defined as an asset not directl! sold to
a firms consumers/end0users. As an example, a ba$ing firms current assets would be
its inventor! )in this case, flour, !east, etc.-, the value of sales owed to the firm via
credit )i.e. debtors or accounts receivable-, cash held in the ban$, etc. %ts non0current
assets would be the oven used to ba$e bread, motor vehicles used to transport
deliveries, cash registers used to handle cash pa!ments, etc. Each aforementioned
non0current asset is not sold directl! to consumers.
#hese are items of value which the organi'ation has bought and will use for an
extended period of timeC fixed assets normall! include items such as land and
buildings, motor vehicles, furniture, office e7uipment, computers, fixtures and
fittings, and plant and machiner!. #hese often receive favorable tax treatment
)depreciation allowance- over short0term assets. According to %nternational
Accounting (tandard )%A(- >, Fixed Assets are assets whose future economic benefit
is probable to flow into the entit!, whose cost can be measured reliabl!.
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http://en.wikipedia.org/wiki/Accountinghttp://en.wikipedia.org/wiki/Assethttp://en.wikipedia.org/wiki/Assethttp://en.wikipedia.org/wiki/Propertyhttp://en.wikipedia.org/wiki/Cashhttp://en.wikipedia.org/wiki/Current_assethttp://en.wikipedia.org/wiki/Current_assethttp://en.wikipedia.org/wiki/Liquid_assethttp://en.wikipedia.org/wiki/Estate_in_landhttp://en.wikipedia.org/wiki/Buildinghttp://en.wikipedia.org/wiki/Motor_vehiclehttp://en.wikipedia.org/wiki/Motor_vehiclehttp://en.wikipedia.org/wiki/Furniturehttp://en.wikipedia.org/wiki/Office_equipmenthttp://en.wikipedia.org/wiki/Computerhttp://en.wikipedia.org/wiki/Computerhttp://en.wikipedia.org/wiki/Machineryhttp://en.wikipedia.org/wiki/Depreciationhttp://en.wikipedia.org/wiki/International_Financial_Reporting_Standards#List_of_IFRS_statements_with_full_text_linkhttp://en.wikipedia.org/wiki/International_Financial_Reporting_Standards#List_of_IFRS_statements_with_full_text_linkhttp://en.wikipedia.org/wiki/Assethttp://en.wikipedia.org/wiki/Propertyhttp://en.wikipedia.org/wiki/Cashhttp://en.wikipedia.org/wiki/Current_assethttp://en.wikipedia.org/wiki/Liquid_assethttp://en.wikipedia.org/wiki/Estate_in_landhttp://en.wikipedia.org/wiki/Buildinghttp://en.wikipedia.org/wiki/Motor_vehiclehttp://en.wikipedia.org/wiki/Furniturehttp://en.wikipedia.org/wiki/Office_equipmenthttp://en.wikipedia.org/wiki/Computerhttp://en.wikipedia.org/wiki/Machineryhttp://en.wikipedia.org/wiki/Depreciationhttp://en.wikipedia.org/wiki/International_Financial_Reporting_Standards#List_of_IFRS_statements_with_full_text_linkhttp://en.wikipedia.org/wiki/International_Financial_Reporting_Standards#List_of_IFRS_statements_with_full_text_linkhttp://en.wikipedia.org/wiki/Accounting
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%t is pertinent to note that the cost of a fixed asset is its purchase price, including
import duties and other deductible trade discounts and rebates. %n addition, cost
attributable to bringing and installing the asset in its needed location and the initial
estimate of dismantling and removing the item if the! are eventuall! no longer needed
on the location.
#he primar! ob&ective of a business entit! is to ma$e profit and increase the wealth of
its owners. %n the attainment of this ob&ective it is re7uired that the management will
exercise due care and diligence in appl!ing the basic accounting concept of
4atching *oncept5. atching concept is simpl! matching the expenses of a period
against the revenues of the same period.
#he use of assets in the generation of revenue is usuall! more than a !ear0 that is long
term. %t is therefore obligator! that in order to accuratel! determine the net income or
profit for a period depreciation is charged on the total value of asset that contributed
to the revenue for the period in consideration and charge against the same revenue of
the same period. #his is essential in the prudent reporting of the net revenue for the
entit! in the period.
?et boo$ value of an asset is basicall! the difference between the historical cost of
that asset and it associated depreciation. From the foregoing, it is apparent that in
order to report a true and fair position of the financial &urisprudence of an entit! it is
relatable to record and report the value of fixed assets at its net boo$ value. Apart
from the fact that it is enshrined in (tandard Accounting (tatement )(A(- < and %A(
> that value of asset should be carried at the net boo$ value, it is the best wa! of
consciousl! presenting the value of assets to the owners of the business and potential
investor.
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Drci$tin* $ Fixd A!!t
epreciation is, simpl! put, the expense generated b! the use of an asset. %t is the
wear and tear of an asset or diminution in the historical value owing to usage. Further
to thisC it is the cost of the asset less an! salvage value over its estimated useful life. %t
is an expense because it is matched against the revenue generated through the use of
the same asset. epreciation is usuall! spread over the economic useful life of an
asset because it is regarded as the cost of an asset absorbed over its useful life.
%nvariabl! the depreciation expense is charged against the revenue generated through
the use of the asset. #he method of depreciation to be adopted is best left for the
management to decide in consideration to the peculiarit! of the business, prevailing
economic condition of the assets and existing accounting guideline and principles as
implied in the organi'ational policies.
%t is worth noting that not all fixed assets depreciate in value !ear0over0!ear. Land and
buildings, for example, ma! often increase in value depending on local real0estate
conditions.
A long0term tangible piece of propert! that a firm owns and uses in the production of
its income and is not expected to be consumed or converted into cash an! sooner than
at least one !ears time.
Fixed assets are sometimes collectivel! referred to as DplantD.
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4$%$nc !2t - $ccountin* "or "ixd $!!t!
Introduction
An important distinction is made in accounting between Dcurrent assetsD and Dfixed
assetsD.
Currnt $!!t! are those that form part of the circulating capital of a business. #he!
are replaced fre7uentl! or converted into cash during the course of trading. #he most
common current assets are stoc$s, trade debtors, and cash.
*ompare current assets with fixed assets. A "ixd $!!t is an asset of a business
intndd "or continuin* u!, rather than a short0term, temporar! asset such as stoc$s.
Fixed assets must be classified in a compan!s balance sheet as int$n*i%9 t$n*i%9
or in#!tnt!. Examples of intangible assets include goodwill, patents, and
trademar$s. Examples of tangible fixed assets include land and buildings, plant and
machiner!, fixtures and fittings, motor vehicles and %# e7uipment.
o; !2ou%d t2 c2$n*in* #$%u o" $ "ixd $!!t r"%ctd in $ co$n,
$ccount!=
#he benefits that a business obtains from a fixed asset extend over several
!ears. For example, a compan! ma! use the same piece of production machiner! for
man! !ears, whereas a compan!0owned motor car used b! a salesman probabl! has a
shorter useful life.
B! accepting that the life of a fixed asset is limited, the accounts of a business need to
recognise the benefits of the fixed asset as it is DconsumedD over several !ears.
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>2$t i! t2 r%#$nt co!t o" $ "ixd $!!t=
#he cost of a fixed asset includes all amounts incurred to ac7uire the asset and
an! amounts that can be directl! attributable to bringing the asset into wor$ing
condition.
irectl! attributable costs ma! include:
0 eliver! costs
0 *osts associated with ac7uiring the asset such as stamp dut! and import duties
0 *osts of preparing the site for installation of the asset
0 Professional fees, such as legal fees and architects fees
?ote that general overhead costs or administration costs would not be included as part
of the total
costs of a fixed asset )e.g. the costs of the factor! building in which the asset is $ept,
or the cost of the maintenance team who $eep the asset in good wor$ing condition-
#he cost of subse7uent expenditure on a fixed asset will be added to the cost of the
asset provided that this expenditure enhances the benefits of the fixed asset or restores
an! benefits consumed.
#his means that ma&or improvements or a ma&or overhaul ma! be capitalised and
included as part of the cost of the asset in the accounts.
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owever, the costs of repairs or overhauls that are carried out simpl! to maintain
existing performance will be treated as expenses of the accounting period in which the
wor$ is done, and charged in full as an expense in that period.
>2$t i! t2 U!"u% i" o" $ "ixd $!!t=
An asset ma! be seen as having a ph!sical life and an economic life.
ost fixed assets suffer ph!sical deterioration through usage and the passage of time.
Although care and maintenance ma! succeed in extending the ph!sical life of an
asset, t!picall! it will, eventuall!, reach a condition where the benefits have been
exhausted.
owever, a business ma! not wish to $eep an asset until the end of its ph!sical life.
#here ma! be a point when it becomes uneconomic to continue to use the asset even
though there is still some ph!sical life left.
#he economic life of the asset will be determined b! such factors as
technological progress and changes in demand. For purposes of calculating
depreciation, it is the estimated economic life rather than the potential ph!sical life of
the fixed asset that is used.
>2$t $out t2 R!idu$% 6$%u o" $ "ixd $!!t=
At the end of the useful life of a fixed asset the business will dispose of it and
an! amounts received from the disposal will represent its residual value. #his, again,
ma! be difficult to estimate in practice. owever, an estimate has to be made. %f it is
unli$el! to be a significant amount, a residual value of 'ero will be assumed.
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#he cost of a fixed asset less its estimated residual value represents the total amount
to be depreciated over its estimated useful life.
Fixd A!!t Contro%!
#his section contains two do'en controls that can be applied to the ac7uisition,
valuation, and disposal of fixed assets. f this group, < are considered primar!
controls and are included in the flowchart in figure 4(!stem of Fixed Asset *ontrols5.
#he remaining controls either do not fit into the various fixed asset transaction
flows or are considered secondar! controls that can bolster the primar! controls as
needed.
%n essence, the s!stem of controls for an asset ac7uisition re7uires that initial funding
approval come from the annual budget, as well as additional approval through a
formal capital investment form &ust prior to the actual ac7uisition. #here should also
be a post installation anal!sis of how actual pro&ect results compared to the estimates
shown in the original capital investment form. #he $e! controls used once an asset is
installed are to tag it, assign specific responsibilit! for it, and ensure that an! asset
transfers are approved b! the shipping and receiving managers. Finall!, asset
disposition controls call for regular disposition reviews to ensure that dispositions
occur while assets still retain some resale value, a formal disposition approval
process, and proper trac$ing of an! resulting receipts.
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S,!t o" Fixd A!!t Contro%!
#he controls noted in the flowchart are described at greater length next, in
se7uence from the top of the flowchart to the bottom for each of the three t!pes of
fixed asset transactions.
• Ot$in "undin* $ro#$% t2rou*2 t2 $nnu$% ud*tin* roc!!. #he
annual budgeting process is an intensive review of overall compan! operations
as well as of how capital expenditures are needed to fulfill the compan!8s
strategic direction. As such, capital expenditure re7uests should be included in
the annual budget, thereb! ensuring that the! will be anal!'ed in some detail.
Expenditure re7uests included in the approved budget still should be sub&ected
to some additional approval at the point of actual expenditure, to ensure that
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the! are still needed. owever, expenditure re7uests not included in the
approved budget should be sub&ected to a considerabl! higher level of anal!sis
and approval, to ensure that there is a &ustifiable need for them.
• Ruir $ !i*nd c$it$% in#!tnt $ro#$% "or rior to urc2$!.
Given the significant amount of funds usuall! needed to ac7uire a fixed asset,
there alwa!s should be a formal approval process before a purchase order is
issued. An example is shown in figure below. epending on the si'e of the
ac7uisition, a number of approval signatures ma! be re7uired, extending up to
the compan! president or even the chair of the board of directors.
• U! rnurd $cui!ition $nd di!o!$% "or!. %f the compan! uses a
manual s!stem for fixed asset ac7uisitions and disposals, then it should
ac7uire a set of prenumbered ac7uisition and disposal forms. B! doing so, it
can $eep trac$ of form numbers to ensure that none is lost prior to completion.
#his is also a good wa! to ensure that emplo!ees do not attempt to submit
multiple ac7uisition authori'ation forms for the same asset, allowing them to
order duplicate assets and ma$e off with the extra items. For this to be a full!
functional control, someone must be assigned the tas$ of storing the forms in a
secure location and monitoring which form numbers have been released for
use.
• Ruir rturn on in#!tnt c$%cu%$tion rior to $ro#$%. Given the
considerable si'e of some fixed asset investments, a reasonable control is to
calculate the estimated return on investment to see if the investment exceeds
the corporate hurdle rate. #he return calculation can involve a variet! of
approaches, such as the pa!bac$ period, net present value, or internal rate of
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return. All three calculations are included in the capital investment proposal
form shown in figure below.
• Conduct $ o!tco%tion ro?ct $n$%,!i!. anagers have been $nown to
ma$e overl! optimistic pro&ections in order to ma$e favorable cases for asset
ac7uisitions. #his issue can be mitigated b! conducting regular reviews of the
results of asset ac7uisitions in comparison to initial predictions and then
tracing these findings bac$ to the initiating managers. #his approach can also
be used at various milestones during the construction of an asset to ensure that
costs incurred match original pro&ections.
• Co$r "ixd $!!t !ri$% nur! to t2 xi!tin* !ri$% nur d$t$-
$!. #here is a possibilit! that emplo!ees are ac7uiring assets, selling them to
the compan!, then stealing the assets and selling them to the compan! again.
#o spot this behavior, alwa!s enter the serial number of each ac7uired asset in
the fixed asset master file, and then run a report comparing serial numbers for
all assets to see if there are duplicate serial numbers on record.
• Indndnt%, r#i; "ixd $!!t $!tr "i% $ddition!. A number of
downstream errors can arise when fixed asset information is entered in0
correctl! in the fixed asset master file. For example, an incorrect asset
description can result in an incorrect asset classification, which in turn ma!
result in an incorrect depreciation calculation. (imilarl!, an incorrect asset
location code can result in the subse7uent inabilit! to locate the ph!sical asset,
which in turn ma! result in an improper asset disposal transaction. Further, an
incorrect ac7uisition price ma! result in an incorrect depreciation calculation.
#o mitigate the ris$ of all these errors, have a second person review all new
entries to the fixed asset master file for accurac!.
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• A""ix $n idnti"ic$tion %$t to $%% "ixd $!!t!. %f a compan! ac7uires assets
that are not easil! differentiated, then it is useful to affix an identification plate
to each one to assist in later audits. #he identification plate can be a metal tag
if durabilit! is an issue, or can be a laminated bar code tag for eas! scanning,
or even a radio fre7uenc! );F%- tag. #he person responsible for tagging
should record the tag number and asset location in the fixed asset master file.
• A!!i*n r!on!ii%it, "or $!!t!. #here is a significant ris$ that assets will not
be trac$ed carefull! through the compan! once the! are ac7uired. #o avoid
this, formall! assign responsibilit! for each asset to the department manager
whose staff uses the asset, and send all managers a 7uarterl! notification of
what assets are under their control. Even better, persuade the human resources
manager to include 4asset control5 as a line item in the formal performance
review for all managers.
•U! $ "or$% tr$n!"r docunt to !2i"t $!!t %oc$tion!. %f the preceding
control is implemented that assigns responsibilit! for specific assets to
department managers, then the transfer of an asset to a different department
calls for the formal approval of the sending and receiving department
managers. therwise, managers can claim that assets are being shifted without
their approval, so the! have no responsibilit! for the assets.
• Conduct r*u%$r $!!t di!o!ition r#i;!. Fixed assets decline in value
over time, so it is essential to conduct a regular review to determine if an!
assets should be disposed of before the! lose their resale value. #his review
should be conducted at least annuall!, and should include representatives from
the accounting, purchasing, and user departments. An alternative approach is
to create capacit! utili'ation metrics )which is most easil! obtained for
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production e7uipment- and report on utili'ation levels as part of the standard
monthl! management reporting pac$ageC this tends to result in more
immediate decisions to eliminate unused e7uipment.
• Ruir $ !i*nd c$it$% $!!t di!o!ition "or rior to di!o!ition. #here
is a ris$ that emplo!ees could sell off assets at below0mar$et rates or
disposition assets for which an alternative in0house use had been planned.
Also, if assets are informall! disposed of, the accounting staff probabl! will
not be notified and so will continue to depreciate an asset no longer owned b!
the compan!, rather than writing it off. #o avoid these problems, re7uire the
completion of a signed capital asset disposition form, such as the one shown in
figure below.
• 6ri", t2$t c$!2 rcit! "ro $!!t !$%! $r 2$nd%d ror%,. Emplo!ees
ma! sell a compan!8s assets, poc$et the proceeds, and report to the compan!
that the asset actuall! was scrapped. #his control issue can be reduced b!
re7uiring that a bill of sale or receipt from a scrapping compan! accompan!
the file for ever! asset that has been disposed of.
• #he preceding controls were primar! ones re7uired as part of the basic fixed
asset transaction flows. %n addition, the next ancillar! controls either are
general controls that operate outside of an! specific transaction or are
designed to provide additional ris$ mitigation.
• S*r*$t r!on!ii%iti! r%$td to "ixd $!!t!. %f the person purchasing an
asset also receives it, there is a considerable ris$ that the person will alter the
purchasing documents to eliminate evidence of the receipt and then steal the
asset. #he same concern applies to several aspects of fixed assets transactions.
A control over this situation is to segregate these t!pes of responsibilities:
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o Fixed asset ac7uisition
o Fixed asset transaction recording
o *ustod! of the fixed asset
o Fixed asset disposal
o ;econciliation of ph!sical assets to accounting records
• R!trict $cc!! to t2 "ixd $!!t $!tr "i%. #he fixed asset master file
contains all baseline information about an asset and is the source document for
depreciation calculations as well as asset location information. %f people were
to gain illicit access to this file, the! could ma$e modifications to change
depreciation calculations )thereb! changing financial results- as well as
modif! locations )possibl! resulting in theft of the assets-. #o avoid these
problems, alwa!s use password controls to restrict access to the fixed asset
master file.
• R!trict "$ci%it, $cc!!. %f the compan! owns fixed assets that can be easil!
moved and have a significant resale value, there is a ris$ that the! will be
stolen. %f so, consider restricting access to the building during nonwor$ hours
and hire a securit! staff to patrol the perimeter or at least the exits.
• In!t$%% $n $%$r !,!t to dtct RFID-t$**d $!!t!. %f the compan! has
especiall! valuable fixed assets that can be moved, then consider affixing a
;F% tag to each one and then installing a transceiver near ever! building exit
that will trigger an alarm if the ;F% tag passes b! the transceiver.
• Rconci% "ixd $!!t $ddition! ;it2 c$it$% xnditur $ut2ori@$tion!. A
good detective control to ensure that all ac7uisitions have been authori'ed
properl! is to periodicall! reconcile all fixed asset additions to the file of
approved capital expenditure authori'ations. An! ac7uisitions for which there
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is no authori'ation paperwor$ are then flagged for additional review, t!picall!
including reporting of the control breach to management.
• Incr$! t2 c$it$%i@$tion %iit. A $e! problem with fixed asset trac$ing is
that it involves a considerable amount of additional paperwor$ as well as
ongoing depreciation calculations, which ma! so overwhelm the accounting
staff that the! are struggling to $eep up with the paperwor$ rather than
focusing on proper control of the assets themselves. #his recommended
control ma! seem counterintuitive, but increasing the capitali'ation limit
reduces the number of assets designated as fixed assets, thereb! allowing the
accounting staff to focus its attention on the proper approval, trac$ing, and
disposition of a smaller number of large0dollar assets. #hus, oversight of
smaller assets is abandoned in favor of greater inspection of large0dollar asset
transactions.
•
Conduct $ riodic "ixd $!!t $udit. #he internal audit staff should schedule
a periodic audit of fixed assets, reconciling the on0hand inventor! to the
accounting records. Given the considerable 7uantit! of fixed assets that man!
companies maintain, it is acceptable to focus on the 1 percent of fixed assets
that t!picall! account for @1 percent of the invested cost of all fixed assets. An
example of a report suitable for a fixed asset audit is shown in figure below.
• 6ri", t2 "$ir #$%u $!!ution! on di!!ii%$r $!!t xc2$n*!. Ac0
counting rules allow one to record a gain or loss on the exchange of dissimilar
assets. (ince this calculation is based on the fair value of the assets involved
)which is not stated in the accounting records-, the possibilit! exists for
someone to artificiall! create an asset fair value that will result in a gain or
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loss. #his situation can be avoided b! having an outside appraiser review the
fair value assumptions used in this t!pe of transaction.
• T!t "or $!!t i$irnt. #here are a variet! of circumstances under which
the net boo$ value of an asset should be reduced to its fair value, which can
result in significant reductions in the recorded value of an asset. #his test
re7uires a significant $nowledge of the t!pes of mar$ets in which a compan!
operates, the regulations to which it is sub&ect, and the need for its products
within those mar$ets. *onse7uentl!, onl! a $nowledgeable person who is at
least at the level of a controller should be relied on to detect the presence of
assets whose values are li$el! to have been impaired.
• 6ri", t2$t corrct drci$tion c$%cu%$tion! $r in* $d. #hough there
is no potential loss of assets if incorrect depreciation calculations are being
made, it can result in an embarrassing ad&ustment to a compan!8s financial
statements at some point in the future. #his control should include a
comparison of capitali'ed items to the official corporate capitali'ation limit to
ensure that items are not being inappropriatel! capitali'ed and depreciated.
#he control should also include a review of the asset categories in which each
individual asset has been recorded, to ensure that an asset has not been
misclassified and therefore incorrectl! depreciated.
• 6ri", t2$t $%% c2$n*! in $!!t rtirnt o%i*$tion $!!ution! $r
$ut2ori@d. A compan! can artificiall! increase its short0term profitabilit! b!
altering the assumed amount of future cash flows associated with its asset
retirement obligations. (ince downward revisions to these assumptions will be
reflected in the current period8s income statement as a gain, an! changes to
these assumptions should be approved prior to implementation.
2
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&ANAGE&ENT OF FIXED ASSETS:
#he selection of various fixed assets re7uired for creating the desired
production facilities and the decision regarding the determination of level of fixed
assets in the capital structure is an important decision for the compan! to ta$e for the
smooth running of business. #he decisions relating to fixed assets involve huge funds
for long period of time and are generall! of irreversible nature affecting the long
profitabilit! of the business. #hus, management of fixed asset is of vital importance to
an! organi'ation.
#he process of Fixed Assets anagement involves:
. (election of most worth! pro&ects from the different alternatives of fixed assets.
. Arranging the re7uisite funds/capital for the same.
#he first important consideration is to ac7uire onl! that amount of fixed
assets, which will be &ust sufficient to ensure smooth and efficient running of the
business. %n some cases it ma! be economical to bu! certain assets in a lot si'e.
Another important consideration to be $ept in mind is possible increase in the demand
of the firm8s product needs the expansion of activities. ence a firm should have that
amount of fixed assets, which could ad&ust to increase demand.
Another aspect of fixed assets management is that a firm must ensure
buffer stoc$s of certain essential e7uipments to ensure uninterrupted production in the
events of emergencies. (ometimes, there ma! some brea$down in some e7uipments
or services affecting the entire production. %t is alwa!s better to have some alternative
arrangements to deal with such situations but at the same time the cost of carr!ing
such buffer stoc$ should also be evaluated.
=
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/. / ARTICE5OURNAS
1. 5OURNA REFERENCE: INTERNATIONA
5OURNA OF CO&+UTER SCIENCE AND A++ICATIONS.
AH#;(: AGA#A B;6?, EIPE;# A(P, ?E#AB(#;A*#: #he fixed asset management s!stem primaril! helps !ou $eep trac$
record of the assets of organi'ation and its where about. #he s!stem at the same time
enables !ou to calculate depreciation and also enables !ou to find out the cost.
Accumulate depreciation and 6" at the of the asset.
AH#;(: **, A 6L#E; JLH6E; BH(%?E((
AB(#;A*#: esigned for use b! accounting and tax professionals, pro s!stem
fixed assets is a comprehensive trac$ing, management and reporting program that
offers extensive depreciation calculation capabilities, pro&ections, asset0life events and
reporting.
AH#;: #(? ;E#H#E;(0F%IE A((E#(
Fixed assets *( is designed for professional8s accountant managing the assets
depreciations functions for multiple clients entities. the program, which can be used as
standard alone s!stem are integrated into *(, professionals suit of tax in accounting
applications, provide comprehensive depreciation, pro&ection, inventor! and reporting
capabilities, with automatic calculations asset department and extensive life
management.
>
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/. 5OURNA REFERENCE:TO>ARDS AND A++ROAC TO
SEECT AND ASSET INFOR&ATION &ANAGE&ENT
STRATEG'.
AH#;: AE K%E HE;#A?%.
AB(#;A*#: #he management of engineering asset such as a facilities and
e7uipments can be challenging tas$ and optimi'ing there is critical. #o ensure
effective utili'ation of on asset, one as to ma$e effective decision regarding the asset
lifec!cle. #he ob&ective of these papers is then to propose and approach for decision
ma$ers to develop and effective asset information management)A%- (trateg!. 6e
focus on the management of the set of information associate with asset throughout
is lifec!cle. For these purpose the propose first to identif! asset information
re7uirements of and effective management. (econd, we examine different technolog!
and s!stem for information capture, storage, retrieval and use. #he finding of these
paper would be help in selecting A% strateg! aim it providing, time accurate,
complete and consistence information about location and condition of asset so as
result in better decision ma$ing. Furthermore, in order to assist manager to select a
strateg!, we discuss the role of information 7ualit! to assess the performance of an
asset information strateg!.
9
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. 5OURNA: FIXED ASSET ACCOUTING AND &ANAGE&ENT
+ROCEDURES
AB(#;A*#: Assigning proper value to fixed asset and controlled items is critical
to maintaining accurate accounting records. epending upon the classification of the
asset )land, buildings improvements, e7uipments, vehicles or infrastructures-, the
information re7uired to establish and properl! recorded asset value will come from
various organi'ations are departments. #herefore, there will be shared responsibilities
6hile other cit! organi'ations ma! provide supporting information, it remains the
ultimate responsibilities of each department Fixed asset coordinator )FA*- to ensure
that the proper complete valuation has been recorded for each asset in the
department8s Fixed Asset anagement (!stem )FA(-.
@
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3. 5OURNA: #E "ALHE F F%IE A((E# ;E"ALHA#%?;E(E;"E( %? %?#E;?A#%?AL A**H?#%?G
TITE: %?#E;?A#%?AL A?AGEE?# ;E"%E6 "L = ?.#
113
AUTOR: GMH?G PA%J
AB(#;A*#: #he (ecurities and Exchange *ommission )(E*- of H(, as recentl!
proposed that all H(, firms the re7uired to issue financial statements in accordance
with %F;( b! 12. Hnder %F;( the rules for measurement of fixed asset are resented
in %A( >, which allows firms to choose either the cost model or the revaluation
model. %n the studies, investigate the effect of adopting the %F;( the standard for
fixed asset revaluation b! examine the relationship between changes in revaluation
reserves and stop prices. ut of the = countries used for the anal!sis, =countries and
revaluation results that are statisticall! significant in explaining the mar$et value of
e7uit! , suggesting that revaluation results are value relevant for those countries.
3
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7. 5OURNA: DE6EO+ING TE ASSET-IGT 4USINESS
&ODE
(H;*E: (#;A#EG%* A?AGEE?#
AH#;: FE?0 AM L%H
AB(#;A*#: #he A0L model refers to a business strateg! the pursues capital
efficienc! b! focusing the e7uit! investment on those assets where a compan!8s
expertise attains the best return for investors )al! and palter, 11, p. -. #he core of
the asset0light approach is to enhance the firms the long term value through enlarging
valuable and uni7ue firm resources. #he fundamental 7uestion of operational strategic
management is this: 6hat $inds of the data can be ta$en into audit the heterogeneous
strategic resourcesN. #he data must be observable, assessable and most importantl!
commeasurable, since competitive advantage must be assessed on a comparative
basis.
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.1 INDUSTR' +ROFIE
Cnt indu!tr, in Indi$
Introduction:-#he %ndian cement industr! is directl! related to the countr!s infrastructure
sector and thus its growth is paramount in determining the development of the
countr!. 6ith a current production capacit! of around > million tonnes )#-, %ndia
is the second largest producer of cement in the world and fueled b! growth in the
infrastructure sector, the capacit! is expected to increase to around ==1 # b! FM1.
%ndia has a lot of potential for development in the infrastructure and construction
sector and the cement sector is expected to largel! benefit from it. (ome of the recent
ma&or government initiatives such as development of 11 smart cities are expected to
provide a ma&or boost to the sector.
Expecting such developments in the countr! and aided b! suitable government
foreign policies, several foreign pla!ers such as the li$es of Lafarge, olcim and "icat
have invested in the countr! in the recent past. Another factor which aids the growth
of this sector is the read! availabilit! of the raw materials for ma$ing cement, such as
limestone and coal.
&$rBt Si@
According to data released b! the epartment of %ndustrial Polic! and
Promotion )%PP-, cement and g!psum products attracted foreign direct investment
)F%- worth H(O ,[email protected] million between April 111 and (eptember 12.
%n %ndia, the housing sector is the biggest demand driver of cement, accounting for
about >9 per cent of the total consumption. #he other ma&or consumers of cement
include infrastructure at < per cent, commercial construction at per cent and
industrial construction at nine per cent.
#o meet the rise in demand, cement companies are expected to add => # capacit!
over the next three !ears. #he cement capacit! in %ndia ma! register a growth of eight
per cent b! next !ear end to #. %t ma!
increase further to 2 # b! the end of 19. #he countr!s per capita consumption
stands at around 31 $g.
A total of @@ large cement plants together account for 39 per cent of the total
installed capacit! in the countr!, while = small plants account for the rest. f these
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large cement plants, 99 are located in the states of Andhra Pradesh, #elangana,
;a&asthan and #amil ?adu. #he %ndian cement industr! is dominated b! a few
companies. #he top 1 cement companies account for almost 91 per cent of the total
cement production of the countr!.
In#!tnt!
n the bac$ of growing demands, due to increased construction and infrastructural
activities, the cement sector in %ndia has seen man! investments and developments in
recent times. (ome of them are as follows:
• Lafarge and olcim plans to re7uest for the European *ommissions approval for
their possible merger. #he two companies had earlier unveiled plans in April 12 to
create the worlds biggest cement group with H(O 22 billion in !earl! sales.
• (6 cement plans to enter the Jerala mar$et to cash in on the construction fren'!
in the state. (6 is presentl! building a three million tonnes per annum )#PA-
capacit! plant at *hitrapur in Jarnata$a to add to the current =.2 #PA capacit! in
(outh %ndia.
• Kuari *ement through its subsidiar! Gulbarga *ement Limited )G*L- plans to set
up a
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#he *ement *orporation of %ndia )**%- was incorporated b! the Government
of %ndia in 3>= to achieve self0sufficienc! in cement production in the countr!.
*urrentl!, **% has 1 units spread over eight states in %ndia.
%n order to help the private sector companies thrive in the industr!, the government
has been approving their investment schemes. (ome such initiatives b! the
government in the recent past are as follows:
• %ndia has &oined hands with (wit'erland to reduce energ! consumption and develop
newer methods in the countr! for more efficient cement production, which will help
%ndia meet its rising demand for cement in the infrastructure sector.
• #he Government of %ndia has decided to adopt cement instead of bitumen for the
construction of all new road pro&ects on the grounds that cement is more durable and
cheaper to maintain than bitumen in the long run.
Ro$d A2$d
#he globall!0competitive cement industr! in %ndia continues to witness positive trends
such as cost control, continuous technolog! upgradation and increased construction
activities.
Furthermore, ma&or cement manufacturers in %ndia are progressivel! using other
alternatives such as bioenerg! as fuel for their $ilns. #his is not onl! helping to bring
down production costs of cement companies, but is also proving effective in reducing
emissions.
6ith the ever0increasing industrial activities, real estate, construction and
infrastructure, in addition to the various (pecial Economic Kones )(EKs- being
developed across the countr!, there is a demand for cement.
%t is estimated that the countr! re7uires about H(O trillion in the period FM 10<
to FM 1>09 to fund infrastructure such as ports, airports and highwa!s to boost
growth, which promises a good scope for the cement industr!.
#he 2th Annual %ndia *ement (ector Business (entiment (urve! is nearl! out and the
%ndia *onstruction Building aterials ournal provides the opportunit! of an
exclusive loo$ at the surve!8s results before their sharing with the wider audiences.
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6e are glad to be able to present here some of the surve! highlights and provide our
readers with before0hand data regarding the views and expectations of cement
industr! professionals.
ptimism continues to be the name of the game for the %ndian cement industr! + a
function of long0term trends as well as human nature. But on a closer loo$, the surve!
shows that the optimism onl! runs s$in deep and that it has alread! been eroded b! an
increasing percentage of industr! members who feel dissatisfied with the overall
performance of the field last !ear.
For instance, the percentage of those who believe the industr! performed 4well5
dropped from 2< percent in 1 to > percent in 1
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Cotition concrn! in Euro
Europe ma! be slowl! emerging from the economic gloom but anti0trust regulators
have remained vigilant. An asset swap between *emex and olcim over units in the
*'ech ;epublic, German! and (pain has received attention from the European
*ommission. %n the HJ the *ompetition *ommission has decreed that further action
is re7uired for the cement sector following the creation of new pla!er ope
*onstruction aterials in 1. Lafarge #armac ma! now have to sell another one of
its HJ cement plants to increase more competition into the mar$et. Elsewhere in
Europe, Belgium regulators too$ action in (eptember 1< and this wee$ we report
on Polish action against cartel0li$e activit!.
Don
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*oncrete should not be confused with cement because the term cement refers onl! to
the dr! powder substance used to bind the aggregate materials of concrete. Hpon the
addition of water and/or additives the cement mixture is referred to as concrete,
especiall! if aggregates have been added.
%t is uncertain where it was first discovered that a combination of h!drated non0
h!draulic lime and a po''olan produces a h!draulic mixture )see also: Po''olanic
reaction-, but concrete made from such mixtures was first used on a large scale b!
;oman engineers. #he! used both natural po''olans )trass or pumice- and artificial
po''olans )ground bric$ or potter!- in these concretes. an! excellent examples of
structures made from these concretes are still standing, notabl! the huge monolithic
dome of the Pantheon in ;ome and the massive Baths of *aracalla. #he vast s!stem
of ;oman a7ueducts also made extensive use of h!draulic cement. #he use of
structural concrete disappeared in medieval Europe, although wea$ po''olanic
concretes continued to be used as a core fill in stone walls and columns.
&ODERN CE&ENT
odern h!draulic cements began to be developed from the start of the
%ndustrial ;evolution )around @11-, driven b! three main needs:
!draulic renders for finishing bric$ buildings in wet climates
!draulic mortars for masonr! construction of harbor wor$s etc, in contact with
sea water.
D#%ont o" !tron* concrt!
%n Britain particularl!, good 7ualit! building stone became ever more
expensive during a period of rapid growth, and it became a common practice to
construct prestige buildings from the new industrial bric$s, and to finish them with a
stucco to imitate stone. !draulic limes were favored for this, but the need for a fast
set time encouraged the development of new cements. ost famous was Par$ers
D;oman cement.D #his was developed b! ames Par$er in the 9@1s, and finall!
patented in 93>. %t was, in fact, nothing li$e an! material used b! the ;omans, but
was a D?atural cementD made b! burning septaria 0 nodules that are found in certain
cla! deposits, and that contain both cla! minerals and calcium carbonate. #he burnt
nodules were ground to a fine powder. #his product, made into a mortar with sand, set
http://en.wikipedia.org/wiki/Concretehttp://en.wikipedia.org/wiki/Concretehttp://en.wikipedia.org/wiki/Slaked_limehttp://en.wikipedia.org/wiki/Slaked_limehttp://en.wikipedia.org/wiki/Pozzolanhttp://en.wikipedia.org/wiki/Pozzolanhttp://en.wikipedia.org/wiki/Pozzolanic_reactionhttp://en.wikipedia.org/wiki/Pozzolanic_reactionhttp://en.wikipedia.org/wiki/Roman_engineeringhttp://en.wikipedia.org/wiki/Trasshttp://en.wikipedia.org/wiki/Pumicehttp://en.wikipedia.org/wiki/Pantheon,_Romehttp://en.wikipedia.org/wiki/Romehttp://en.wikipedia.org/wiki/Romehttp://en.wikipedia.org/wiki/Romehttp://en.wikipedia.org/wiki/Baths_of_Caracallahttp://en.wikipedia.org/wiki/Roman_aqueducthttp://en.wikipedia.org/wiki/Roman_aqueducthttp://en.wikipedia.org/wiki/Industrial_Revolutionhttp://en.wikipedia.org/wiki/Industrial_Revolutionhttp://en.wikipedia.org/wiki/Stuccohttp://en.wikipedia.org/wiki/Stuccohttp://en.wikipedia.org/wiki/Kingdom_of_Great_Britainhttp://en.wikipedia.org/wiki/Stuccohttp://en.wikipedia.org/wiki/Roman_cementhttp://en.wikipedia.org/wiki/James_Parker_(cement_maker)http://en.wikipedia.org/wiki/Concretion#Septarian_concretionshttp://en.wikipedia.org/wiki/Concretion#Septarian_concretionshttp://en.wikipedia.org/wiki/Concretehttp://en.wikipedia.org/wiki/Slaked_limehttp://en.wikipedia.org/wiki/Slaked_limehttp://en.wikipedia.org/wiki/Pozzolanhttp://en.wikipedia.org/wiki/Pozzolanic_reactionhttp://en.wikipedia.org/wiki/Pozzolanic_reactionhttp://en.wikipedia.org/wiki/Roman_engineeringhttp://en.wikipedia.org/wiki/Trasshttp://en.wikipedia.org/wiki/Pumicehttp://en.wikipedia.org/wiki/Pantheon,_Romehttp://en.wikipedia.org/wiki/Romehttp://en.wikipedia.org/wiki/Baths_of_Caracallahttp://en.wikipedia.org/wiki/Roman_aqueducthttp://en.wikipedia.org/wiki/Industrial_Revolutionhttp://en.wikipedia.org/wiki/Stuccohttp://en.wikipedia.org/wiki/Kingdom_of_Great_Britainhttp://en.wikipedia.org/wiki/Stuccohttp://en.wikipedia.org/wiki/Roman_cementhttp://en.wikipedia.org/wiki/James_Parker_(cement_maker)http://en.wikipedia.org/wiki/Concretion#Septarian_concretions
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in =+= minutes. #he success of D;oman *ementD led other manufacturers to develop
rival products b! burning artificial mixtures of cla! and chal$.
ohn (meaton made an important contribution to the development of cements when
he was planning the construction of the third Edd!stone Lighthouse )9==03- in the
English *hannel. e needed a h!draulic mortar that would set and develop some
strength in the twelve hour period between successive high tides. e performed an
exhaustive mar$et research on the available h!draulic limes, visiting their production
sites, and noted that the Dh!draulicit!D of the lime was directl! related to the cla!
content of the limestone from which it was made. (meaton was a civil engineer b!
profession, and too$ the idea no further. Apparentl! unaware of (meatons wor$, the
same principle was identified b! Louis "icat in the first decade of the nineteenth
centur!. "icat went on to devise a method of combining chal$ and cla! into an
intimate mixture, and, burning this, produced an Dartificial cementD in @9. ames
Frost,or$ing in Britain, produced what he called DBritish cementD in a similar manner
around the same time, but did not obtain a patent until @. %n @2, oseph Aspdin
patented a similar material, which he called Portland cement, because the render made
from it was in color similar to the prestigious Portland stone.
All the above products could not compete with lime/po''olan concretes because of
fast0setting )giving insufficient time for placement- and low earl! strengths )re7uiring
a dela! of man! wee$s before formwor$ could be removed-. !draulic limes,
DnaturalD cements and DartificialD cements all rel! upon their belite content for
strength development. Belite develops strength slowl!. Because the! were burned at
temperatures below =1 T*, the! contained no alite, which is responsible for earl!
strength in modern cements. #he first cement to consistentl! contain alite was made
b! oseph Aspdins son 6illiam in the earl! @21s. #his was what we call toda!
DmodernD Portland cement. Because of the air of m!ster! with which 6illiam Aspdin
surrounded his product, others )e.g. "icat and % * ohnson- have claimed precedence
in this invention, but recent anal!sis of both his concrete and raw cement have shown
that 6illiam Aspdins product made at ?orthfleet, Jent was a true alite0based cement.
owever, Aspdins methods were Drule0of0thumbD: "icat is responsible for
establishing the chemical basis of these cements, and ohnson established the
importance of sintering the mix in the $iln.
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6illiam Aspdins innovation was counter0intuitive for manufacturers of Dartificial
cementsD, because the! re7uired more lime in the mix )a problem for his father-,
because the! re7uired a much higher $iln temperature )and therefore more fuel- and
because the resulting clin$er was ver! hard and rapidl! wore down the millstones
which were the onl! available grinding technolog! of the time. anufacturing costs
were therefore considerabl! higher, but the product set reasonabl! slowl! and
developed strength 7uic$l!, thus opening up a mar$et for use in concrete.
./ CO&+AN' +ROFIE
UTRATEC CE&ENT:
Hltra#ech *ement Limited has an annual capacit! of @. million tonnes. %t
manufactures and mar$ets rdinar! Portland *ement, Portland Blast Furnace (lag
*ement and Portland Po''alana *ement. %t also manufactures read! mix concrete
);*-.
Hltra#ech *ement Limited has five integrated plants, six grinding units and three
terminals S two in %ndia and one in (ri Lan$a.
Hltra#ech *ement is the countr!8s largest exporter of cement clin$er. #he export
mar$ets span countries around the %ndian cean, Africa, Europe and the iddle East.
Hltra#ech8s subsidiaries are a$shin *ement Limited and Hltra#ech *e!linco )P-
Limited.
#he roots of the Adit!a Birla Group date bac$ to the 3th centur! in the
pictures7ue town of Pilani, set amidst the ;a&asthan desert. %t was here that (eth (hiv
?ara!an Birla started trading in cotton, la!ing the foundation for the ouse of Birlas.
#hrough %ndias arduous times of the @=1s, the Birla business expanded rapidl!. %n
the earl! part of the 1th centur!, our Groups founding father, Ghansh!amdas Birla,
set up industries in critical sectors such as textiles and fibre, aluminium, cement and
chemicals. As a close confidante of ahatma Gandhi, he pla!ed an active role in the
%ndian freedom struggle. e represented %ndia at the first and second round0table
confere nce in London, along with Gandhi&i. %t was at DBirla ouseD in elhi
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that the luminaries of the %ndian freedom struggle often met to plot the downfall of the
British ;a&.
Ghansh!amdas Birla found no contradiction in pursuing business goals with the
dedication of a saint, emerging as one of the foremost industrialists of pre0
independence %ndia. #he principles b! which he lived were soa$ed up b! his
grandson, Adit!a "i$ram Birla, our Groups legendar! leader.
Adit,$ 6iBr$ 4ir%$: uttin* Indi$ on t2 ;or%d $
A formidable force in %ndian industr!, r. Adit!a Birla dared to dream of
setting up a global business empire at the age of 2. e was the first to put %ndian
business on the world map, as far bac$ as 3>3, long before globalisation became a
bu''word in %ndia.
%n the then vibrant and free mar$et (outh East Asian countries, he ventured to set up
world0class production bases. e had foreseen the winds of change and sta$ed the
future of his business on a competitive, free mar$et driven econom! order. e put
%ndian business on the globe, !ears before economic liberalisation was formall!
introduced b! the former Prime inister, r. ?arasimha ;ao and the former Hnion
Finance inister, r. anmohan (ingh. e set up 3 companies outside %ndia, in
#hailand, ala!sia, %ndonesia, the Philippines and Eg!pt.
%nterestingl!, for r. Adit!a Birla, globali'ation meant more than &ust geographic
reach. e believed that a business could be global even whilst being based in %ndia.
#herefore, bac$ in his home0territor!, he drove single0mindedl! to put together the
building bloc$s to ma$e our %ndian business a global force.
Hnder his stewardship, his companies rose to be the worlds largest producer of
viscose staple fiber, the largest refiner of palm oil, the third largest producer of
insulators and the sixth largest producer of carbon blac$. %n %ndia, the! attained the
status of the largest single producer of viscose filament !arn, apart from being a
producer of cement, gre! cement and ra!on grade pulp. #he Group is also the largest
producer of aluminum in the private sector, the lowest first cost producers in the
world and the onl! producer of linen in the textile industr! in %ndia.
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At the time of his untimel! demise, the Groups revenues crossed ;s.@,111 crore
globall!, with assets of over ;s.3,111 crore, comprising of == benchmar$ 7ualit!
plants, an emplo!ee strength of 9=,111 and a shareholder communit! of >11,111.
ost importantl!, his companies earned respect and admiration of the people, as one
of %ndias finest business houses, and the first %ndian %nternational Group globall!.
#hrough this outstanding record of enterprise, he helped create enormous wealth for
the nation, and respect for %ndian entrepreneurship in (outh East Asia. %n his time, his
success was unmatched b! an! other industrialist in %ndia.
#hat %ndia attains respectable ran$ among the developed nations, was a dream he
forever cherished. e was proud of %ndia and too$ e7ual pride in being an %ndian.
Hnder the leadership of our *hairman, r. Jumar angalam Birla, the Group has
sustained and established a leadership position in its $e! businesses through
continuous value0creation. (pearheaded b! Grasim, indalco, Adit!a Birla ?uvo,
%ndo Gulf Fertilisers and companies in #hailand, ala!sia, %ndonesia, the Philippines
and Eg!pt, the Adit!a Birla Group is a leader in a swathe of products S viscose
staple fibre, aluminium, cement, copper, carbon blac$, palm oil, insulators, garments.
And with successful fora!s into financial services, telecom, software and BP, the
Group is toda! one of Asias most diversified business groups.
4o$rd o" Dirctor!
:: r. Jumar angalam Birla, *hairman
:: rs. ;a&ashree Birla
:: r. ;. *. Bhargava
:: r. G. . ave
:: r. ?. . haveri
:: r. (. B. athur
:: r. ". #. oorth!
:: r. . P. Puranmal$a
:: r. (. ;a&gopal
:: r. . . ;athi
:: r. (. isra, anaging irector
Excuti# +r!idnt C2i" Fin$nci$% O""icr
:: r. J. *. Birla
21
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C2i" &$nu"$cturin* O""icr
:: ;.J. (hah
C2i" &$rBtin* O""icr
:: r. . P. Puranmal$a
Co$n, Scrt$r,
:: r. (. J. *hatter&ee
Our 6i!ion
To $cti#%, contriut to t2 !oci$% $nd conoic d#%ont o" t2
couniti! in ;2ic2 ; or$t. In !o doin*9 ui%d $ ttr9 !u!t$in$% ;$, o"
%i" "or t2 ;$Br !ction! o" !ocit, $nd r$i! t2 countr,
indx.
! rs. #a$ashree Birla, %hairperson,
&he 'ditya Birla %entre for %ommunity (nitiatives and #ural )evelopment
A;$rd! ;on
'$r A;$rd
1
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Before *orporate (ocial ;esponsibilit! found a place in corporate lexion, it was
alread! textured into our Groups value s!stems. As earl! as the 321s, our founding
father (hri G. Birla espoused the trusteeship concept of management. (impl! stated,
this entails that the wealth that one generates and holds is to be held as in a trust for
our multiple sta$eholders. 6ith regard to *(;, this means investing part of our profits
be!ond business, for the larger good of societ!.
6hile carr!ing forward this philosoph!, his grandson, Adit!a Birla weaved in the
concept of sustainable livelihood, which transcended che7ue boo$ philanthrop!. %n
his view, it was unwise to $eep on giving endlessl!. %nstead, he felt that channelising
resources to ensure that people have the wherewithal to ma$e both ends meet would
be more productive. e would sa!, DGive a hungr! man fish for a da!, he will eat it
and the next da!, he would be hungr! again. %nstead if !ou taught him how to fish, he
would be able to feed himself and his famil! for a lifetime.D
#a$ing these practices forward, our chairman
r. Jumar angalam Birla institutionalised the concept of triple bottom line
accountabilit! represented b! economic success, environmental responsibilit! and
social commitment. %n a holistic wa! thus, the interests of all the sta$eholders have
been textured into our Groups fabric.
#he footprint of our social wor$ toda! straddles over
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Pro&ects are planned after a participator! need assessment of the communities around
the plants. Each pro&ect has a one0!ear and a three0!ear rolling plan, with milestones
and measurable targets. #he ob&ective is to phase out our presence over a period of
time and hand over the reins of further development to the people. #his also enables
us to widen our reach. Along with internal performance assessment mechanisms, our
pro&ects are audited b! reputed external agencies, who measure it on 7ualitative and
7uantitative parameters, helping us gauge the effectiveness and providing excellent
inputs.
ur partners in development are government bodies, district authorities, village
pancha!ats and the end beneficiaries 00 the villagers. #he Government has, in their =0
!ear plans, special funds earmar$ed for human development and we recourse to man!
of these. At the same time, we networ$ and collaborate with li$e0minded bilateral and
unilateral agencies to share ideas, draw from each others experiences, and ensure that
efforts are not duplicated. At another level, this provides a platform for advocac!.
(ome of the agencies we have collaborated with are H?FPA, (%F(A, *A;E %ndia,
abitat for umanit! %nternational, Hnicef and the 6orld Ban$.
Our "ocu! $r$!
ur rural development activities span five $e! areas and our single0minded goal here
is to help build model villages that can stand on their own feet. ur focus areas are
healthcare, education, sustainable livelihood, infrastructure and espousing social
causes.
#he name 4Adit!a Birla5 evo$es all that is positive in business and in life. %t
exemplifies integrit!, 7ualit!, performance, perfection and above all character.
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ur logo is the s!mbolic reflection of these traits. %t is the cornerstone of our
corporate identit!. %t helps us leverage the uni7ue Adit!a Birla brand and endows us
with a distinctive visual image.
epicted in vibrant, earth! colours, it is ver! arresting and shows the sun rising over
two circles. An inner circle s!mbolising the internal universe of the Adit!a Birla
Group, an outer circle s!mbolising the external universe, and a d!namic meeting of
ra!s converging and diverging between the two.
ur corporate logo thus serves as an umbrella for our Group. %t signals the common
values and beliefs that guide our behaviour in all our entrepreneurial activities. %tembeds a sense of pride, unit! and belonging in all of our
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:: Adit!a Birla *hemicals )#hailand- Ltd.
:: #hai Peroxide
+2i%iin!
:: %ndo Phil Group of companies
:: Pan *entur! (urfactants %nc.Indon!i$
:: P# %ndo Bharat ;a!on
:: P# Elegant #extile %ndustr!
:: P# (unrise Bumi #extiles
:: P# %ndo Libert! #extiles
:: P# %ndo ;a!a Jimia
E*,t
:: Alexandria *arbon Blac$ *ompan! (.A.E
:: Alexandria Fiber *ompan! (.A.E
C2in$
:: Liaoning Birla *arbon
:: Birla ingwei Fibres *ompan! Limited
:: Adit!a Birla Grasun *hemicals )Fangchenggang- Ltd.
C$n$d$
:: A.". Group
Au!tr$%i$
:: Adit!a Birla inerals Ltd.
$o!
:: Birla Laos Pulp Plantations *ompan! Limited
Nort2 $nd Sout2 Aric$9 Euro $nd A!i$
:: ?ovelis %nc.
Sin*$or
:: (wiss (ingapore verseas Enterprises Pte Ltd. )((E-
5oint #ntur!
:: Birla (un Life %nsurance *ompan!
:: Birla (un Life Asset anagement *ompan!
:: Adit!a Birla one! art Limited
:: #anfac %ndustries Limited
Hltra#ech is %ndias largest exporter of cement clin$er. #he compan!s production
facilities are spread across eleven integrated plants, one white cement plant, one
clin$erisation plant in HAE, fifteen grinding units, and five terminals S four in %ndia
and one in (ri Lan$a. ost of the plants have %( 311, %( 211 and (A(
@11 certification. %n addition, two plants have received %( 911 certification and
2=
http://www.adityabirlachemicals.com/http://www.adityabirla.com/our_companies/international_companies/thai_peroxide.htmhttp://www.adityabirla.com/our_companies/international_companies/indo_phil_group_of_companies.htmhttp://www.adityabirla.com/our_companies/international_companies/pan_century_surfactants.htmhttp://www.adityabirla.com/our_companies/international_companies/pt_indo_bharat_rayon.htmhttp://www.adityabirla.com/our_companies/international_companies/pt_elegant_textile.htmhttp://www.adityabirla.com/our_companies/international_companies/sunrise_bumi.htmhttp://www.adityabirla.com/our_companies/international_companies/pt_indo_liberty_textiles.htmhttp://www.adityabirla.com/our_companies/international_companies/indo_raya_kimia.htmhttp://www.adityabirla.com/our_companies/international_companies/alexandria_carbon_black.htmhttp://www.adityabirla.com/our_companies/international_companies/alexandria_fiber.htmhttp://www.adityabirla.com/our_companies/international_companies/liaoning_birla_carbon.htmhttp://www.adityabirla.com/our_companies/international_companies/birla_jingwei.htmhttp://www.adityabirla.com/our_companies/international_companies/grasun_chemicals.htmhttp://www.adityabirla.com/our_companies/international_companies/av_group.htmhttp://www.adityabirla.com/our_companies/international_companies/birla_nifty.htmhttp://www.adityabirla.com/our_companies/international_companies/birla_laos.htmhttp://www.adityabirla.com/our_companies/international_companies/novelis.htmhttp://www.adityabirla.com/our_companies/international_companies/ssoe.htmhttp://www.adityabirla.com/our_companies/joint_ventures/birlasunlife_insurance.htmhttp://www.adityabirla.com/our_companies/joint_ventures/birlasunlife_management.htmhttp://www.adityabirla.com/our_companies/joint_ventures/aditya_birla_money_mart.htmhttp://www.adityabirla.com/our_companies/joint_ventures/tanfac_industries.htmhttp://www.adityabirlachemicals.com/http://www.adityabirla.com/our_companies/international_companies/thai_peroxide.htmhttp://www.adityabirla.com/our_companies/international_companies/indo_phil_group_of_companies.htmhttp://www.adityabirla.com/our_companies/international_companies/pan_century_surfactants.htmhttp://www.adityabirla.com/our_companies/international_companies/pt_indo_bharat_rayon.htmhttp://www.adityabirla.com/our_companies/international_companies/pt_elegant_textile.htmhttp://www.adityabirla.com/our_companies/international_companies/sunrise_bumi.htmhttp://www.adityabirla.com/our_companies/international_companies/pt_indo_liberty_textiles.htmhttp://www.adityabirla.com/our_companies/international_companies/indo_raya_kimia.htmhttp://www.adityabirla.com/our_companies/international_companies/alexandria_carbon_black.htmhttp://www.adityabirla.com/our_companies/international_companies/alexandria_fiber.htmhttp://www.adityabirla.com/our_companies/international_companies/liaoning_birla_carbon.htmhttp://www.adityabirla.com/our_companies/international_companies/birla_jingwei.htmhttp://www.adityabirla.com/our_companies/international_companies/grasun_chemicals.htmhttp://www.adityabirla.com/our_companies/international_companies/av_group.htmhttp://www.adityabirla.com/our_companies/international_companies/birla_nifty.htmhttp://www.adityabirla.com/our_companies/international_companies/birla_laos.htmhttp://www.adityabirla.com/our_companies/international_companies/novelis.htmhttp://www.adityabirla.com/our_companies/international_companies/ssoe.htmhttp://www.adityabirla.com/our_companies/joint_ventures/birlasunlife_insurance.htmhttp://www.adityabirla.com/our_companies/joint_ventures/birlasunlife_management.htmhttp://www.adityabirla.com/our_companies/joint_ventures/aditya_birla_money_mart.htmhttp://www.adityabirla.com/our_companies/joint_ventures/tanfac_industries.htm
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four have received (A @111 certification. #he process is currentl! underwa! for the
remaining plants. #he compan! exports over .= million tonnes per annum, which is
about
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Portland po''olana cement is ordinar! portland cement blended with po''olanic
materials )power0station fl! ash, burnt cla!s, ash from burnt plant material or silicious
earths-, either together or separatel!. Portland clin$er is ground with g!psum and
po''olanic materials which, though the! do not have cementing properties in
themselves, combine chemicall! with portland cement in the presence of water to
form extra strong cementing material which resists wet crac$ing, thermal crac$ing
and has a high degree of cohesion and wor$abilit! in concrete and mortar.
"'s a Group we have always operated and continue to operate our businesses as
&rustees with a deep rooted obligation to synergise growth with responsibility."
! r *umar angalam Birla, %hairman, 'ditya Birla Group
#he cement industr! relies heavil! on natural resources to fuel its operations.
As these dwindle, the imperative is clear S alternative sources of energ! have to be
sought out and the use of existing resources has to be reduced, or eliminated
altogether. nl! then can sustainable business be carried out, and a corporate can trul!
sa! it is contributing to the preservation of the environment.
Hltra#ech ta$es its responsibilit! to conserve the environment ver! seriousl!, and its
eco0friendl! approach is evident across all spheres of its operations. %ts ma&or thrust
has been to identif! alternatives to achieve set ob&ectives and thereb! reduce its
carbon footprint. #hese are done through:
:: 6aste management
:: Energ! management
:: 6ater conservation
:: Biodiversit! management
:: Afforestation
29
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3.1 DATA ANAIS'S AND INTER+RETATION
+RODUCT +ROFIE
HL#;A #E* *EE?#( manufactures and distributes its own main product
lines of cement .6e aim to optimi'e production across all of our mar$ets, providing a
complete solution for customers needs at the lowest possible cost, an approach we
call strategic integration of activities.
*ement is made from a mixture of @1 percent limestone and 1 percent cla!.
#hese are crushed and ground to provide the Draw meal5, a pale, flour0li$e powder.
eated to around 2=1T * )>2T F- in rotating $ilns, the 4meal5 undergoes complex
chemical changes and is transformed into clin$er. Fine0grinding the clin$er together
with a small 7uantit! of g!psum produces cement. Adding other constituents at this
stage produces cements for speciali'ed uses.
UAIT'
Six !tron* n"it! that ma$e 39 7 Gr$d9 Sur "in9 +riu $nd S2$Bti
the id$% cnt
. igher compressive strength.
. Better soundness.
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• %deal raw material
• Low lime and magnesia content and high proportion of silicates.
• Greater fineness.
CO&+ONENTIA ANA'SIS:
#he componential anal!sis of the fixed assets of Hltratech includes net
bloc$s, capital )wor$ in progress- and construction stores and advances. #he data
relating to different components of fixed assets of the U%tr$Tc2 Cnt iitd for
= !ears commencing from 11301 to 1
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INTER+RETATION: B! observing the above table it reveals that the investment in
the net bloc$ is in increasing trend .%t was =1>>.9 over the total fixed assets during
the !ear 11 and it has increased to >2>. during the !ear 1
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trend ratio for the other !ears is calculated on the basis of first !ear. ere an attempt is
made to $now the growth rate in total investment and fixed assets of the U%tr$Tc2
Cnt iitd for = !ears that is 11301 to 1T IN TOTA IN6EST&ENT:
'EAR IN6EST&ENT TREND +ERCENTAGE
11301 >>3.== 100
110
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!ear 1 it is the increasing stage and in the !ear 12 it is increased due to
increased in the current bloc$. %t is constant from 11301 to 1T RATE IN FIXED ASSETS:
'EAR FIXEDASSETS TREND +ERCENTAGE
1130129>.33
100
1101@31.>Q
=
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RATIO ANA'SIS:
;atio anal!sis is a powerful tool of financial anal!sis. A ratio is defined
as the indicated uotient of two mathematical expressions and ;atios loo$ at the
relationship between individual values and relate them to how a compan! has
performed in the past, and might perform in the future.
#he absolute accounting figure reported in financial statement does not
provide a meaningful understanding of the performance and financial position of the
firm. ;atios help us to summari'e large 7uantities of financial data and to ma$e
7ualitative &udgment about firm8s financial performance.
1. FIXED ASSETS TO NET >ORT RATIO:
#his ratio establishes the relationship between fixed assets and net worth.
?et worth U share capital V reserves and surplus V retained earnings
Fixed assets to net worth ratio U Fixed assets ?et worth
#he ratio of 4Fixed assets5 to 4?et worth5 indicates the extent to which
share holders funds are sun$ into the fixed assets. Generall!, share holders should
finance for
Purchasing fixed assets and e7uit! including the reserves and surpluses and
retained earnings. %f the ratio is less than 11Q it implies that owner8s funds are more
than total fixed assets and the share holder provide a part of wor$ing capital.
6hen the ratio is more than 11Q it implies that owner8s funds are not
sufficient to finance the fixed assets and financier has to depend upon outsiders to
finance the fixed assets. #here is no 4;ule of #humb5 to interpret but >1Q0>=Q is
considered to be satisfactor! ratio in case of industrial underta$ing.
=
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/. FIXED ASSET RATIO:
#his ratio explains whether the firm has raised ade7uate long term fund to meet its
fixed assets re7uired and is calculated as under:
U Fixed assets )after depreciation- *apital emplo!ed
#his ratio gives an idea as to what part of the capital emplo!ed has been used in
purchasing the fixed assets for the concern. %f the ratio is less than it is good for the
concern.
. FIXED ASSETS AS A +ERCENTAGE TO CURRENT IA4IITIES:
#he ratio measures the relationship between fixed assets and the funded debts
and is ver! useful to the long term erection. #he ratio can be calculated as shown
below
Fixed assets as a percent of current liabilitiesU Fixed Assets*urrent liabilities
$. TOTA ASSETS TURN O6ER RATIO:
#he ratio is calculated b! dividing the net sales b! the value of total assets that
is )net sales/total investment- or )sales/total investment-.A high ratio is an indicator of
over trading of total assets while a low ratio reveals idle capacit!. #he traditional
standard for the ratio is two times. U ?et sales
#otal Assets
3. FIXED ASSETS TURNO6ER RATIO:
#he ratio expresses the no. of times fixed assets are being turned over in
a stated period. %t is calculated under.
U WWWWWWWWWWWWWsalesWWWWWWWWWWWWW
?et fixed assets )after depreciation-
#his ratio shows how well the fixed assets are being used in business. #he ratio is
important in case of manufacturing concern because sales are produced not onl! b!
use of current assets but also b! amount invested in fixed assets the higher ratio, the
=2
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better is the performance. n the other hand, a low ratio indicates that fixed assets are
not being effectivel! utili'ed.
7. RETURN ON TOTA ASSETS:
U Profit after tax
#otal assets
#his ratio is calculated to measure the profit after tax against invested in
total assets to ascertain whether assets are being utili'ed properl! or not.
#he higher the ratio the better it is for the concern.
t u! u! r$tio! in t2 (U%tr$Tc2 Cnt iitd) in"or$tion:
FIXED ASSETS TO NET >ORT RATIO
#he ratio indicates the extent to where the shareholders funds are struc$
in the fixed assets. #he formula to compute fixed assets to net worth is calculated as
follows:
Fixed assets )after depreciation-
?et worth
?E# 6;# Ushare capital V reserves and surplus V retained earnings0net loss.
%f the ratio is less than 11Q it implies that owner8s funds are more than the fixed
assets and the shareholders and vice versa provide a part of wor$ing capital.
Fixed assets to net worth ratio U ?et fixed assets
?et worth
==
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TA4E NO 3.3 FIXED ASSETS TO NET >ORT RATIO
'EAR NETFIXED ASSETS NET >ORT RATIO IN L
1130129>.33
2>1@.>=.1>.12.11<
101/1HH.1
1/J7K.J/ 1.32>1>
10<130/7.1K
17/3.J/ 1.31>
1ORT RATIO
INTER+RETATION:
#he above table shows a continuous increase in net worth and fixed assets.
#his shows the satisfactor! position of the compan!.
FIXED ASSETS RATIO:
*apital emplo!edUshareholders fund V Long0#erm borrowings
Fixed assets )after depreciation-
*apital Emplo!ed
TA4E NO 3.7 FIXED ASSETS RATIO
=>
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'EAR NETFIXED
ASSETS
CA+ITA E&+O'ED RATIO IN L
1130129>.33
39@.>@3.J1K3
110 1@31.
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TA4E NO 3.H FIXED ASSETS AS A +ERCENTAGE TO CURRENT
IA4IITIES:
'EAR NET FIXED
ASSETS
CURRENT
IA4IITIES
RATIO IN L
11301 29>.33 = /.1K0/1110 1@31.>.< >21.2@ 1.JK3JK3
10< 21=.3 99.> 1.J1JK
1
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#he above table shows the relationship between fixed and current Liabilities.
#he above table shows growth in fixed assets this shows the satisfactor! position of
fixed assets in the compan!. Even the current liabilities are increasing. #he highest
percentage recorded was in the !ear 11301 i.e., .3 and the lowest was in the !ear
1
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INTER+RETATION
From the above table we can see that sales had an increase %nvestment is
constant from 11012that signifies the compan! position is satisfactor!.
FIXED ASSETS TURN O6ER RATIO:
#he fixed assets turnover ratio is a relation between the sales or cost of
goods and fixed/capital assets emplo!ed in a business.
Fixed assets turnover ratio U sales
#otal fixed asset
'EAR SAES NETFIXED
ASSETS
RATIO IN L
11301 03/.J/ 29>.33 1.3K07
110 1/07.H3 1@31.
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INTER+RETATION
#he above table shows increases in ?et fixed assets. #hat can also be seen clearl! in
sales, that indicates a good sign.
RETURN ON TOTA ASSETS:
#he return on fixed assets can calculate as under:
;eturn on fixed assets U profit after tax
#otal Assets
'EAR +ROFIT AFTER TAX TOTA ASSETS RATIO IN L
11301132 0.0K3J1/
10 /33H.1K 1HHH.K7 0.13HH
10< /H77.31KHK.70 0.13J1
1
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INTER+RETATION
#he above table shows decrease in profit 11012 profit has gone up. #his
shows the favorable position of the compan!.
6AUATION OF FIXED ASSETS:
U%tr$Tc2 Cnt iitd Fo%%o;!
. istorical cost method in the valuation of fixed assets.
. #he fixed assets do not include assets ac7uired on sale0cum0lease basis from
various Financial %nstitutions whereon the lease rent paid for