Description
A Store is virtual money that can be encashed. However, this money needs to be properly counted or accounted for. STOCK ACCOUNTING is thus a systematic way of assessing the money value of the items lying in stores as also the items under transaction through stores.
(A Government of India enterprise)
PROJECT REPORT ON
STORE ACCOUNTING WITH RESPECT TO N.H.P.C
Submitted to Panjab University, Chandigarh
in partial fulfllment for the Award of the degree of
MBA C!
"Master in Business Administration #ommer#e $ !%
SUBMITTED BY:
SWATI CHADE!
"o## o$ %&'()
Session %Apri#* +(,-
MASTE" TA"A SIGH MEM."IA! C.!!EGE
/." W.ME* !UDHIAA
Page 1 of 59
PREFACE
Finance is the life blood and nerve centre of business just as circulation of blood is
essential for maintaining human life, without adequate finance a business can’t run
smoothly. Application of Management of Principles in all branches whether Production,
Personnel, Finance, Mareting etc results in more efficient and effective utili!ation of
available resources.
"ow days the theory without practice is of little use. "o doubt, theory provides the
fundamental stone for the #uidance of practice. $herefore a strong cooperation of
theory and practice is very essential to mae a management student perfect.
As the project suggests that project report is all about nowing what is %tore
management and its efficiency, its importance and its uses. $he project report also
includes the type of financing "&P' has used recently in appraising its new project of
())M* generation at Parbati river at PA+,A$- P+./0'$ %$A#012.$he confidence of
an individual is boosted as one successfully completes the responsibilities shouldered
on him. $he theoretical concepts only help us to gain 3nowledge. &owever an
administrative sill, the pre1requirement for the completion of a success story comes
with e4perience.
Page 2 of 59
Page 3 of 59
ACKNOWLEDGEMENT
The successful completion of any task would be incomplete
without mentioning the people who have made it possible. So it`s
with the gratitude that I acknowledge the help, which crowned my
eforts with success.
I would like to express my sincere thanks to the
management of NHPC who gave me the opportunity to work and
study in such an esteemed organiation.
It is a matter of pride for me to acknowledge my profound
gratitude to my respected principal MRS.PARVEEN KAUR
CHAWLA, who always facilitates me in gaining practical
knowledge.
MS.PRIYA AHUJA & MRS.MEENAKSHI BAJAJ for her
valuable !ooperation "uidance.
#ast but not the least, I would like to thank all who supported
me in this study by way of sparing their precious time, providing
relevant information and sharing experience, I needed, without
which the pro$ect would have been incomplete.
Page 4 of 59
LUDHIANA
SWATI CHANDEL
TABLE OF CONTENT
CH.NO. CONTENTS PAGE NO.
&
'!()*UC!)' !) !+, !)PC- S!)(,
ACC)U'!'.
2 C)MPA'/ P()01,
Introduction
%ydro scenario in India
&verview of organiation
'ision of organiation
(ission of organiation
!ore value
&b$ectives of the organiation
!apital structure of )%*!
!urrent Scenario
S+&T ,nalysis
3 '!()*UC!)' AB)U! PA(BA! P()2,C!
Introduction
*arbati pro$ect- .*ro/le
0ene/ts
4
P()2,C! (,P)(! )' S!)(, ACC)U'!'.
34(4!4 P+,P56
1esearch methodology
Inventory management system
,ccounting guidelines
*rocedure of store accounting
Interpretation and ,nalysis
5 0'*'.S A'* 1M!A!)'S
Page 5 of 59
6 C)'C1US)' A'* (,C)MM,'*A!)'S
BB1).(AP+/ 7(,0,(,'C,
I!"#$%&'"($! "$ ")* "$+(',
-"$#*
.''$&!"(!/
Page 6 of 59
A %tore is virtual money that can be encashed. &owever, this money needs to be
properly counted or accounted for. STOCK ACCOUNTING is thus a systematic way of
assessing the money value of the items lying in stores as also the items under
transaction through stores.
$ransactions, in terms of receipts and issues are a regular feature in any stores and
therefore %toc accounting process, in most of the cases, concentrates only on the
stoc in hand, lying in %tores.
$he most popular methods of accounting are, F-F. i.e. First -n First .ut and
5-F., 5ast -n First .ut.
F-F. and 5-F. Methods as accounting techniques are used in managing
inventory 6%toc lying in %tores for future use7 and financial matters involving the
amount of money a company has tied up within inventory of produced goods, raw
materials, parts, components, or feed stocs. $hese methods are used to manage
assumptions of cost flows related to inventory, stoc repurchases 6if purchased at
different prices7, and various other accounting purposes.
F-F. standing for first1in, first1out, implies that the oldest inventory items are
recorded as sold first but do not necessarily mean that the e4act oldest physical object
has been traced and sold.
5-F. stands for last1in, first1out, meaning that the most recently produced items
are recorded as sold first. %ince the 89
s, some ;.%. companies shifted towards the
use of 5-F., which reduces their income ta4es in times of inflation, but with -nternational
Financial +eporting %tandards banning the use of 5-F., more companies have gone
bac to F-F.. 5-F. is only used in /apan and the ;.%.
Page 7 of 59
Store is a function of materials management in an organi!ation. &ence it is generally
found that stores function reports to the materials manager.
,ut in some situations stores function reports to the production function.
Function of store
• %torage
• -ssue
• +ecord
• &ouseeeping
• 'ontrol
• %urplus management
• & Q@9NTIT<
0.K is essentially a technique> formula that determine the point at which combination
of order costs and inventory carrying costs are the least. $he result is most cost
effective quantity to order.
Annual Usage
04pressed in units, this is the forecasted annual>periodical usage.
Order Cost
$his is the sum of the fi4ed costs that are incurred each time an item is ordered.
$hese costs are not associated with the quantity ordered but primarily with physical
activities required to process the order. $hese would include the costs relating to?
? processing of the purchase order and>or requisition,
? any approval steps,
? processing of the receipt,
? incoming inspection,
? -nvoice processing and vendor payment.
-t should be noted that these are costs associated with the frequency of the orders and
not the quantities ordered
Carrying cost
8( 'arrying cost is the cost associated with having inventory on hand. -t is primarily
made up of the costs associated with the inventory investment and storage costs. For
the purpose of the 0.K calculation, if any cost does not change based the quantity of
inventory on hand, it should not be included in carrying cost. -n the 0.K formula,
carrying cost per unit is used. $he primary components of carrying costs are as under?
P -nterest
P -nsurance
P %torage 'osts
Page 41 of 59
Maintaining EOQ
$he values for .rder cost and 'arrying cost should be evaluated at least once in a year
taing into account any changes in interest rates, storage costs and operational costs.
Basic formulas for EOQ
Notation
KS quantity ordered 6units7
BS annual demand 6units per year7
'S carrying cost for one unit in inventory for one year 6+s. per unit per year7
%S order cost 6for buying7 in 6+s. per order7
$%'S total stocing costs 6+s. per year7
0.KS economic order quantity 6the quantity that minimi!es $%'
Cost formulas
Annual carrying cost SAverage -nventoryT' S 6K>27T'
Annual .rdering 'ostSorders per yearT%S 6B>K7T%
$%'S carrying cost plus order cost SS 6K>27T' F 6B>K7T%
UUUUU UUUUUUUUUUUUUU
0.K S V 2B%>' and for the 0.K the minimum $%'SV 2B%' S 'T0.K
04ample for the ,asic Model
BSannual demand 6units per year7 S 8),)))
'Scarrying cost for one unit in inventory for one year 6+s. per unit per year7S+s. E
%S order costS+s. @)
UUUUUU UUUUUUUUUUUUU
$hen, 0.K S V 2B%>' S V 2T8),)))T@)>E S @)) units per order
UUUUU UUUUUUUUUUUUU
And $%'S SV 2B%' SV 2T8),)))T@)TE S+s. 2,))) per year
FSN 9N9' contracts. $he role of Finance in "&P' is a
staff function. -t has the concurrence power and as such the Finance has to critically
e4amine every proposal coming up for concurrence. $he Finance 04ecutive e4amining
the proposals for various types of contracts for procurement should be fully conversant
with the latest developments in the statutes, maret conditions 6both "ational and
-nternational7, policies> programs> planning> objectives and delegation of power of the
'orporation.
TYPES3 CONDITIONS OF CONTRACT
"ow days, various types of contracts are entered into by "&P' through "ational
'ompetitive ,uilding 6"',7 as well as through -nternational 'ompetitive ,idding 6-',7.
-n order to have uniformity in the 'ontracts being entered in to by different Projects of
the 'orporation, G%tandard #eneral 'onditions of 'ontract 6#''7H for 'ivil 'ontract,
%upply 'ontract, as well as %upply cum 0rection 'ontract have already been approved
by the 'ompetent Authority and circulated. Any change in the standard clauses of the
#eneral conditions, which become necessary due to the site conditions, past
e4perience, or due to other reasons are incorporated in the G%pecial 'onditions of the
+elevant 'ontract 6%''7H and got approved from the 'ompetent Authority. $hese
Page 46 of 59
#eneral 'onditions of 'ontract can however be used only in case of "ational
'ompetitive ,idding 6"',7.
PRE-TENDERING PROCESS
? $he procurement process is initiated based on the periodic procurement plan and
> or purchase requisition in case of non1 availability of any item in stores.
? All proposals for procurement are prepared in the form of estimates, by the
indenting department before any e4penditure or liability is incurred thereon. $he
basic prerequisites to be fulfilled before starting the process for finali!ing a
purchase order are?
P Administrative approval
P 04penditure sanction
P $echnical sanction
P Appropriation or re1appropriation of funds
T>N?>&IN5 P&8;>SS
P&e-4*#%i!ic#tion o! Bi''e&(
? $endering process starts only after the 'ompetent Authority has approved the
P+. "ormally the tenders are invited through .pen $ender, 5imited $enders or
%ingle $ender. &owever, sometimes considering the estimated value> nature>
technical requirement of the procurement, pre1qualification of the bidders are
resorted to whereby the capability of the probable bidder 6both technical and
financial7 is ascertained before one is allowed to bid for a particular procurement
tender. Pre1qualification of bidders is normally done to ensure selection of
resourceful, technically competent, and financially sound prospective bidders
with proven past performance for participation in the bidding process.
Page 47 of 59
? $he criteria of financial capability of the applicant are fi4ed taing into account the
completion period of the proposed wor, requirement of the monthly cash flow for
the wor, etc. 3eeping these facts in view the minimum qualifying criteria for the
following are generally considered?
P Average annual turnover of the applicant
P "et worth of the company
P Profitability of the applicant
P *oring capital of the company? $he cash credit facility enjoyed by the applicant
from any ban or Financial -nstitution can be considered.
? .nce the bidders are selected on the basis of the PK, tenders are invited only
from those pre1qualified bidders.
Vettin5 o! ten'e& 'oc*"ent(
? ,efore the 'ompetent Authority approves the tender documents, it is sent to
Finance Bepartment for vetting> checing. $he tender documents should also be
sent to 5aw Bivision wherever a legal opinion is involved or if there are changes
from the typical format of the tender documents issued by "&P'.
? #enerally, different types of contracts are e4ecuted depending on the nature of
the wor to be e4ecuted. 04amination of tender documents in Finance will
depend on the type of contract proposed therein.
? *hile e4amining the tender documents, the finance should eep the following in
mind?
• #uidelines, policies, circulars issued from time to time by "&P' or
#.-
• +elevant ta4 laws, 0N-M policy of the #.-, ta4ation laws of the state in
which the wor is to be e4ecuted, price preference> purchase
preference policy of #.-, F0MA, etc.
? Any change in the approved terms and conditions should be e4amined critically
to see whether the proposed change is in the overall interest of "&P'.
Page 48 of 59
ISSUE OF TENDER DOCUMENT
? .nce the 'ompetent Authority approves the tender documents, the tender is
notified through "otice -nviting $ender 6"-$7 giving wide publicity either through
press advertisements or through other means depending on the estimated cost,
type of tender lie open tender> limited tender> single tender, etc. as per the
policy of the corporation.
? $he procurement department receives the request>application for the tender
documents from vendor 6in response to the "-$7. $he tender fee is received in
form of cheque> demand draft 6BB7 only, as per guidelines issues by "&P' from
time to time.
$he procurement department forwards a summary of tender documents along
with the cheque> BB to the finance department for necessary accounting and action
Ten'e& o+enin5
? $ender opening will be done by a $ender .pening 'ommittee 6$.'7 constituted
by a 'ompetent Authority in which one member is from Finance. $he authori!ed
representatives of the bidders are also invited to be present at the $ender
.pening, if they wish so.
? #enerally the bidders are ased to furnish 0MB in a separate envelope which
shall be opened first. $echno1commercial> price bids of only those bidders who
have submitted the requisite amount of 0MB shall be opened and considered for
further evaluation.
? A spot report of the tender opening, indicating there in the following, shall be
prepared and signed by all the members of $.'?
P "umber of tenders received.
P "ame of the bidders.
P "umber of tenders received late and not considered.
Page 49 of 59
P Amount of 0MB> bid security
P +ates of ta4es and duties quoted by the bidder.
P Amount> rate of discount, if any, offered by the bidder.
EVALUATION OF TENDERS
$he evaluation of the $enders is done by the duly approved $ender 0valuation
'ommittee 6$0'7. $his evaluation is normally done in two stages. $he first stage is
techno1commercial evaluation vide which the responsiveness to the technical
specifications laid down in the tender and the commercial terms and conditions are
seen.
$he $0' at this stage obtains clarification and confirmations from the bidders if any
required. After the deliberations on the tender along with the clarifications by the bidders
the $0' recommends the bidders whose Price ,ids are to be opened. $he
recommendations of the $0' and the date of the opening of Price ,id is got approved
by the 'ompetent Authority and the same is intimated to the bidders to enable their
representative to be present at the Price ,id .pening if they wish so.
C$ec2in53 )ettin5 o! co"+#&#ti)e (t#te"ent(
*hile checing the comparative statements in finance the following aspects have to be
verified?
8. $he rates taen in the comparative statement are mentioned in the original price
schedule.
2. *herever there is a variation between rates quoted in words as well as in figures,
the rates mentioned in words are taen for comparison.
A. -f there is a variation between the rate of any individual item and the total amount
6i.e. quantity multiplied by rates7 the unit rate is taen for comparison purpose
and accordingly the total will be corrected.
E. All arithmetical calculations are checed for accuracy.
After checing the comparative statement in Finance, the Finance 04ecutive, should
record a certificate under his signature.
Page 50 of 59
$he $0' then scrutini!es the comparative statement and after obtaining the approval of
the 'ompetent Authority negotiates with the first lowest bidder if required. $he
recommendations of the $0' are then put up to the 'ompetent Authority 6,oard in the
case of Major 'ontracts7 for approval and subsequently process for issue for letter of
award.
=ettin% of letter of a(ard
ST8&> '>?5>&!
$his process deals with the procedure for valuation of material and Processing of Price
%tore 5edger 6P%57 by "&P'.
$he following documents are used to record transactions in the P%5?
• #oods received note 6#+"7 for receipt of material from suppliers
• Material +eturn "ote 6M+"7 for return of material with the unit
• %tore $ransfer "ote1 -" 6%$"1-"7 for receipt of material from other units
• Material -ssue "ote 6M-"7 for issue of material to the indenting department within
the unit
Page 51 of 59
• %tore $ransfer "ote1.;$ 6%$"1.;$7 for issue of material to other units
• %tore Adjustment "ote 6%A"7 for maing any adjustment in the stores.
PROCEDURE OF STORES ACCOUNTING
WORK SUPPLY SERVICE
0nd1user M+ 6material requisition7
%tore division
0nd1user department P+ 6purchase requisition7
P=' division 6procurement and contract division7
$endering 6lowest bid7
P=' division W issues %. 6supply order7
Page 52 of 59
>es?@I; c
Payment finance
%undry creditor X..Br.
$o ban A>c
Page 53 of 59
INVENTORIES
0: (! C#$#*1
Particular
9s at 0
st
"archAB*
9s at 0
st
"archAB
(=aluation as per 9ccountin% Policy No) 3!
i7 %tores and spares
%tores in transit> pending inspection
ii7 5oose tools
iii7 %crap inventory
iv7 Material issued to contractors> fabricators
v7 5ess? Provision for obsolete store = spares T8
Provisions for o$solete store C spares D
8penin% :alance
Addition during the year
Adjustment during the year
Amount used during the year
Amount reversed during the year
DE.A(
).E2 DE.()
8.E@
8.
).DD
2E.(@
20)+
*+).-
8.DA
1
8.ED
E.22
@:.ED
8.82 @(.@(
8.A(
2.AD
).29
2(.9)
00)3
*0)-3
8D.9@
).)8
8).8(
).9@
Page 54 of 59
;losin% $alance
*2)+1 *+).-
INTERPRETATION & ANALYSIS
? =aluation as per accountin%/
• As we have seen in table the inventories of P&0P 2 is increasing year by
year which tends to growth.
• $he decrease in %crap inventory shows that in 2)82 there is efficient
utili!ation of inventory as compared to 2)88.
• $he figure of provision for obsolete store shows E.)@ crore difference ,
which reveals profitable ratio.
? Materials are procured by tendering process. -n certain emergency situations of
shortage of materials, a committee is formed to perform maret survey =
purchase the required materials through local purchase.
? Materials to be bought are either inspected at the supplier’s place or after
receiving at the stores of corporation.
? -ssue of materials from stores is based upon the indent requisition = availability
of materials in stores.
? +ate of materials issued by the stores is determined by G#ei%hted avera%e
"ethodE in N)H)P)
? "&P' has bought a customi!ed MM% 6Materials Management %ystem7 pacage
from $'% for +s. 8E lahs to maintain the stores records = to connect this
system with other sites = Projects also.
? ,ut due to non1availability of basic infrastructure this system is not functioning
fully yet.
Page 55 of 59
? -n "&P' no specific method of inventory management is being employed.
? .rders of requisition are based upon the appro4imate consumption of materials
= the past e4perience of the department.
FIN?IN5S
? &ydro5power projects typically require a long gestation period thus posing a ris
of delay in e4ecution.
? .ver all position of company is good but there is need to more improvement.
? Parbati Project %tage1-- is committed to spend +s. [email protected]) crore for habitat
improvement and conservation of endangered species lie /ujurana 6*estern
$ragopan7 in #&"P6#reat &imalayans "ational Par 7
? $heoretical as well as practical nowledge is being adopted in P&0P12 regarding
their stores management.
'IMIT9TI8NS
? -nadequate power generation capacityC
? 5ac of optimum utili!ation of the e4isting generation capacityC
? -nadequate inter1regional transmission linsC
? -nadequate and ageing sub1transmission = distribution networ leading to power
cuts and local failures>faultsC
? 5arge scale theft and sewed tariff structureC
? %low pace of rural electrificationC
? -nefficient use of electricity by the end consumer.
? 5ac of grid discipline
Page 56 of 59
;8N;'@SI8N
"&P' 5imited has several units, which are engaged in operation of generating
electricity or are under construction stage.
A Store is virtual money that can be encashed. However, this money needs to be properly counted or accounted for. STOCK ACCOUNTING is thus a systematic way of assessing the money value of the items lying in stores as also the items under transaction through stores.
(A Government of India enterprise)
PROJECT REPORT ON
STORE ACCOUNTING WITH RESPECT TO N.H.P.C
Submitted to Panjab University, Chandigarh
in partial fulfllment for the Award of the degree of
MBA C!
"Master in Business Administration #ommer#e $ !%
SUBMITTED BY:
SWATI CHADE!
"o## o$ %&'()
Session %Apri#* +(,-
MASTE" TA"A SIGH MEM."IA! C.!!EGE
/." W.ME* !UDHIAA
Page 1 of 59
PREFACE
Finance is the life blood and nerve centre of business just as circulation of blood is
essential for maintaining human life, without adequate finance a business can’t run
smoothly. Application of Management of Principles in all branches whether Production,
Personnel, Finance, Mareting etc results in more efficient and effective utili!ation of
available resources.
"ow days the theory without practice is of little use. "o doubt, theory provides the
fundamental stone for the #uidance of practice. $herefore a strong cooperation of
theory and practice is very essential to mae a management student perfect.
As the project suggests that project report is all about nowing what is %tore
management and its efficiency, its importance and its uses. $he project report also
includes the type of financing "&P' has used recently in appraising its new project of
())M* generation at Parbati river at PA+,A$- P+./0'$ %$A#012.$he confidence of
an individual is boosted as one successfully completes the responsibilities shouldered
on him. $he theoretical concepts only help us to gain 3nowledge. &owever an
administrative sill, the pre1requirement for the completion of a success story comes
with e4perience.
Page 2 of 59
Page 3 of 59
ACKNOWLEDGEMENT
The successful completion of any task would be incomplete
without mentioning the people who have made it possible. So it`s
with the gratitude that I acknowledge the help, which crowned my
eforts with success.
I would like to express my sincere thanks to the
management of NHPC who gave me the opportunity to work and
study in such an esteemed organiation.
It is a matter of pride for me to acknowledge my profound
gratitude to my respected principal MRS.PARVEEN KAUR
CHAWLA, who always facilitates me in gaining practical
knowledge.
MS.PRIYA AHUJA & MRS.MEENAKSHI BAJAJ for her
valuable !ooperation "uidance.
#ast but not the least, I would like to thank all who supported
me in this study by way of sparing their precious time, providing
relevant information and sharing experience, I needed, without
which the pro$ect would have been incomplete.
Page 4 of 59
LUDHIANA
SWATI CHANDEL
TABLE OF CONTENT
CH.NO. CONTENTS PAGE NO.
&
'!()*UC!)' !) !+, !)PC- S!)(,
ACC)U'!'.
2 C)MPA'/ P()01,
Introduction
%ydro scenario in India
&verview of organiation
'ision of organiation
(ission of organiation
!ore value
&b$ectives of the organiation
!apital structure of )%*!
!urrent Scenario
S+&T ,nalysis
3 '!()*UC!)' AB)U! PA(BA! P()2,C!
Introduction
*arbati pro$ect- .*ro/le
0ene/ts
4
P()2,C! (,P)(! )' S!)(, ACC)U'!'.
34(4!4 P+,P56
1esearch methodology
Inventory management system
,ccounting guidelines
*rocedure of store accounting
Interpretation and ,nalysis
5 0'*'.S A'* 1M!A!)'S
Page 5 of 59
6 C)'C1US)' A'* (,C)MM,'*A!)'S
BB1).(AP+/ 7(,0,(,'C,
I!"#$%&'"($! "$ ")* "$+(',
-"$#*
.''$&!"(!/
Page 6 of 59
A %tore is virtual money that can be encashed. &owever, this money needs to be
properly counted or accounted for. STOCK ACCOUNTING is thus a systematic way of
assessing the money value of the items lying in stores as also the items under
transaction through stores.
$ransactions, in terms of receipts and issues are a regular feature in any stores and
therefore %toc accounting process, in most of the cases, concentrates only on the
stoc in hand, lying in %tores.
$he most popular methods of accounting are, F-F. i.e. First -n First .ut and
5-F., 5ast -n First .ut.
F-F. and 5-F. Methods as accounting techniques are used in managing
inventory 6%toc lying in %tores for future use7 and financial matters involving the
amount of money a company has tied up within inventory of produced goods, raw
materials, parts, components, or feed stocs. $hese methods are used to manage
assumptions of cost flows related to inventory, stoc repurchases 6if purchased at
different prices7, and various other accounting purposes.
F-F. standing for first1in, first1out, implies that the oldest inventory items are
recorded as sold first but do not necessarily mean that the e4act oldest physical object
has been traced and sold.
5-F. stands for last1in, first1out, meaning that the most recently produced items
are recorded as sold first. %ince the 89
s, some ;.%. companies shifted towards theuse of 5-F., which reduces their income ta4es in times of inflation, but with -nternational
Financial +eporting %tandards banning the use of 5-F., more companies have gone
bac to F-F.. 5-F. is only used in /apan and the ;.%.
Page 7 of 59
Store is a function of materials management in an organi!ation. &ence it is generally
found that stores function reports to the materials manager.
,ut in some situations stores function reports to the production function.
Function of store
• %torage
• -ssue
• +ecord
• &ouseeeping
• 'ontrol
• %urplus management
• & Q@9NTIT<
0.K is essentially a technique> formula that determine the point at which combination
of order costs and inventory carrying costs are the least. $he result is most cost
effective quantity to order.
Annual Usage
04pressed in units, this is the forecasted annual>periodical usage.
Order Cost
$his is the sum of the fi4ed costs that are incurred each time an item is ordered.
$hese costs are not associated with the quantity ordered but primarily with physical
activities required to process the order. $hese would include the costs relating to?
? processing of the purchase order and>or requisition,
? any approval steps,
? processing of the receipt,
? incoming inspection,
? -nvoice processing and vendor payment.
-t should be noted that these are costs associated with the frequency of the orders and
not the quantities ordered
Carrying cost
8( 'arrying cost is the cost associated with having inventory on hand. -t is primarily
made up of the costs associated with the inventory investment and storage costs. For
the purpose of the 0.K calculation, if any cost does not change based the quantity of
inventory on hand, it should not be included in carrying cost. -n the 0.K formula,
carrying cost per unit is used. $he primary components of carrying costs are as under?
P -nterest
P -nsurance
P %torage 'osts
Page 41 of 59
Maintaining EOQ
$he values for .rder cost and 'arrying cost should be evaluated at least once in a year
taing into account any changes in interest rates, storage costs and operational costs.
Basic formulas for EOQ
Notation
KS quantity ordered 6units7
BS annual demand 6units per year7
'S carrying cost for one unit in inventory for one year 6+s. per unit per year7
%S order cost 6for buying7 in 6+s. per order7
$%'S total stocing costs 6+s. per year7
0.KS economic order quantity 6the quantity that minimi!es $%'
Cost formulas
Annual carrying cost SAverage -nventoryT' S 6K>27T'
Annual .rdering 'ostSorders per yearT%S 6B>K7T%
$%'S carrying cost plus order cost SS 6K>27T' F 6B>K7T%
UUUUU UUUUUUUUUUUUUU
0.K S V 2B%>' and for the 0.K the minimum $%'SV 2B%' S 'T0.K
04ample for the ,asic Model
BSannual demand 6units per year7 S 8),)))
'Scarrying cost for one unit in inventory for one year 6+s. per unit per year7S+s. E
%S order costS+s. @)
UUUUUU UUUUUUUUUUUUU
$hen, 0.K S V 2B%>' S V 2T8),)))T@)>E S @)) units per order
UUUUU UUUUUUUUUUUUU
And $%'S SV 2B%' SV 2T8),)))T@)TE S+s. 2,))) per year
FSN 9N9' contracts. $he role of Finance in "&P' is a
staff function. -t has the concurrence power and as such the Finance has to critically
e4amine every proposal coming up for concurrence. $he Finance 04ecutive e4amining
the proposals for various types of contracts for procurement should be fully conversant
with the latest developments in the statutes, maret conditions 6both "ational and
-nternational7, policies> programs> planning> objectives and delegation of power of the
'orporation.
TYPES3 CONDITIONS OF CONTRACT
"ow days, various types of contracts are entered into by "&P' through "ational
'ompetitive ,uilding 6"',7 as well as through -nternational 'ompetitive ,idding 6-',7.
-n order to have uniformity in the 'ontracts being entered in to by different Projects of
the 'orporation, G%tandard #eneral 'onditions of 'ontract 6#''7H for 'ivil 'ontract,
%upply 'ontract, as well as %upply cum 0rection 'ontract have already been approved
by the 'ompetent Authority and circulated. Any change in the standard clauses of the
#eneral conditions, which become necessary due to the site conditions, past
e4perience, or due to other reasons are incorporated in the G%pecial 'onditions of the
+elevant 'ontract 6%''7H and got approved from the 'ompetent Authority. $hese
Page 46 of 59
#eneral 'onditions of 'ontract can however be used only in case of "ational
'ompetitive ,idding 6"',7.
PRE-TENDERING PROCESS
? $he procurement process is initiated based on the periodic procurement plan and
> or purchase requisition in case of non1 availability of any item in stores.
? All proposals for procurement are prepared in the form of estimates, by the
indenting department before any e4penditure or liability is incurred thereon. $he
basic prerequisites to be fulfilled before starting the process for finali!ing a
purchase order are?
P Administrative approval
P 04penditure sanction
P $echnical sanction
P Appropriation or re1appropriation of funds
T>N?>&IN5 P&8;>SS
P&e-4*#%i!ic#tion o! Bi''e&(
? $endering process starts only after the 'ompetent Authority has approved the
P+. "ormally the tenders are invited through .pen $ender, 5imited $enders or
%ingle $ender. &owever, sometimes considering the estimated value> nature>
technical requirement of the procurement, pre1qualification of the bidders are
resorted to whereby the capability of the probable bidder 6both technical and
financial7 is ascertained before one is allowed to bid for a particular procurement
tender. Pre1qualification of bidders is normally done to ensure selection of
resourceful, technically competent, and financially sound prospective bidders
with proven past performance for participation in the bidding process.
Page 47 of 59
? $he criteria of financial capability of the applicant are fi4ed taing into account the
completion period of the proposed wor, requirement of the monthly cash flow for
the wor, etc. 3eeping these facts in view the minimum qualifying criteria for the
following are generally considered?
P Average annual turnover of the applicant
P "et worth of the company
P Profitability of the applicant
P *oring capital of the company? $he cash credit facility enjoyed by the applicant
from any ban or Financial -nstitution can be considered.
? .nce the bidders are selected on the basis of the PK, tenders are invited only
from those pre1qualified bidders.
Vettin5 o! ten'e& 'oc*"ent(
? ,efore the 'ompetent Authority approves the tender documents, it is sent to
Finance Bepartment for vetting> checing. $he tender documents should also be
sent to 5aw Bivision wherever a legal opinion is involved or if there are changes
from the typical format of the tender documents issued by "&P'.
? #enerally, different types of contracts are e4ecuted depending on the nature of
the wor to be e4ecuted. 04amination of tender documents in Finance will
depend on the type of contract proposed therein.
? *hile e4amining the tender documents, the finance should eep the following in
mind?
• #uidelines, policies, circulars issued from time to time by "&P' or
#.-
• +elevant ta4 laws, 0N-M policy of the #.-, ta4ation laws of the state in
which the wor is to be e4ecuted, price preference> purchase
preference policy of #.-, F0MA, etc.
? Any change in the approved terms and conditions should be e4amined critically
to see whether the proposed change is in the overall interest of "&P'.
Page 48 of 59
ISSUE OF TENDER DOCUMENT
? .nce the 'ompetent Authority approves the tender documents, the tender is
notified through "otice -nviting $ender 6"-$7 giving wide publicity either through
press advertisements or through other means depending on the estimated cost,
type of tender lie open tender> limited tender> single tender, etc. as per the
policy of the corporation.
? $he procurement department receives the request>application for the tender
documents from vendor 6in response to the "-$7. $he tender fee is received in
form of cheque> demand draft 6BB7 only, as per guidelines issues by "&P' from
time to time.
$he procurement department forwards a summary of tender documents along
with the cheque> BB to the finance department for necessary accounting and action
Ten'e& o+enin5
? $ender opening will be done by a $ender .pening 'ommittee 6$.'7 constituted
by a 'ompetent Authority in which one member is from Finance. $he authori!ed
representatives of the bidders are also invited to be present at the $ender
.pening, if they wish so.
? #enerally the bidders are ased to furnish 0MB in a separate envelope which
shall be opened first. $echno1commercial> price bids of only those bidders who
have submitted the requisite amount of 0MB shall be opened and considered for
further evaluation.
? A spot report of the tender opening, indicating there in the following, shall be
prepared and signed by all the members of $.'?
P "umber of tenders received.
P "ame of the bidders.
P "umber of tenders received late and not considered.
Page 49 of 59
P Amount of 0MB> bid security
P +ates of ta4es and duties quoted by the bidder.
P Amount> rate of discount, if any, offered by the bidder.
EVALUATION OF TENDERS
$he evaluation of the $enders is done by the duly approved $ender 0valuation
'ommittee 6$0'7. $his evaluation is normally done in two stages. $he first stage is
techno1commercial evaluation vide which the responsiveness to the technical
specifications laid down in the tender and the commercial terms and conditions are
seen.
$he $0' at this stage obtains clarification and confirmations from the bidders if any
required. After the deliberations on the tender along with the clarifications by the bidders
the $0' recommends the bidders whose Price ,ids are to be opened. $he
recommendations of the $0' and the date of the opening of Price ,id is got approved
by the 'ompetent Authority and the same is intimated to the bidders to enable their
representative to be present at the Price ,id .pening if they wish so.
C$ec2in53 )ettin5 o! co"+#&#ti)e (t#te"ent(
*hile checing the comparative statements in finance the following aspects have to be
verified?
8. $he rates taen in the comparative statement are mentioned in the original price
schedule.
2. *herever there is a variation between rates quoted in words as well as in figures,
the rates mentioned in words are taen for comparison.
A. -f there is a variation between the rate of any individual item and the total amount
6i.e. quantity multiplied by rates7 the unit rate is taen for comparison purpose
and accordingly the total will be corrected.
E. All arithmetical calculations are checed for accuracy.
After checing the comparative statement in Finance, the Finance 04ecutive, should
record a certificate under his signature.
Page 50 of 59
$he $0' then scrutini!es the comparative statement and after obtaining the approval of
the 'ompetent Authority negotiates with the first lowest bidder if required. $he
recommendations of the $0' are then put up to the 'ompetent Authority 6,oard in the
case of Major 'ontracts7 for approval and subsequently process for issue for letter of
award.
=ettin% of letter of a(ard
ST8&> '>?5>&!
$his process deals with the procedure for valuation of material and Processing of Price
%tore 5edger 6P%57 by "&P'.
$he following documents are used to record transactions in the P%5?
• #oods received note 6#+"7 for receipt of material from suppliers
• Material +eturn "ote 6M+"7 for return of material with the unit
• %tore $ransfer "ote1 -" 6%$"1-"7 for receipt of material from other units
• Material -ssue "ote 6M-"7 for issue of material to the indenting department within
the unit
Page 51 of 59
• %tore $ransfer "ote1.;$ 6%$"1.;$7 for issue of material to other units
• %tore Adjustment "ote 6%A"7 for maing any adjustment in the stores.
PROCEDURE OF STORES ACCOUNTING
WORK SUPPLY SERVICE
0nd1user M+ 6material requisition7
%tore division
0nd1user department P+ 6purchase requisition7
P=' division 6procurement and contract division7
$endering 6lowest bid7
P=' division W issues %. 6supply order7
Page 52 of 59
>es?@I; c
Payment finance
%undry creditor X..Br.
$o ban A>c
Page 53 of 59
INVENTORIES
0: (! C#$#*1
Particular
9s at 0
st
"archAB*
9s at 0
st
"archAB
(=aluation as per 9ccountin% Policy No) 3!
i7 %tores and spares
%tores in transit> pending inspection
ii7 5oose tools
iii7 %crap inventory
iv7 Material issued to contractors> fabricators
v7 5ess? Provision for obsolete store = spares T8
Provisions for o$solete store C spares D
8penin% :alance
Addition during the year
Adjustment during the year
Amount used during the year
Amount reversed during the year
DE.A(
).E2 DE.()
8.E@
8.
).DD
2E.(@
20)+
*+).-
8.DA
1
8.ED
E.22
@:.ED
8.82 @(.@(
8.A(
2.AD
).29
2(.9)
00)3
*0)-3
8D.9@
).)8
8).8(
).9@
Page 54 of 59
;losin% $alance
*2)+1 *+).-
INTERPRETATION & ANALYSIS
? =aluation as per accountin%/
• As we have seen in table the inventories of P&0P 2 is increasing year by
year which tends to growth.
• $he decrease in %crap inventory shows that in 2)82 there is efficient
utili!ation of inventory as compared to 2)88.
• $he figure of provision for obsolete store shows E.)@ crore difference ,
which reveals profitable ratio.
? Materials are procured by tendering process. -n certain emergency situations of
shortage of materials, a committee is formed to perform maret survey =
purchase the required materials through local purchase.
? Materials to be bought are either inspected at the supplier’s place or after
receiving at the stores of corporation.
? -ssue of materials from stores is based upon the indent requisition = availability
of materials in stores.
? +ate of materials issued by the stores is determined by G#ei%hted avera%e
"ethodE in N)H)P)
? "&P' has bought a customi!ed MM% 6Materials Management %ystem7 pacage
from $'% for +s. 8E lahs to maintain the stores records = to connect this
system with other sites = Projects also.
? ,ut due to non1availability of basic infrastructure this system is not functioning
fully yet.
Page 55 of 59
? -n "&P' no specific method of inventory management is being employed.
? .rders of requisition are based upon the appro4imate consumption of materials
= the past e4perience of the department.
FIN?IN5S
? &ydro5power projects typically require a long gestation period thus posing a ris
of delay in e4ecution.
? .ver all position of company is good but there is need to more improvement.
? Parbati Project %tage1-- is committed to spend +s. [email protected]) crore for habitat
improvement and conservation of endangered species lie /ujurana 6*estern
$ragopan7 in #&"P6#reat &imalayans "ational Par 7
? $heoretical as well as practical nowledge is being adopted in P&0P12 regarding
their stores management.
'IMIT9TI8NS
? -nadequate power generation capacityC
? 5ac of optimum utili!ation of the e4isting generation capacityC
? -nadequate inter1regional transmission linsC
? -nadequate and ageing sub1transmission = distribution networ leading to power
cuts and local failures>faultsC
? 5arge scale theft and sewed tariff structureC
? %low pace of rural electrificationC
? -nefficient use of electricity by the end consumer.
? 5ac of grid discipline
Page 56 of 59
;8N;'@SI8N
"&P' 5imited has several units, which are engaged in operation of generating
electricity or are under construction stage.