Microsoft Word - Project Report On Financial Savings Through Fixed Asset Management For Ispat Final

A
SUMMER TRAINING PROJECT REPORT
ON
“FINANCIAL SAVINGS THROUGH FIXED ASSETS

MANAGEMENT”
ISPAT INDUSTRIES LTD.
Submitted in partial fulfillment of the requirement

For the award of degree of
MASTER’S OF MANAGEMENT STUDIES (MMS)

(2010-2011)
SUBMITTED BY:
MR. ROHAN SUNIL SHIRDHANKAR
UNDER THE GUIDANCE OF

MS. SADHNA OGALE
SARASWATI EDUCATION SOCIETY’S

SARASWATI COLLEGE OF ENGINEERING (MMS)
PLOT NO. 46, SECTOR 6, NEAR UTSAV CHOWK,
KHARGHAR, NAVI MUMBAI-410210
ISPAT INDUSTRIES LIMITED
There is something about steel
There is something about ISPAT
II
Company certificate
III
Institute Certificate
IV
DECLARATION
I, Rohan S Shirdhankar, student of MMS IIInd semester, studying at Saraswati College

of Engineering’s Department of Master of Management Studies Kharghar, hereby
declare that the summer training report on “FINANCIAL SAVINGS THROUGH
MANAGEMENT OF FIXED ASSETS” submitted to Mumbai University, Mumbai in
partial fulfillment of degree of Master’s of Management Studies is the original work
conducted by me.
The information and data given in the report is authentic to the best of my knowledge.
This summer training report is not being submitted to any other university for award of
any other degree, diploma and fellowship.
(Rohan Sunil Shirdhankar)
V
ACKNOWLEDGEMENT
It is my pleasure to be indebted to various people, who directly or

indirectly contributed in the development of this work and who influenced my thinking,
behavior, and acts during the course of study.
I express my sincere gratitude to Dr.J.G.Kori worthy Principal for

providing me an opportunity to undergo summer training.
I am thankful to Mr.Pravin More our H.O.D for his support, cooperation,

and motivation provided to me during the training for constant inspiration, presence
and blessings.
I also extend my sincere appreciation to Mr. Sunil K Garg VP (Accounts)
who provided his/her valuable suggestions and precious time in accomplishing my
project report.
Lastly, I would like to thank the almighty and my parents for their moral
support and my friends with whom I shared my day-to-day experience and received lots
of suggestions that improved my quality of work.
(Rohan Sunil Shirdhankar)
VI
FINANCIAL SAVINGS THROUGH FIXED ASSETS MANAGEMENT
ABSTRACT
The project “Financial Savings Through Fixed Assets Management” is defined as the
selling of the assets which are Idle or which are not in the production use. It refers to removing of the
assets from the Fixed Asset Register which are not in use or which are costing high on repairs and
maintenance cost. It mainly focuses on financial saving through discarding the obsolete and used assets.
Purpose of the project:

· To review the assets which can be physically disposed off in the fiscal year 2010 - 11.
· To study the accounting of Fixed Assets as per AS- 10, Accounting of the Depreciation on Fixed
Assets AS- 6 and the accounting of Impairment losses as per AS-28.
· To check whether the method of depreciation for the FIXED ASSETS is appropriate as per the
Companies Act,1956.
· To review the Fixed Asset Register and to check for any errors in the register .
· To provide the information regarding the procedure of disposal of particular fixed assets and give
information about the different methods through which disposal can be done. For Example: sale
by public tender, sale though company agent, donating, etc
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EXECUTIVE SUMMARY
In few years Steel is vital to the development of any modern economy and is considered to be the
backbone of the human civilization. The level of per capita consumption of steel is treated as one of the
important indicators of socio-economic development and living standard of the people in any country. It
is a product of a large and technologically complex industry having strong forward and backward
linkages in terms of material flow and income generation. All major industrial economies are
characterized by the existence of a strong steel industry and the growth of many of these economies has
been largely shaped by the strength of their steel industries in their initial stages of development.
This Project gave me a great learning experience and at the same time it gave me enough scope
to implement my analytical ability. The analysis and advice presented in this Project Report entitled as
“Financial Savings Through Disposal of Idle Fixed Assets” is based on the research analysis done and
also having a survey of the fixed asset in the company premises.
The project report comprises of identification of those fixed asset, which are idle and not used in
the production process as they are in broken condition or there installation cost is very high. The report
also gives knowledge about those fixed assets, which are costing high on maintenance and repairs and
are frequently in the maintenance department.
This Project as a whole can be divided into two parts.
The first part gives an insight about the different Fixed Assets and the accounting of the fixed
assets. The need and procedure for the disposal of fixed assets is also mentioned in this project. The
project helps us to understand how to make Financial Savings through proper Management of the Fixed
Assets. The proper management includes acqusition of fixed assets, its replacement and disposal after a
stipulated period. The financial savings can be made by reducting the costs inrelation to the fixed assets
such as depreciation, repairs and maintenance, operating cost, etc. The project also talks about the
accounting standards by ICAI namely AS-10 accounting of Fixed Assets and AS-28 Impairment of the
Fixed Assets.
The second part of the Project consists of research and analysis to find out whether there is any
need to dispose off the fixed assets and investigation to find out which fixed assets can be disposed and
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which need a replacement. The project report also gives us an idea about the total amount of fixed assets
that are depreciated to there 95% of acquisition value. It also concentrates on physical investigation of
the Fixed Assets situated in the Dolvi Plant to verify whether they are in working condition.
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TABLE OF CONTENTS
SR. CHAPTER PARTICULARS PAGE NO
No NO
1. DECLARATION V
2. ACKNOWLEDGEMENT VI
3. ABSTRACT VII
4. EXECUTIVE SUMMARY VIII
5. 1. INDUSTRY OVERVIEW AND COMPANY 1-9

PROFILE
1.1 OVERVIEW OF THE INDUSTRY 1-4

A) STEEL INDUSTRY IN WORLD 1–2
B) STEEL INDUSTRY IN INDIA 2–4
1.2 COMPANY PROFILE 4–9

A) ABOUT ISPAT INDUSTRIES LTD. 4–5
B) VALUES OF IIL 6–6
C) VISION AND MISSION OF IIL 6–6
D) PROCESSES OF IIL 6–6
E) PRODUCTS 7–9
F) QUALITY PROCESSES 9–9
G) CSR ACTIVITY 9–9
H) ACHIEVEMENTS 9-9
6. 2. OBJECTIVES AND SCOPE OF THE STUDY 10 – 11
7. 3 INTRODUCTION OF THE TOPIC 12 - 14
8. 4 FIXED ASSETS AND ACCOUNTING OF 15 - 31

FIXED ASSETS
4.1 FIXED ASSETS (DEFINITION AND CLASSIFICATION): 15 – 17
4.2 ACCOUNTING FOR FIXED ASSETS (AS- 10 by ICAI) 17 – 22
4.3 FIXED ASSETS REGISTER 22 – 25
4.4 DEPRECIATION (DEFINITION AND ITS METHODS) 25 – 31
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9. 5 FIXED ASSET DISPOSAL AT IIL 32 - 37
10. 6 SAVINGS THROUGH FIXED ASSETS 38 - 57

MANAGEMENT
6.1 HOW FINANCIAL SAVINGS CAN BE DONE THROUGH
DISPOSAL OR REPLACEMENT OF FIXED ASSETS 41 - 52
6.2 IMPAIRMENT OF THE FIXED ASSETS (AS 28 by ICAI) 46 - 52
6.3 FIXED ASSET DISPOSAL PROCEDURE 52 - 57
11. 7 RESEARCH METHODOLOGY 58 - 59
12. 8 DATA ANALYSIS AND INTERPRETATION 60 – 72

10.1 ANALYSIS OF THE COMPANY 60 – 67
10.2 COMPETITOR ANALYSIS (COMPARISON WITH INDUSTRY 67 - 72
AVERAGES)
13. 9 RESULTS AND FINDINGS 73 - 75
14. 10 CONCLUSIONS 76 - 76
15. 11 LIMITATIONS OF THE STUDY 77 - 77
16. 12 SUGGESTIONS AND RECOMMENDATIONS 78 - 79
17. 13 GLOSSARY 80 - 80
18. REFERENCES 81 - 81
19. ANNEXURE IX - XI
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CHAPTER 1- OVERVIEW OF THE INDUSTRY AND COMPANY

PROFILE
1.1 OVERVIEW OF THE INDUSTRY

Steel is vital to the development of any modern economy and is considered to be the backbone
of the human civilization. The level of per capita consumption of steel is treated as one of the important
indicators of socio-economic development and living standard of the people in any country. It is a
product of a large and technologically complex industry having strong forward and backward linkages in
terms of material flow and income generation. All major industrial economies are characterized by the
existence of a strong steel industry and the growth of many of these economies has been largely shaped
by the strength of their steel industries in their initial stages of development.
A.) STEEL INDUSTRY IN WORLD

Steel, a recycled product is one of the top products of the manufacturing sector. Steel industry is
booming industry in the world. The Infrastructure industry, Automobile industry, Construction industry
and Oil and Gas Industry generate the increasing demand of steel. After the adoption of liberalization
policies all over the world, the world steel industry is growing very fast. Among the top steel producers
in the world, China ranked 1st followed by Japan, United States. Russia and South Korea. China, as the
world’s major producer and consumer, and has a considerable influence on the industry globally, but
more sharply in Asia The Indian scenario has changed due to 2 major Merger and Acquisition and one is
Mittal steel acquired Arcelor steel and became worlds largest steel producer named Arcelor- Mittal and
the other is Tata Steel of India or TISCO has acquired the world's fifth largest steel company, Corus,
with the highest ever stock price.
The Indian steel industry has made a rapid progress on strong fundamentals over the recent few
years. The industry is getting all essential ingredients required for dynamic growth. The government is
backing the industry through favorable industrial reforms, while the private sector is supporting it with
investments worth billions of dollars. Even in the tough times of economic slowdown, the industry
succeeded to sustain its positive growth
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momentum on the strong fundamentals of domestic demand from construction, automobile and
infrastructure sectors and due to strong global demand. With an impressive track record, the country has
become a reputed name in the world steel industry. Global steel giants from all over the world have
shown interest in the industry because of its phenomenal performance.
CONTRIBUTION OF THE COUNTRIES TO GLOBAL STEEL INDUSTRY
Steel Production in world
18% 8% 3%
China
9% India
4%
8% Europe
USA
37% 13%
Brazil
Japan
CIS
Others
The countries like China, Japan, India and South Korea are in the top of the above in steel
production in Asian countries. China accounts for one third of total production i.e. 419m ton, Japan
accounts for 9% i.e. 118m ton, India accounts for 53m ton and South Korea is accounted for 49m ton,
which all totally becomes more than 50% of global production. Apart from this USA, BRAZIL, UK
accounts for the major chunk of the whole growth. The steel industry has been witnessing robust growth
in both domestic as well as international markets.
B.) STEEL INDUSTRY IN INDIA

GLOBAL RANKING OF INDIAN STEEL:
Global crude steel production reached 1220 million tonne in 2009.China was the largest
crude steel producer in the world with production reaching 567.8 million tonne, a growth of 13.5 per
cent over 2008. India once again emerged as the fifth largest producer in 2009 and recorded a growth of
2.7 per cent as compared to 2008, the only other country in the top 10 brackets to register a positive
growth during 2009. India also emerged as the
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largest sponge iron producing country in the world in 2009, a rank it has held on since 2002. If proposed
expansions plans are implemented as per schedule, India may become the second largest crude steel
producer in the world by 2015-16.
STEEL SECTOR TRENDS
· India emerged as the fourth largest steel producer in the world and is expected to become the 2nd
largest producer of crude steel in the world by 2015.
· India also maintained its lead position as the world's largest producer of direct reduced iron
(DRI) or sponge iron. Sponge iron production for sale was 20.8 million tonnes in 2008-09, which
was higher by 2.1% over 2007-08.
· The country is likely to achieve a crude steel production capacity of 124 million tonnes by the
year 2012.
· 222 Memorandum of Understanding (MoUs) have been signed by the investors with various
State Governments for setting up additional 276 million tones of steel capacity in the country.
Public sector undertakings in steel Industry:

· Steel Authority of India Ltd., (SAIL), New Delhi
· Kudremukh Iron Ore Company Ltd. (KIOCL), Bangalore.
· National Mineral Development Corporation Ltd. (NMDC), Hyderabad.
· Hindustan Steelworks Construction Ltd. (HSCL), Kolkata.
· MECON Ltd., Ranchi.
· Manganese Ore (India) Ltd. (MOIL), Nagpur.
· Sponge Iron India Ltd. (SIIL), Hyderabad.
· Bharat Refractories Ltd. (BRL), Bokaro.
· Rashtriya Ispat Nigam Ltd. (RINL), Visakhapatnam.
· MSTC Ltd., Kolkata.
· Ferro Scrap Nigam Ltd. (FSNL), Bhilai, (A subsidiary of MSTC Ltd.).
Other Public Sector Undertakings (PSUs):
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· KudremukhIronOre Company Limited (KIOCL)

· National Mineral Development Corporation Ltd. (NMDC)
· Hindustan Steelworks Construction Limited (HSCL)
· MECON Limited
· Bharat Refractories Ltd. (BRL)
· Manganese Ore (India) Ltd. (MOIL)
· Sponge Iron India Ltd. (SIIL)
· Rashtriya Ispat Nigam Ltd. (RINL)
· MSTC Ltd.
· Ferro Scrap Nigam Limited (FSNL)
Private Sector:
· Tata Steel Ltd.
· Essar Steel Ltd.
· JSW Steel Ltd.Jindal
· Steel & Power Ltd.(JSPL)
· Ispat Industries Ltd. (IIL)
· Bhushan Power & Steel Ltd.
· Monnet Ispat & Energy Ltd.
1.2 OVERVIEW OF THE COMPANY PROFILE

A) ABOUT ISPAT INDUSTRIES LIMITED
Ispat Industries Limited was set up as Nippon Denro Ispat Limited in May 1984 by founding
Chairman Mr M L Mittal, is one of the leading integrated steel makers. It mainly operates in steel, iron,
minning, energy and infrastructure. Ispat Industries Limited (IIL) is one of the leading integrated steel
makers and the largest private sector producer of hot rolled coils in India., a corporate powerhouse with
operations in iron, steel, mining, energy and infrastructure. The company's core competency is the
production of high quality steel, for which it employs cutting edge technologies and stringent quality
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standards. It produces world-class sponge iron, galvanized sheets and cold rolled coils, in addition to hot
rolled
coils, through its two state-of-the art integrated steel plants, located at Dolvi and Kalmeshwar in the state
of Maharashtra.
To better provide steel solutions to an increasingly sophisticated marketplace, IIL had sets
up a highly advanced cold rolling reversing mill during the year 1988, in collaboration with Hitachi of
Japan, to manufacture a wide range of cold rolled carbon steel strips. In the same year, the company
installed a color coating line, the first of its kind in India for the manufacture of pre-painted color steel
sheets. During the year 1994, Business interests within the Ispat Group are demarcated. The eldest son,
Mr. L N Mittal continues to manage the international operations while Mr.Pramod Mittal and Mr. Vinod
Mittal, the younger brothers focused on steel and other businesses in India. In the identical year 1994, it
commissioned the world's largest gas-based single mega module plant for manufacturing direct reduced
iron (sponge iron), at its Maharashtra-based Dolvi plant. Within three months, the plant exceeds its
capacity of 1 million tonnes per annum (MTPA) of high quality DRI. The company came out with a
Euro-issue of 125-mln fully convertible bonds in 1994 to part-finance the expansion of its hot strip mill
(HSM) capacity to 2.50 lakhs TPA.
The Company aims to consolidate its market leadership in the national specialty steel market by
capitalizing on the proximity of its manufacturing facilities to major consumers of flat steel products in
Maharashtra, while increasing its presence in international markets by using its convenient port location.
In the short span of time since its inception, Ispat Industries has steadily raised the bar - in terms of its
relentless pursuit of technological advancement, unwavering focus on innovation, strident emphasis on
quality products and its constant initiatives aimed at ensuring customer satisfaction. It has 2 integrated
steel plants located at Dolvi and Kalmeshwar, in maharashtra. It is headquatered at Mumbai and
employees about 3,347 employees. It carries its business not only in India but also in word. The
company's core competency is the production of high quality steel, for which it employs cutting edge
technologies and stringent quality standards. It produces world-class sponge iron, galvanized sheets and
cold rolled coils, in addition to hot rolled coils.
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B) VALUES OF IIL
· Respect the skills and integrity of professionals
· Empower those who belong to it
· Work in tandem with the environment
· Listen to the stakeholders, be they customers or communities
· Build value for all the shareholders and the Society with which it coexist.
C) VISION AND MISSION OF IIL:

To be an organization that continuously achieves economic value by optimizing resources
through operational excellence, powered by technology, driven by innovation creating customer delight.
To be amongst the world’s most admired new generation steel companies: in products, in service, in
work ethics, and in the culture of societal integration
D) PROCESSES OF IIL:
I. Dolvi Plant: -
The sprawling 1,200 acres Dolvi complex, located
on the coast of Maharashtra houses hot rolled coils plant,
sponge iron plant and blast furnace that combines the latest
technologies - the Conarc process for steel making and the
compact strip process (CSP) - introduced for the first time
in Asia.
II.Kalmeshwar plant: -
The Kalmeshwar complex houses Ispat's 0.4 million
tonnes cold rolling complex, which also includes the
galvanized plain/ galvanized corrugated (GP/GC) lines and
India's first colour coating mill.
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E) PRODUCTS:
I. Sponge Iron:
In September 1994, Ispat Industries

commissioned the world's largest gas based, single
mega-module plant for making sponge
iron/direct reduced iron (DRI), in
Maharashtra, India and it is one of the most
efficient Sponge Iron plants in the world.
Sponge Iron is mainly used as a raw material for speciality steel as well as substitute for scrap.
The rise in price of scrap and other factors have led to the increase in the use of sponge iron for
making high quality steel.
II. Hot Rolled coils:
Ispat Industries Limited manufactures

international standard hot rolled (HR) coils at its Hot
Strip Mill (HSM), situated at Dolvi in the state of
Maharashtra, India. The production of these coils
involves the use of state-of-the-art equipment and
manufacturing processes that ensure products of the
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highest quality. Ispat's HSM uses a combination of the advanced Conarc Process and Thin Slab
Casting technology
III. Cold Rolled Coils:
Ispat Industries Limited, cold rolled coils are

manufactured at the highly advanced cold rolling mill at
Kalmeshwar, and can be used in a wide variety of
applications as follows:
· In industrial goods such as automobile components, precision tubes and consumer durables.
· In the manufacture of bodies of vehicles as varied as automobiles and railway coaches.
· For the production of heavy machinery like earthmoving and material-handling equipment
· Specially suited for panel applications in refrigerator bodies and washing machines.
· In bicycle parts, office equipment and furniture.
· For basic items such as galvanized sheets, tin-plates, drums and barrels.
IV. Galvanized Sheets:
Ispat Industries Limited was the first Indian

company to set up a Continuous Galvanizing Line for thin
gauge sheets in 1985. With two Galvanizing Lines and
high performance sophisticated corrugation
machines at its plant at Kalmeshwar, it
manufactures coils and GP/GC sheets that serve the
specific need of varied applications as per
customer’s requirements.
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V. Colour Coated Sheets:
Ispat manufactures colour coated sheets called

Polysteel, in a variety of shades and designs, such as
dark or pastel, printed or plain and striped or
embossed. Polysteel is durable, cost-effective and easy
to install and use. Polysteel building sheets, for
instance, make it possible to design and construct
customers’ choice of beautiful structures, save on
structural steel and maintenance, and obtain overall cost effectiveness.
F) QUALITY PROCESSES:
· Six Sigma
· Total Quality Management
· Total Productive Maintenance
G) CSR ACTIVITY:
· IIL provides 44 villages with free drinking water.
· Beautification of public spaces with the concurrence of the local administration.
· IIL routinely distributes textbooks, school uniforms, notebooks and computers to students of
schools in the vicinity.
· Ispat has recognized Tree plantation and landscaping as an important tool to improve the Eco
system. A full- fledged nursery is maintained to support the green drive.
· IIL’s contribution During the Floods of 26/7 and for the Tsunami-affected victims.
H) ACHIEVEMENTS:
Since its inception, the IIL has been moving from strength to strength, consistently breaking new
grounds and spearheading new developments in iron and steel. Some of the key achievements are as
follows:
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· Acknowledged many Quality Certificates from ISO, License for Quality Systems, National
Quality Awards, etc.
· Received many awards Such as Amity HR growth award, Golden peacock National Training
award, Good green governance award, TPM Excellence award, safety innovation award,
Excellence kaizen award, etc
· Acquired many awards for corporate social work.
· Ispat Industries was ranked 5th among major steel companies in India for the year 2008 by
Business World.
· Ispat Industries Ltd (IIL) ranks 45th in the FE-500 ranking of 2005.
CHAPTER – 2 OBJECTIVES AND SCOPE OF THE STUDY
2.1 OBJECTIVES OF THE STUDY:
· To discard or remove those Fixed Assets from the Fixed Asset Register, which are not in active
use or which are idle.
· To discarding or removing those Fixed Assets from the Fixed Asset Register, which are stated at
the lower of their net book value.
· To check whether the method and the rates of depreciation for the Fixed Assets is appropriate
· To ensure Fixed Assets availability where and when needed.
· To track fixed assets for the purposes of financial accounting, preventive maintenance, and theft
deterrence.
2.2 SCOPE OF THE STUDY:
The Indian steel industry has entered into a new development stage from 2005-06, riding high
on the resurgent economy and rising demand for steel. Rapid rise in production has resulted in India
becoming the 5TH largest producer of steel. The research was carried on in ISPAT INDUSTRIES.
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I had been sent to the plant of ISPAT INDUSTRIES LTD situated at DOLVI,
MAHARASHTRA where I completed my Project work. I surveyed on my Project Topic “Financial
savings through fixed asset management” by investigating about those Fixed Assets, which are not used
in the operational process, or those, which are costing, high on Repairs and Maintenance cost in Sponge
Iron plant, Blast Furnace Plant and Hot Strip Mill Plant situated at Dolvi plant.
The study of “Financial Savings through Fixed Assets Management” will help to know which fixed
assets are not in active use or idle or which are stated at the lower of their net book value. Also it helps
to know the accounting of the fixed asset in case of acquisition,
retirement or replacement of the Fixed Assets. It also provides the information regarding the impairment
of the long-lived fixed assets. The project has also reviewed the procedure for disposal or replacement of
Fixed Assets.
This project report may help the company to make further planning and strategy.
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CHAPTER – 3 INTRODUCTION TO THE PROJECT
The project topic “FINANCIAL SAVINGS THROUGH FIXED ASSETS MANAGEMENT”

clearly mentions the deduction in the expenditure costs, which are in connection with those fixed assets,
which are not used in the operational process. Thus disposal of such assets which are idle or not used in
the production process can save money as they can deduct the expenditures such as Repairs and
Maintenance to these assets, Depreciation on these assets, Interest charges in case the assets are acquired
by borrowed capital, etc.
The project on “Financial Savings through Fixed Asset Management” mainly focuses on
discarding or removing of those Fixed Assets, which are not used in the current operational process or
which are idle. The project also concentrates on those assets, which are high on the maintenance cost. It
mainly focuses on identification and then disposal of the assets which are idle or which are frequently
under repairs eventually increasing the operating cost for production. It also provides information about
the procedure of disposal or transfer of fixed assets.
PURPOSE OF THE PROJECT
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The project “Financial Savings Through Fixed Assets Management” is defined as the selling of
the assets which are Idle or which are not in the production use. It refers to removing of the assets from
the Fixed Asset Register which are not in use or which are costing high on repairs and maintenance cost.
It mainly focuses on financial saving through discarding the obsolete and used assets.
Purpose of the project:

· To review the assets which can be physically disposed off in the fiscal year 2010 - 11.
· To study the accounting of Fixed Assets as per AS- 10, Accounting of the Depreciation on Fixed
Assets AS- 6 and the accounting of Impairment losses as per AS-28.
· To check whether the method of depreciation for the FIXED ASSETS is appropriate as per the
Companies Act,1956.
· To review the Fixed Asset Register and to check for any errors in the register .
· To provide the information regarding the procedure of disposal of particular fixed assets and give
information about the different methods through which disposal can be done. For Example: sale
by public tender, sale though company agent, donating, etc.
SCOPE OF THE PROJECT:

The survey on the Project Topic “Financial savings through fixed asset management” is done by
investigating about the different Fixed Assets in Sponge Iron plant, Blast Furnace Plant and Hot Strip
Mill Plant of ISPAT INDUSTRIES LTD. situated at Dolvi plant.
The study of “Fixed Asset Management” will help to know which fixed assets are is not in active
use or idle or which are stated at the lower of their net book value. Also it helps to know which assets
are having more repairs and maintenance costs and Disposal of such Fixed Assets.
This project report may help the company to make further planning and strategy.
SALIENT CONTRIBUTION OF THE PROJECT:
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The salient contribution of the project on “Financial savings through fixed asset management” to the
company is as follows:
· It will provide the knowledge regarding the current scenario of the company as well as provides
a competitor analysis of the fixed assets of the company.
· It will provide information to the management of the company to make strategies and planning
regarding the disposal of the fixed assets.
· It will help the management to get idea about those Fixed Assets that are obsolete or kept idle.
· It will also provide information regarding those fixed assets, which are costing heavy on the
maintenance.
· This project will help the Management to know the procedure to disposal or transfer of any Fixed
Asset. It includes the proper Fixed Asset Disposal Request form.
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CHAPTER – 4 FIXED ASSETS AND ACOUNTING OF FIXED

ASSETS
4.1 FIXED ASSETS (DEFINITION AND CLASSIFICATION):
Fixed Assets refer to physical or tangible things of value a company owns such as facilities,
equipment, and land. The term "Fixed Assets" reflects the traditional notion that these kinds of Fixed
Assets are fixed and do not require much consideration after they are purchased.. Companies rely on
their Fixed Assets, to generate profits. Modern equipment in good repair, is essential for high
productivity and efficiency, and hence for earning profits. Fixed Assets analysis involves calculating the
earnings potential, use, and useful life of Fixed Assets.
In addition, Fixed Assets analysis determines if Fixed Assets are sufficiently maintained to ensure
current and future earning power as well as the relative profitability contributed by Fixed Assets and
Fixed Assets acquisitions. These Fixed Assets are used to derive production capacity. Therefore, they
are also known as earning Fixed Assets. Fixed Assets are purchased for continued and long-term use in
earning profit in a business. They are written off against profits over their anticipated life by charging an
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annual amount calculated so as to eliminate the original cost less scrap, over that period. Therefore, the
business needs to make long-term investment in Fixed Assets.
Company management and stockholders expect that Fixed Assets justify their existence by
producing "returns" and so use income statement and balance sheet entries to measure the efficiency and
productivity of the company's Fixed Assets in this way, Fixed Assets that sit idle or are otherwise
unproductive are candidates for elimination. The fixed Assets are classified as follows:
I. Property, Plant And Equipment - PP&E:

A company’s Fixed Assets that is vital to
business operations but cannot be easily liquidated. The
value of property, plant and equipment is typically depreciated

over the estimated life of the Fixed Assets, because even the longest-term Fixed Assets become obsolete
or useless after a period of time. Depending on the nature of a
company's business, the total value of PP&E can range from very
low to extremely high compare to total Fixed Assets.
Accounting standard 10 deals with the accounting treatment of PP&E.
This item is listed separately in most financial statements because
PP&E is treated differently in accounting statements. This is because improvements, replacements and
betterments can pose accounting issues depending on how the costs are recorded.
II. Land:
Property or real estate, not including buildings or equipment that does not occur naturally.
Depending on the title, land ownership may also give the holder
the rights to all natural resources on the land. These may include
water, plants, human and animal life, fossils,
soil, minerals, electromagnetic features, geographical location,
and geophysical occurrences.
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In the traditional school of economics, land is considered a factor of production, along with labor
and capital. Selling land results in a capital gain or loss. As opposed to almost any other Fixed Assets,
land is not a depreciable. Fixed Assets under IRS tax laws. The cost of land includes all expenditures
that relate to its acquisition and preparation for use. This amount typically includes purchase price,
attorney fees, real estate costs, document filing fees, and so on. Special assessments levied by a
government authority for sidewalks and streetlights or impact fees will also be included in the
capitalized cost of land, as well as general preparation costs such as grading, soil removal, drainage, and
demolition of existing buildings.
III. Building:
The cost of buildings can be determined in a

number of ways.. The allocation of cost is essential because land
represents a non-depreciable FIXED ASSETS, while the cost
of the building is depreciable. Once acquired, the building may
need some additional expenditure to make the building
ready for its intended use. These are often referred to as
make-ready costs and are included in the cost of the building.
IV. Furniture and Fixtures
Typically, a company that maintains more than 1,100

stores with an indoor lumberyard and warehouse merchandise
displays must invest heavily in furniture, fixtures, and
equipment. Narrow-aisle forklift trucks, rental vehicles,
customer shopping carts and flatbeds, and movable ladder
systems are examples of a company’s investment in
equipment.
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Probably the most significant investment in fixtures by a retail company is evident as customers
walk between the product aisles. The heavy-gauge, steel storage systems throughout the store constitute
an enormous investment in fixtures. This racking system not only has to be strong, but much of it has to
be designed to be safe for consumers.
4.2 ACCOUNTING FOR FIXED ASSETS (AS- 10 by ICAI)
The following is the Accounting Standard 10 (AS 10) issued by the Institute of Chartered Accountants
of India on 'Accounting for Fixed Assets'.
Introduction
Financial statements disclose certain information relating to fixed assets. In many enterprises
these assets are grouped into various categories, such as land, buildings, plant and machinery, vehicles,
furniture and fittings, goodwill, patents, trademarks and designs.
Identification of Fixed Assets
Judgment is required in applying the criteria to specific circumstances or specific types of

enterprises. It may be appropriate to aggregate individually insignificant items, and to apply the criteria
to the aggregate value. An enterprise may decide to expense an item, which could otherwise have been
included as fixed asset, because the amount of the expenditure is not material.
Stand-by equipment and servicing equipment are normally capitalized. Machinery spares are
usually charged to the profit and loss statement as and when consumed. However, if such spares can be
used only in connection with an item of fixed asset and their use is expected to be irregular, it may be
appropriate to allocate the total cost on a systematic basis over a period not exceeding the useful life of
the principal item.
In certain circumstances, the accounting for an item of fixed asset may be improved if the total
expenditure thereon is allocated to its component parts, provided they are in practice separable, and
estimates are made of the useful lives of these components. For example, rather than treat an aircraft and
Page | 29
its engines as one unit, it may be better to treat the engines as a separate unit if it is likely that their
useful life is shorter than that of the aircraft as a whole.
Components of Cost
The cost of an item of fixed asset comprises its purchase price, including import duties and other non-
refundable taxes or levies and any directly attributable cost of bringing the asset to its working condition
for its intended use; any trade discounts and rebates are deducted in arriving at the purchase price.
Examples of directly attributable costs are:
· Site preparation;
· Initial delivery and handling costs;
· Installation cost, such as special foundations for plant; and
· Professional fees, for example fees of architects and engineers.
The cost of a fixed asset may undergo changes subsequent to its acquisition or construction on account
of exchange fluctuations, price adjustments, changes in duties or similar factors.
Ø Financing costs relating to deferred credits or to borrowed funds attributable to construction or

acquisition of fixed assets for the period up to the completion of construction or acquisition of
fixed assets are also sometimes included in the gross book value of the asset to which they relate.
However, financing costs (including interest) on fixed assets purchased on a deferred credit basis
or on money borrowed for construction or acquisition of fixed assets are not capitalized to the
extent that such costs relate to periods after such assets are ready to be put to use.
Ø Administration and other general overhead expenses are usually excluded from the cost of fixed
assets because they do not relate to a specific fixed asset. However, in some circumstances, such
expenses as are specifically attributable to construction of a project or to the acquisition of a
fixed asset or bringing it to its working condition, may be included as part of the cost of the
construction project or as a part of the cost of the fixed asset.
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Ø The expenditure incurred on start-up and commissioning of the project, including the
expenditure incurred on test runs and experimental production, is usually capitalized as an
indirect element of the construction cost. However, the expenditure incurred after the plant has
begun commercial production, i.e., production intended for sale or captive consumption, is not
capitalized and is treated as revenue expenditure even though the contract may stipulate that the
plant will not be finally taken over until after the satisfactory completion of the guarantee period.
Ø If the interval between the date of a project on which it is ready to commence commercial
production and the date at which commercial production actually begins is prolonged, all
expenses incurred during this period are charged to the profit and loss statement. However, the
expenditure incurred during this period is also sometimes treated as deferred revenue expenditure
to be amortized over a period not exceeding 3 to 5 years after the commencement of commercial
production
Non-monetary Consideration
When a fixed asset is acquired in exchange for another asset, its cost is usually determined by
reference to the fair market value of the consideration given. It may be appropriate to consider also the
fair market value of the asset acquired if this is more clearly evident. An alternative accounting
treatment that is sometimes used for an exchange of assets, particularly when the assets exchanged are
similar, is to record the asset acquired at the net book value of the asset given up in each case an
adjustment is made for any balancing receipt or payment of cash or other consideration.
When a fixed asset is acquired in exchange for shares or other securities in the enterprise, it is
usually recorded at its fair market value, or the fair market value of the securities issued, whichever is
more clearly evident.
Improvements and Repairs
Frequently, it is difficult to determine whether subsequent expenditure related to fixed asset

represents improvements that ought to be added to the gross book value or repairs that ought to be
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charged to the profit and loss statement. Only expenditure that increases the future benefits from the
existing asset beyond its previously assessed standard of performance is included in the gross book
value, e.g., an increase in capacity.
The cost of an addition or extension to an existing asset which is of a capital nature and which
becomes an integral part of the existing asset is usually added to its gross book value. Any addition or
extension, which has a separate identity and is capable of being used after the existing asset is disposed
of, is accounted for separately.
Retirements and Disposals
An item of fixed asset is eliminated from the Fixed Asset Register on disposal. Items of fixed
assets that have been retired from active use and are held for disposal are stated at the lower of their net
book value and net realizable value and are shown separately in the financial statements. Any expected
loss is recognized immediately in the profit and loss statement.
In historical cost financial statements, gains or losses arising on disposal are generally
recognized in the profit and loss statement. On disposal of a previously revalued item of fixed asset, the
difference between net disposal proceeds and the net book value is normally charged or credited to the
profit and loss statement except that, to the extent such a loss is related to an increase which was
previously recorded as a credit to revaluation reserve and which has not been subsequently reversed or
utilized, it is charged directly to that account. The amount standing in revaluation reserve following the
retirement or disposal of an asset, which relates to that asset may be transferred to general reserve
Valuation of Fixed Assets in Special Cases
In the case of fixed assets acquired on hire purchase terms, although legal ownership does not
vest in the enterprise, such assets are recorded at their cash value, which if not readily available, is
calculated by assuming an appropriate rate of interest. They are shown in the balance sheet with an
appropriate narration to indicate that the enterprise does not have full ownership thereof.
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Where an enterprise owns fixed assets jointly with others (otherwise than as a partner in a firm),
the extent of its share in such assets, and the proportion in the original cost, accumulated depreciation
and written down value are stated in the balance sheet. Alternatively, the pro rata cost of such jointly
owned assets is grouped together with similar fully owned assets. Details of such jointly owned assets
are indicated separately in the fixed assets register
Where several assets are purchased for a consolidated price, the consideration is apportioned to
the various assets on a fair basis as determined by competent valuer.
Disclosure
Disclosures that are sometimes made in financial statements include:
· Gross and net book values of fixed assets at the beginning and end of an accounting period
showing additions, disposals, acquisitions and other movements;
· Expenditure incurred on account of fixed assets in the course of construction or acquisition.
· Revalued amounts substituted for historical costs of fixed assets, the method adopted to compute
the revalued amounts, the nature of any indices used, the year of any appraisal made, and
whether an external valuer was involved, in case where fixed assets are stated at revalued
amounts.
4.3 Fixed Assets Register
Fixed Asset Register (FAR) is an accounting method used for major resources of a business.
Fixed Assets are assets such as land, machines, office equipments, buildings, patents,
trademarks, copyrights, etc. held for the purpose of production of goods or rendering of services and are
not held for the purpose of sale in the ordinary course of business.
Fixed assets constitute a major chunk of the total assets in the case of all manufacturing entities.
Even in the case of service entities such as hotels, banks, financial institutions, insurers, mobile /
telephone service providers etc. it has become imperative to invest heavily in furnishing, equipment, and
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technology to attract, and retain customers.Just as it is important for a person investing on the NASDAQ
to know those investments, so it is important for a business entity to have a list of its fixed assets. A
Fixed Asset Register is that list of assets.
Objectives in maintaining a Fixed Asset Register (FAR):
A FAR must be kept in order to be in compliance with legislation governing corporations,

companies, etc. It allows a company to keep track of details of each fixed asset, ensuring control and
preventing misappropriation of assets. It also keeps track of the correct value of assets, which allows for
computation of depreciation and for tax and insurance purposes. The FAR generates accurate, complete,
and customized reports that suits the needs of management.
A FAR also allows a company to keep track of fixed assets that are not under simple, direct
control of the company. This means owned and leased assets, assets under construction, and imported
assets.The FAR can also be used to aid in capital budgeting and to keep track of amount provided for
Asset Retirement Obligation (ARO) in respect of each asset.
Making entries in the FAR:
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Not all assets are capitalized. Keeping in view the concept of materiality, a company may have a
policy to capitalize only those assets which cost more than a specified amount. The companies are
required to expense all equipment whose value is below a threshold limit. Similarly, fixed assets which
have a useful life of less than one year are not capitalized.
In some companies, improvements or alterations made to an asset are capitalized separately in the
FAR. This is not correct. If such mistakes are made, it is highly probable that the auditors while
undertaking physical verification of assets will notice irreconcilable differences. Where improvements
or alterations made to an existing asset justifying capitalization, such additions should be made to the
cost of the original asset.
The format of FAR Entries:

The format / details to be provided in a FAR generally depends upon the following factors:
a) Nature of assets.
· If moveable assets constitute a significant portion of total fixed assets, details will be necessary
on their movement from one department / cost center / people to another.
· Cost of assets: Greater control and security is required for costly equipment.
b) Customized Reports on fixed assets required by management.
c) Disclosure norms / regulatory compliances as per statutory laws applicable to the entity.
d) Extent of owned, and assets taken on lease / hire purchase.
e) Requirements of insurance company.
f) Location of fixed assets:
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If fixed assets are located at numerous locations, greater details will have to be given. In the
case of a iron and steel company, the assets are located at different area in the plant. These operational
plants maybe in different cities / countries / continents.
g) Maintenance costs.:
Some fixed assets require regular servicing to keep them running in an efficient and
satisfactory manner. It would be necessary to keep a tab on the maintenance costs, dates of servicing etc.
during a stated period.
Maintenance of a FAR in a Multi-National Corporation (MNC) can be onerous and complex

due to different regulatory and compliance requirements in each country and different currencies.
Generally, an MNC sets up a subsidiary in the country in which it intends to start operations.
Maintenance of FAR is decentralized. The FAR is maintained per the company’s policy, and regulatory
requirements which are country specific. If consolidation of holding company and its subsidiaries
(whether domestic or foreign) is required by the law applicable to companies, and relevant Accounting
Standards, the task may become a bit complex. The crucial point is related to selection of exchange rate
for conversion of fixed assets. Most companies either use average annual rate or year-end exchange rate.
Similarly, for companies having their shares listed on National Stock Exchanges, the fixed
assets are required to be stated in accordance with the requirements of INDIAN generally accepted
accounting principles (INDIAN GAAP).
Identification of a fixed asset:

In a large corporation, the task of identifying and locating a specific fixed asset can be
difficult unless numbering is scientific, systematic, and up-to-date. A common problem in most
companies is the improper maintenance of the FAR. Physical verification of fixed assets becomes a
futile exercise unless the FAR is properly maintained.
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It would be advisable to use a scientific numbering technique to identify fixed assets. The
process of numbering fixed assets is called tagging. An identification number (combination of alphabets,
and numbers) is written on the asset. Engraving the identification number on the asset is advisable in the
case of Plant & Machinery where there is heavy wear and tear.
A tag verifies the existence of assets and their location, aids in maintenance, provides a
common ground for communication between the Accounts Department and the end-users and recording
the net book value of asset in case of sale / scrapping.It is not necessary to tag all fixed assets. Land,
buildings and vehicles all have independent systems of tracking in registration papers and survey
numbers
4.4 DEPRECIATION (DEFINITION AND ITS METHODS):
Except land, all fixed assets have a limited life. During such period, due to continuous use
and/or lapse of time, the value of some assets starts decreasing. Such a gradual decrement of value of
assets is called Depreciation. Hence, depreciation can be defined as a decline in the value of an asset due
to constant use.
Since these assets have limited life, sooner or later they have to be replaced. At the time of
replacement, the business incurs heavy cash outflow, which can create liquidity
problem in that year. In order to avoid such problem, a fixed amount out of profit is set aside as
depreciation account. By the time the fixed asset expires, sufficient amount of fund will be accumulated
in depreciation account, which, then can be used to buy new asset. Hence, the process of setting aside a
fixed amount as expense in depreciation account is called Depreciation.
I. Characteristics of Depreciation
The following are some of the features of depreciation:

· Depreciation may be physical and functional.
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· Depreciation is a gradual/permanent and continuous decrease in the utility value of a fixed asset
and it continues till the end of useful life of an asset.
· Depreciation arises due to the use of assets in productive activities.
· The primary object of depreciation is to allocate expired cost of fixed assets against a number of
accounting periods.
· Depreciation is charged in respect of fixed assets only i.e., building, machinery, equipment and
furniture etc.
· Depreciation is a charge against profit.
· Total depreciation of an asset cannot exceed its depreciable value (cost less scrap value).
II. Causes of Depreciation
Depreciation is a measure of reduction in the use-value of an asset. It can be physical deterioration or

decrease in the market value. The primary causes of depreciation are as follows:
· Wear and Tear: Due to constant use, assets get worn or torn out.
· Exhaustion: Exhaustion is the depletion of some assets due to continuous use and lapse of time.
In case of mines and oil wells, the continuous extraction of minerals or oil, a stage comes when
the mine or well gets completely exhausted an nothing is left.
· Obsolescence: Some assets are discarded before they are completely worn out because of
changed conditions. This is the case when an asset becomes usefulness
because of technological advancement, new invention, change in style etc. in that asset.
· Efflux of time: Certain assets get decreased in their value with the passage of time. This is true
in case of assets like leasehold properties, patents and copyrights etc.
· Accidents: Accidents can cause depreciation in the value of the asset.
III. Objectives of making provision for depreciation
Depreciation accounting is a must for every business for attaining the following objectives:
· To ascertain net profit: Depreciation is the expense for the business. Hence to ascertain the net
profit, it must be included in the total cost of sales.
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· To depict the true financial position of the business: The balance sheet depicts true financial
position of a business at a point of time. To depict the true financial position of the business the
assets should be shown in balance sheet not in its original cost but at the depreciated cost. That is
all fixed assets should be shown at cost less the amount of depreciation suffered by them till the
date of the balance sheet.
· To ascertain cost of production: Depreciation is an expense. Hence it is necessary to charge

depreciation in the total cost of production to fix true sales price of the goods and service.
· Replacement of assets: One of the primary objectives of depreciation is the provision for the
replacement cost on the retirement of original assets.
· To ascertain income tax: If depreciation is not charged, the operation will show more profit. As
a result, the taxable income will be higher. Hence, depreciation is charged for the correct
ascertainment of total taxable income.
· To follow the company act: According to company act, it is compulsory to charge depreciation
on fixed assets.The depreciation rates as per companies act 1956 is as follows:
NATURE OF THE ASSET SINGLE DOUBLE TRIPLE

SHIFT SHIFT SHIFT
WDV SLM WDV SLM WDV SLM
BUILDINGS: ,
a.) Other Than Factory Buildings 5% 1.63% 5% 1.63% 5% 1.63%
b.) Factory Buildings 10% 3.34% 10% 3.34% 10% 3.34%
c.) Purely Temporary erection 100% 100% 100% 100% 100% 100%
PLANT AND MACHINERY:

a.) Plant and machinery (not being a 13.91% 4.75% 20.87% 7.42% 27.82% 10.34%
ship) Other than continuous process
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plant.
Cycles [NESD]. 20% 7.07% 20% 7.07% 20% 7.07%
Motor-cars, motor-cycles, scooters And 25.89% 9.50% 25.89% 9.50% 25.89% 9.50%
other mopeds [NESD].
Electrically operated vehicles 20% 7.07% 20% 7.07% 20% 7.07%
Including battery powered or
Fuel cell powered vehicles [NESD].
b. Continuous process plant. 15.33% 5.28% 15.33% 5.28% 15.33% 5.28%
Concrete pipes manufacture—
Moulds [NESD] 30% 11.31% 30% 11.31% 30% 11.31%
Drum containers manufacture—Moulds
[NESD] 30% 11.31% 30% 11.31% 30% 11.31%
Earth-moving machinery employed in
heavy construction works, such as dams, 30% 11.31% 30% 11.31% 30% 11.31%
tunnels, canals, etc. [NESD]
Moulds in iron foundries [NESD] 30% 11.31% 30% 11.31% 30% 11.31%
Motor buses and motor lorries other

than those Used in a business of running
them On hire [NESD] 30% 11.31% 30% 11.31% 30% 11.31%
Motor tractors, harvesting combines

Patterns, dies and templates [NESD] 30% 11.31% 30% 11.31% 30% 11.31%
Ropeway structures—Ropeways, ropes
andTrestle sheaves and connected parts 30% 11.31% 30% 11.31% 30% 11.31%
[NESD]
Motor buses, motor lorries and motor
taxis used in a business of running them
on hire [NESD] 40% 16.21% 40% 16.21% 40% 16.21%
Data processing machines including
Computers [NESD] 40% 16.21% 40% 16.21% 40% 16.21%
Gas cylinders including valves
andRegulators [NESD] 40% 16.21% 40% 16.21% 40% 16.21%
Iron and Steel industries—Rolling mill 100% 100% 100% 100% 100% 100%
rolls
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FURNITURE AND FIXTURES

a.) General Rates [NESD] 18.31% 6.33% 18.31% 6.33% 18.31% 6.33%
b.) Rate for furniture and fittings used in
hotels, Restaurants and boarding houses;
schools, Colleges and other educational
institutions, Libraries; welfare centers;
meeting halls, Cinema houses; theatres
and circuses; and for furniture and
fittings let out on hire for Use on the
occasion of marriages and similar
25.88% 25.88% 25.88% 25.88% 25.88% 25.88%
Functions {NESD}
VESSELS
a.) Ocean-going ships—
Dredgers, tugs, barges, survey launches 19.80% 7% 19.80% 7% 19.80% 7%
And other similar ships used mainly for
Dredging purposes [NESD]
Other ships [NESD] 14.60% 5% 14.60% 5% 14.60% 5%
b.) Vessels ordinarily operating on
inland waters—
Speed boats [NESD] 20% 7.07% 20% 7.07% 20% 7.07%
Other vessels [NESD] 10% 3.34% 10% 3.34% 10% 3.34%
NOTES to above table:

Ø “Buildings” include roads, bridges, culverts, wells and tube-wells.
Ø “Factory buildings” does not include offices, godowns, officers’ and employees’ quarters, roads,
bridges, culverts, wells and tube-wells.
Ø Where, during any financial year, any addition has been made to any asset, or where any asset
has been sold, discarded, demolished or destroyed, the depreciation on such assets shall be
calculated on a pro rata basis from the date of such addition or, as the
case may be, up to the date on which such asset has been sold, discarded, demolished or
destroyed.
Page | 41
Ø In the case of a seasonal factory or concern, the number of days on which the factory or concern
actually worked during the year or 180 days, whichever is greater;
Ø In any other case, the number of days on which the factory or concern actually worked during the
year or 240 days, whichever is greater.
Ø The extra shift depreciation shall not be charged in respect of any item of machinery or plant
which has been specifically, excepted by inscription of the letters “NESD” (meaning “no extra
shift depreciation”) against it in sub-items above .
Ø ‘Continuous process plant’ means a plant, which is required and designed to operate 24 hours a
day.
IV. Methods of Depreciation

There are a number of different methods of providing depreciation for the assets. The method of
depreciation depends on a number of factors such as type of asset, life, policy organization etc.
1.) Straight Line Method
This method is also known as Fixed Installment Method, Equal Installment Method, Original
Cost Method, Simple or Historical Cost Method. Under this method, a fixed proportion of original cost
of the asset is written-off annually so that by the time asset is worn out; its value in the books is reduced
to zero or residual value.The amount of depreciation to be charged each year can be found out as
follows:
Original Cost of fixed asset - estimated scrap value

Annual Depreciati on =
Life of asset
2.) Diminishing balance method:
This method is also known as Written down Value method, Reducing Balance method.
Under this method, a fixed percentage of depreciation is charged on the reducing balance of asset (cost -
Page | 42
depreciation) till the amount is reduced to scrap value. Since a constant percentage rate is being applied
to the written down value, the amount of depreciation charged every year decreases over the life of the
asset. This method assumes that an asset should be depreciated more in earlier years of use than later
years because the
maximum loss of an asset occurs in the early years of use. The fixed percentage rate, to be applied to the
allocation of net cost as depreciation, can be obtained by following formula –
Where, n = Estimated useful life of the asset
CHAPTER – 5. FIXED ASSET DISPOSAL AT IIL.
Page | 43
With investments of over 13557 crores, Ispat Industries Limited is the seventh largest Indian
private sector company in terms of fixed assets. It aims to consolidate its market leadership in the
national specialty steel market by capitalizing on the proximity of its manufacturing facilities to major
consumers of flat steel products in Maharashtra, while increasing its presence in international markets
by using its convenient port location.The detailed information of Fixed Assets of ISPAT INDUSTRIES
LIMITED as on 31st March 2010 is as follows:
Schedule V for the Balance sheet for the year ended 31st mar, 2010
Fixed Assets Of IIL (Rs. In Crores)
Particulars Gross Block Depreciation Net Block
st
As on 31 Additi Sales As on Up to For On Upto As at As at
Mar on 31st 31st The Sales/ 31st 31st 31st
2009 Mar Mar.09 Year Additi Mar Mar.10 Mar
on 2009
2010 2010
Land :
Leasehold 7.7 - - 7.7 0.43 0.09 - 0.52 7.18 7.27
Freehold 125.25 1.71 - 126.96 - - - - 126.96 125.25

(A)
Total Land 132.5 1.71 - 134.66 0.43 0.09 - 0.52 134.14 132.52
Buildings 531.5 6.68 538.18 111.78 15.55 - 127.33 410.85 419.73

(B)
Railway sidings
& Loco. 59.39 - 59.39 13.78 2.9 - 16.18 43.21 46.11
Plant &
Machinery 12097.55 122.41 318.75 11901.21 4228.17 652.47 4.73 4875.91 7025.3 7869.3
(D) 8
Vessels 19.08 - 5.25 13.83 3.25 1.62 2.35 2.52 11.31 15.83
Electrical
Page | 44
Installation 621.22 7.44 2.44 626.22 27.56 1.69 283.14 343.08 363.95
Vehicles 11.96 0.51 0.62 11.85 5.89 0.85 0.41 6.33 5.52 6.06
Computers 41.2 0.97 3.27 38.9 30.17 3.02 3.1 30.09 8.81 11.03
Furniture &
Fixtures 42.54 1.04 7.19 36.39 19.34 2.68 5.81 16.21 20.18 23.2
Total 13557.39 140.76 337.52 13360.63 4669.58 706.74 18.09 5358.23 8002.4 8887.8
(C) 1
Previous Year 13167.93 620.44 230.98 13557.39 3961.92 728.1 20.44 4669.58 8887.81
Notes to above table:-
(A) Includes Rs. 3.24 crores (Rs 5.05 crores) being the cost of 84.24 acres (111.65 acres) land,which is
yet to be registered in the Company's name.
(B) Includes Rs.0.12 crore (Rs.0.12 crore) being cost of shares in Cooperative Housing Society and
Rs.0.04 crores (Rs.0.04 crores) being the cost of certain properties,which are pending registration in the
Company's name.
(C) Land,Buildings, Railway Sidings, Plant & Machinery and Electrical Installations revalued by
approved valuers on 31.03.1991, 31.03.1997, 31.03.2002, have been again revalued on Replacement
Cost basis, based on the balances of respective fixed assets as on 31st March 2006 and the net increase
of Rs. 1018.38 crores was transferred to Revaluation Reserve.
(D) Includes foreign exchange differences on long term foreign currency monetary items relating to
depreciable fixed assets de-capitalised Rs.310.53 crores (net) (Rs. 519.14 crores (net) capitalized).
The above table give us the information about the various fixed assets status as on 31st March
2010 at ISPAT INDUSTRIES LIMITED.
The company has made some disposal in the fiscal year 2009-2010. The retirement made by the
company in the three different unit namely SIP, HSM and BF are as follows:
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Sponge Iron Plant ( Business Area 1101):

In the sponge Iron plant the Following Retirement were made
PLANT AND MACHINERY
Asset No. Description of the asset Acquisition Depreciation on
Amt. Asset
36002822 Dust Suppression system & IB 2,08,138.00 1,63,368.09
36002826 Dust Suppression system & IB 33,167.00 26,032.88
36000413 Dust Suppression system DSIA & 6,57,039.00 5,32,152.72
IB
TOTAL 13,17,446.00 10,50,507.98
ELECTRICAL INSTALLATION
Amount Asset
55001199 1000 KVA 3.3 K.V. Transformer 15,611.62 14,878.54
55001200 1000 KVA 3.3 K.V. Transformer 590.879.87 5,61,335.88
55001201 1000 KVA 3.3 K.V. Transformer 8,12,765.70 7,72,127.41
55001203 1000 KVA 3.3 K.V. Transformer 3,19,266.76 3,03,303.42
55001205 Cable 3.3 K.V & Termination 19,715.00 18,729.25
55000828 Battery charger & Batteries 1,49,682.12 1,09,018.47
55000830 Battery charger & Batteries 8,925.00 6500.39
55000973 3.3 KV H.T Switch board 20,947.50 15,228.37
55000974 3.3 KV H.T Switch board 33,14,109.00 24,09,279.62
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TOTAL 69,29,057.11 54,55,301.11

VEHICLES
Amount Asset
62000040 Spendour motorcycle OR-21-0630 41,879.00 29,356.52
TOTAL 41,879.00 29,356.52
The detail total retirement made from the SIP unit in the financial year 2009-2010 is having an
acquisition cost of 82,88,382.11 INR and the total accumulated depreciation on the same assets is
65,35,165.61 INR
HOT STRIP MILL PLANT (Business Area 1102 to 1104):

In the Hot Strip Mill Plant the total retired assets were having acquisition cost of 440,05,58,620.00
INR and having a depreciation of 386,83,08,105.00 INR
BLAST FURNACE PLANT (Business Area 1111 to 1121):

There was no retirement in the Fixed Assets in Blast Furnace Area.
Ispat Industries Limited uses two different methods for discarding the Fixed Assets Of the company.
· Disposal by scrapping.
· Disposal by sale through online auction.
Disposal by scrapping:
These method of disposal is used by IIL generally to scrap the used and obsolete Equipments. Ispat
Industries Limited sale the scrap of rubber, cooper and alluminium to other companies where it can be
used as a raw material. Whereas the iron and steel metal equipment scrap are again sent to the blast
furnace and remoulded to make steel. The different equipments which are used and currently unused or
obsolete in the three main area namely SIP, BF and HSM are sent to the central stores and are stored at
the scrap yard. Then the stores deparment look after the disposal of these scrap material.
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The detail of the spares which are scrapped in the fiscal year 2009-2010 is as follows:
Sr no Plant Material code Material Description
1 1102 SCRAP50000011 scrapped conveyor belt various sizes
2 1101 SCRAP50000012 scraped various electrical items(misc)
7 1102 SCRAP50000016 misc.rubber scrap
8 1111 SCRAP50000058 pig mould scrap
9 1102 SCRAP50000075 used & scraped grinding wheel(assorted)
10 1101 SCRAP50000081 used scrap reformer tubes
11 1102 SCRAP50000088 used & scrapped flexowell conveyor belt
12 1101 SCRAP50000099 scrap;used conveyor belt
13 1121 SCRAP50000106 discarded hammers (sinter )
14 1121 SCRAP50000108 scrap used bar,grate;327x122x30mm,f.sint
15 1102 SCRAP50000121 unusable conv.belt cutpcsscrap(below-3m)
16 1102 SCRAP50000127 scrap zebra acsr conductor
17 1102 SCRAP50000128 scrap discarded HSS roll
18 1102 SCRAP50000128 scrap discarded HSS roll
19 1102 SCRAP50000129 scrap discarded ICDP roll
20 1102 SCRAP50000130 scrap discarded high chrome roll
21 1102 SCRAP50000130 scrap discarded high chrome roll
22 1102 SCRAP50000131 scrap discarded back-up roll
23 1101 SCRAP50000077 used reformer catalyst
24 1102 SCRAP50000020 scrapped & broken graphite eletrode
*The rates of the above listed material cannot be quoted as it is the confidential data of the
company
Total Scarp in Stock = 31,283,423
Target of the month = 10,000,000
TOTAL SCRAP SALES 31st March 2010= 36,50,125.34
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Balance Scrap To Be Sold Worth = 6,349,875

Target Min Stock to be kept only= 2,500,000
The equipment which have become obsolete due to change in the technology are stated under
obsolete criteria. The material which are in obsolete criteria is as follows
The obsolete items are classified into moving items and non-moving items. Moving items are those
which are in current use whereas non moving items are those which are idle for mor than 6 months from
the day they have been acquired.
The total cost of the items which are obsolete under moving items as per every business area is as
follow:
Business Area Total cost
Sponge Iron Plant 8,17,391.00
Hot Strip Mill PLant 1,09,11,791.00
Blast Funace Plant 1,39,220.00
Total 1,18,68,402.00
The total cost of the material which is obsolete under non moving items as per every business area is as
follow:
Business Area Total cost
Sponge Iron Plant 10,81,912.00
Hot Strip Mill Plant 32,71,488.00
Blast Furnace Plant 0.00
Total 43,53,400.00
Disposal through sale by Online Auction:
The major Plant and Machinery is not scrapped but it is sold through the online auction.These
disposal method is used to dis[pose off those fixed assets which are obsolete or which are no longer used
in the company due to technical innovation or new equipments are purchased to replace older ones.
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The interested bidders are given an unique identification ID to quote their bid prices and the
maximum feasible prices for any particular Equipment is taken and the asset is sold.
CHAPTER – 6 SAVINGS THROUGH FIXED ASSETS

MANAGEMENT
Fixed assets management is an accounting process that seeks to track fixed assets for the purposes of
financial accounting, preventive maintenance, and theft deterrence.
Many organizations face a significant challenge to track the location, quantity, condition,
maintenance and depreciation status of their fixed assets. A popular approach to tracking fixed assets
utilizes serial numbered Asset Tags, often with bar codes for easy and accurate reading. Periodically, the
owner of the assets can take inventory with a mobile barcode reader and then produce a report.
Off-the-shelf software packages for fixed asset management are marketed to businesses small
and large. Some Enterprise Resource Planning systems are available with fixed assets modules.
Some tracking methods automate the process, such as by using fixed scanners to read bar
codes on railway freight cars or by attaching a radio-frequency identification (RFID) tag to an asset
Asset Lifecycle Management means asset decisions should be made with cost consideration over the
asset life from planning through the disposal.. So the entire practice of acquiring, using, and getting rid
of Fixed Assets is known as “Fixed Assets Life Cycle Management”.The flow chart of how to minimize
the cost by managing the Fixed Asset
properly is as follow:
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Assets may be abandoned, sold, or exchanged. In any case, it is first necessary to fully update all
depreciation calculations through the date of disposal. Then, and only then, the asset disposal would be
recorded. If the asset is simply being scrapped (abandoned), the journal entry entails only the
elimination of the cost of the asset from the books, removing the related accumulated depreciation, and
recording a loss to balance the journal entry. This loss reflects the net book value that was not
previously depreciated:
Accumulated Depreciation 75,000

Loss 25,000
Equipment 100,000
*Abandoned equipment costing $100,000. The equipment
was 75% depreciated on the date of disposal.
On the other hand, an asset may be disposed of by sale, in which case the journal entry would need to
be modified to include the proceeds of the sale. Assume the above asset was sold for $10,000.
Logically, the loss would be reduced by this amount, and the entry would be as follows:

Loss 15,000
Cash 10,000
Equipment 100,000
*Sold equipment costing $100,000 for $10,000. The
equipment was 75% depreciated on the date of sale.
While the journal entry may be sufficient to demonstrate the loss calculation, you might also consider
that an asset with a $25,000 net book value ($100,000 cost minus $75,000 accumulated depreciation) is
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being sold for $10,000 -- which gives rise to the loss of $15,000.Conversely, what if this asset were sold
for $30,000? Here is the entry for that scenario:

Cash 30,000
Gain 5,000
Equipment 100,000
*Sold equipment costing $100,000 for $30,000. The equipment was
75% depreciated on the date of sale.
The specific activities and goals involved in life cycle management differs among different kinds of
FIXED Assets, but generally FIXED ASSETS life cycle management makes use of best practice
methods for planning, accounting, deployment, usage, and maintenance, in order to reach these
objectives for the organization's collection of FIXED Assets:
· Ensure FIXED ASSETS availability where and when needed.

· Minimize the risk of FIXED ASSETS failure or breakdown before the end of FIXED ASSETS
economic life.
· Maximize the return (gains) from the FIXED ASSETS.
· Ensure that FIXED Assets are used productively throughout the FIXED Asset’s economic life,
and they are not wasted or idle. This may involve working with other management to improve or
re-design processes that impact FIXED ASSETS utilization and FIXED ASSETS productivity.
· Sell or otherwise divest the FIXED Assets that are idle or unproductive.
· Set priorities for FIXED Asset’s acquisition and replacement and plan future expansion or
reduction of the FIXED Asset base.
· Reaching these objectives requires good knowledge of:
· Expected gains or returns from the FIXED ASSETS.
· FIXED Asset’s lifecycle, total cost of ownership, including maintenance costs and operating
costs.
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· Advancements and the current state of technology for the FIXED ASSETS class. This is
obviously true for computing FIXED Assets, of course, but is also important for
· Any major FIXED Asset class based on constantly improving technologies, such as medical or
laboratory equipment.
· FIXED Assets subject to changing requirements for fuel efficiency or emissions.
· FIXED ASSETS reliability and or/risks to FIXED ASSETS availability
· Available choices in FIXED ASSETS leasing vs. buying, and the implications of each approach
in terms of upgrade/replacement flexibility, responsibility for maintenance, position either on or
off the balance sheet, and potential tax liabilities and tax savings.
· The FIXED Asset’s depreciable life and its economic life.
6.1.) HOW FINANCIAL SAVINGS CAN BE DONE THROUGH DISPOSAL OR

REPLACEMENT OF FIXED ASSETS:
The Fixed Asset disposal and replacement should be based on facts and figures. The judgment,
which the Owner- Financial Manager of a company makes, should be the result of weighing the costs of
keeping the old equipment against the cost of its replacement.
Sooner or later, you must decide whether you should keep an existing unit of equipment or
dispose it off or replace it with a new unit. As time goes by, equipment deteriorates and becomes
obsolete. Frequent breakdowns occur, defective output increases, unit labor costs rise, and production
schedules cannot be met. At some point, these occurrences become serious enough to cause you to
wonder whether or not you should replace or dispose the equipment.
To recognize the better alternative you need to know the total cost of each alternative - keeping
the old equipment or buying a replacement. Once these costs are determined, you can compare them and
identify the more economical equipment. The paragraphs that follow discuss the individual costs, which
you must consider when computing the total cost of the old and new equipment.
i.) Depreciation
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One of the costs connected with any type of equipment is depreciation. For cost comparison
purposes, depreciation is simply the amount by which an asset decreases in value
over some period of time. For example, if you bought a piece of equipment for $20,000 and sold it for
$6,000 after seven years of service, you would say that the depreciation during the
seven-year period was $20,000 minus $6,000, or $14,000. This $14,000 was one of your costs of owning
the equipment for that period. From this, it follows that when considering equipment replacement, you
must calculate the future depreciation expense that you will experience with both the old and the new
equipment.
In so far as the new equipment is concerned, this calls for knowing certain things about the
equipment. You need to know (1) its first cost, (2) its estimated service life, and (3) its expected salvage
value. The difference between the first cost and the salvage value will represent the amount by which the
equipment will depreciate during its life - that is, during the time you expect to use it.
You determine the depreciation expense for the old equipment in the same general way but for
one import difference. So to determine the actual future depreciation expense that will be experienced
with the old equipment, you must know (1) its present market value, (2) its estimated remaining service
life, and (3) its expected salvage value at the end of that life. The difference between the present market
value and the future salvage value represents the amount by which the equipment will depreciate during
its remaining life in your business.
ii.) Interest
In addition to depreciation, every piece of equipment generates an interest expense. This

expense occurs because owning an asset ties up some of your capital. If you had to borrow this capital
you would have to pay for the use of the money. This "out-of-pocket" cost is one of the costs of owning
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the equipment. In this case, the amount involved is no longer available for other investments, which
could bring you a return. This "opportunity cost" is one of the costs of owning the equipment.
To cite an example, suppose that the market value of an asset during a given year is $10,000.
Suppose also that at the same time, you are getting capital at a cost of 15 percent per year. On the other
hand, suppose that if you converted the asset into cash, you could invest
the money and realize a rate of return of 15 percent per year. In either case, a decision to own that asset
during that year would be costing you 15 percent of $10,000, or $1,500 in interest.
iii.) Operating Costs
There is a third type of cost - the cost of operation - that is experienced with a piece of
equipment. Typical operating cost are expenditures for labor, materials, supervision, maintenance, and
power.
This cost must be considered because your choice of equipment affects them. You may find it
convenient to estimate these costs on an annual basis. You can get figures for each unit of equipment by
estimating its next-year operating costs as well as the annual rate at which these costs are likely to
increase as wage rates rise and the equipment deteriorates.
For example, you might say that operating cost for the new equipment are likely to be
$16,000 during the first year of its life. You might also estimate that after the first year, the operating
costs will increase at a rate of $500 a year.
iv.) Revenues
When this is true, revenues can be ignored for the same reason that you can ignore equal
operating costs.
But if revenues are affected by the choice of equipment, they must be considered. For example,
you might estimate that the higher quality of output from the new equipment will increase annual sales
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by $1,200. You can handle this difference in revenues in either of two ways. One way is to show the
$1,200 as an additional annual cost that will be experienced with the old equipment.
The other way is to treat the $1,200 as a negative annual cost and associate it with the new
equipment. The total cost, which you calculate, will be affected by your choice of method, but the
difference between this costs will remain the same.
An Annual Average Cost
In brief, you can make the necessary cost analysis equipment only after you have the proper data
for each The data include market value, remaining service life, future salvage value, and operating costs.
In addition, for both alternatives, the cost of money must be stated in the form of an interest rate. By
using these data, you can determine the elements of the total costs. These elements consist of
depreciation expense, interest expense, operating costs, and possibly lost revenues. Now, it so happens
that these costs can be expressed in a variety of ways.
However, the simplest way for cost comparison purposes is to describe these cost elements in
terms of an average annual cost. Doing so permits you to calculate and compare the total average annual
costs of the old and new equipment and reach a decision.
How these costs can be computed is shown in the example that follows.
Look first at some facts about an old piece of equipment. It has a market value of $7,000. If
retained, its service life is expected to be four years, and its salvage value is expected to be $1,000.
Next-year operating costs are estimated to be $8,000 but will probably increase at an annual rate of
$200. The cost of money is 12 percent per year. With this set of figures, you can obtain the total average
annual cost of the alternative of keeping this equipment.
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Annual Depreciation Expense: You begin by calculating the equipment’s average annual depreciation
expense. You do this by determining the total depreciation and dividing that amount by the asset's four-
year life. Your answer is $1,500, which you get as follows:
$7,000 - $1,000
Annual depreciation = ________________ = $1,500
4
Annual Interest Expense: Next, you calculate the average annual interest expense. The maximum
investment in the equipment is $7,000, its present market value. But as time goes by, the investment in
the asset decreases because its market value decreases. The minimum
investment is reached at the end of the equipment's life when it has a salvage value of $1,000. The
average investment will be the average of these maximum and minimum values. You calculate it as
follows:
$7,000 + $1,000
Average investment = _________________ = $4,000
2
To determine the average annual interest expense, you multiply the average investment ($4,000, in this
example) by the annual interest rate of 12 percent. Doing so yields:
Annual Interest = $4,000 x 0.12 = $480
Annual Operating Costs: You can determine the average annual operating costs by computing the
average of the individual annual operating costs. In this example, they are estimated to be $8,000,
$8,200, $8,400, and $8,600. The average for these figures is $8,300, which you obtain as follows:
$8,000 + $8,200 + $8,400 + $8,600

Annual operating costs =_________________________________ = $8,300
4
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Total Average Annual Cost: For the old equipment, the total average annual cost is simply the sum of
the calculated average annual cost for: (1) depreciation, (2) interest, and (3) operating expenses. This
sum is $10,280, as shown below.
Item average annual cost = Depreciation $1,500 + Interest 480 + Operating Costs 8,300 = Total $10,280
These are some of the costs that are attached to the fixed assets such as Plant and Machinery and if a
particular Asset is kept Idle then it may add on these costs without contributing to the production. So the
fixed asset, which are idle or not used in operational process must be disposed which, can result in
financial savings.
6.2) IMPAIRMENT OF THE FIXED ASSETS (AS 28 by ICAI)
Fixed Assets to be held and used:
Businesses recognize impairment when the financial statement-carrying amount of a long-lived

asset or asset group exceeds its fair value and is not recoverable. A carrying amount is not recoverable if
it is greater than the sum of the undiscounted cash flows expected from the asset’s use and eventual
disposal. FASB defines impairment loss as the amount by which the carrying value exceeds an asset’s
fair value.
Financial Managers need not check every asset an entity owns in each reporting period. When
circumstances change indicating a carrying amount may not be recoverable, Financial Manager’s should
test the asset for impairment. A test may be called for when one or more of these events occur:
· A significant decrease in the market price of a long-lived asset.
· A significant change in how a company uses a long-lived asset or in its physical condition.
· A significant change in legal factors or in the business climate that could affect an asset’s value,
including an adverse action or assessment by a regulator (such as if the EPA rules that a
company is polluting a stream and must change its manufacturing process, thereby decreasing
the value of its plant or equipment).
· An accumulation of cost significantly greater than the amount originally expected to acquire or
construct a long-lived asset.
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· A current-period operating or cash flow loss combined with a history of such losses or a forecast
demonstrating continued losses associated with use of a long-lived asset.
· An expectation the entity will sell or otherwise dispose of a long-lived asset significantly before
the end of its previously estimated useful life.
Testing Fixed Assets for recoverability:
Financial Manager should test an asset for recoverability by comparing its estimated future
undiscounted cash flows with its carrying value. The asset is considered recoverable
when future cash flows exceed the carrying amount. No impairment is recognized. The asset is not
recoverable when future cash flows are less than the carrying amount. In such cases the company
recognizes an impairment loss for the amount the carrying value exceeds fair value.
The estimated cash flows a Financial Manager uses to test for recoverability must include only
future flows (cash inflows less cash outflows) directly associated with use and eventual disposal of a
given asset. The company should exclude interest charges it will expense as incurred. Cash flow
estimates are based on the entity’s assumptions about employing the long-lived asset for its remaining
useful life. When an asset group consists of long-lived assets with different remaining useful lives,
determining the group’s life is critical to estimating cash flows. Remaining useful life is based on the life
of the primary asset—the most significant asset from which the group derives its cash flow generating
capacity. The primary asset must be the principal long-lived tangible asset being depreciated (or
intangible asset being amortized).
Financial Managers should consider these factors when determining which is the primary asset:
· Whether the entity would have acquired other assets in a group without this asset.
· The investment required to replace the asset.
· The asset’s remaining useful life relative to other assets in the group.
If the primary asset does not have the longest remaining life of the group, the cash flows from
operating the group still are based on that asset’s estimated life—on the assumption the company will
dispose of the entire group at the end of the primary asset’s life. Future cash flows must be based on the
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asset group’s current service potential (four years for the three assets above) at the date of the
impairment test. Future cash flows should include expenditures to maintain the current service potential,
including replacing component parts of the long-lived asset and assets other than the primary one.
Financial Manager should exclude cash flows that increase service potential but include maintenance
costs.
Estimating Fair Value of an Fixed Asset:
Fair value is an asset’s purchase or sale price in a current transaction between willing parties.
The best evidence of fair value is prices quoted in active markets, such as the price for a stock listed on a
stock market. Financial manager must use this amount to value assets if it is available. Because market
prices are not available for many long-lived assets such as equipment, fair value estimates must be based
on the best information available, including prices for similar assets. While inanacial manager can use
other valuation techniques, present value is often the best for estimating fair value.
Disclosing Impairment Losses:
When a company recognizes an impairment loss for an asset group, it must allocate the loss to
the long-lived assets in the group on a pro rata basis using their relative carrying amounts. There is an
exception when the loss allocated to an individual asset reduces its carrying amount below fair value. If
Financial Manager can determine fair value without undue cost and effort, the asset should be carried at
this amount. This requires an additional allocation of the impairment loss (explained below). The
adjusted carrying value after the allocation becomes the new cost basis for depreciation (amortization)
over the asset’s remaining useful life.
A business must include an impairment loss in the income from continuing operations before
income taxes line on its income statement. (A not-for-profit organization (NPO) would include the loss
in income from continuing operations in the statement of activities.) When a subtotal such as income
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from operations is present, Financial Manger should include the impairment loss in determining that
amount.
Other required information companies must disclose in the notes to the financial statements includes
· A description of the impaired long-lived asset and the facts and circumstances leading to its
impairment.
· If not separately presented on the face of the statement, the amount of the impairment loss and
the caption in the income statement or the statement of activities that includes the loss.
· The method or methods used to determine fair value.
Fixed Assets Disposed of Other than by Sale:
A company must continue to classify long-lived assets it plans to dispose of by some method
other than by sale as held and used until it actually gets rid of them. Other disposal methods include
abandonment, exchange for a similar productive asset or distribution to owners in a spin-off.
A company should report long-lived assets to be abandoned or distributed to owners that

consist of a group of assets (and liabilities) that are a “component of an entity” in the income statement
as discontinued operations. If the assets are not a component, Financial Manager should report their
disposal as part of the company’s income from continuing operations.
Statement no. 144 defines a component of an entity as operations and cash flows that can be
clearly distinguished both operationally and for financial reporting purposes from the rest of the entity.
A component may be a
· Reportable segment or an operating unit,.
· A reporting unit
· A subsidiary or an asset group as “assets to be disposed of together as a group in a single
transaction and liabilities directly associated with those assets that will be transferred in the
transaction.”
A long-lived asset a company will abandon is considered disposed of when the company
stops using it. A temporarily idle asset is not accounted for as abandoned. If an entity plans to abandon a
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long-lived asset before its estimated useful life, it will treat the asset as held and used, test it for
impairment and revise depreciation estimates in accordance with Opinion no. 20. Continued use of such
a long-lived asset demonstrates service potential (the unit is useable), and hence, fair value would be
zero only in unusual circumstances. During use before abandonment, the company should depreciate the
asset so that at disposal or
abandonment, its carrying value equals its salvage value. This amount should not be less than zero. A
long-lived asset to be distributed to owners or exchanged for a similar productive asset is considered
disposed of when it is distributed or exchanged. When the asset is classified as held and used, any test
for recoverability must be based on using the asset for its
remaining useful life, assuming disposal will not occur. If the carrying amount exceeds fair value at
disposal, the company must recognize an impairment loss.
Fixed Assets to be sold:
A company must classify a long-lived asset it will sell as held for sale in the period it meets all of these
criteria:
· Management with the authority to approve the action commits to a plan to sell.
· The asset is available for immediate sale in its present condition, subject only to terms that are
usual and customary when selling such assets.
· The company has initiated an active program to locate a buyer.
· The sale is probable and the asset transfer is expected to qualify as a completed sale within one
year (there are some circumstances beyond the entity’s control that may extend the time for
completion beyond one year).
· The company is actively marketing the asset at a reasonable price in relation to its current fair
value.
If the company meets the above criteria after the balance-sheet date but before it issues its
financial statements, it must continue to classify the asset as held and used. In the notes to the financial
statements, the company must disclose the facts and circumstances leading to the expected disposal, the
likely manner and timing of the disposal and—if not separately shown on the face of the statement—the
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carrying amount(s) of the major classes of assets and liabilities included in the disposal group. If the
company tests the asset for recoverability at the balance-sheet date, it should do so on a held-and-used
basis. Future cash flow estimates used to test for recoverability must take into account the possible
outcomes that existed at the balance-sheet date, including a future sale. Financial manager should not
revise this assessment for a sale decision made after the balance-sheet date and should collect
documentation and supporting evidence on a timely basis for events near such a date. An
impairment loss is calculated and reported in the same way it is for assets held and used because this is
the asset’s status at the balance-sheet date.
Companies must adjust the carrying amounts of assets (including goodwill) that are part of a
disposal group classified as held for sale not covered by Statement no. 144 in
accordance with other applicable GAAP before measuring the group’s fair value. A long-lived asset held
for sale must be measured at the lower of its carrying amount or fair value less cost to sell—the
incremental direct costs the company would not have incurred if not for the decision to sell. Examples of
such costs include broker commissions, legal and title transfer fees and closing costs necessary to
transfer title. Exclude expected future losses from operations. Assets classified as held for sale are not
depreciated or amortized.
Reporting Discontinued Operations:
An entity must report the results of operating a component it has either disposed of or
classified as held for sale in discontinued operations if it meets both of these conditions:
The component’s operations and cash flows have been or will be eliminated from the ongoing
operations as a result of the disposal.
The entity will not have any significant continuing involvement in the component’s
operations after the disposal.
Presentation and Disclosure
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A company must present a long-lived asset held for sale separately in its financial
statements. Major classes of assets and liabilities held for sale must not be offset and presented as one
amount, they must be separately disclosed either on the face of the statement itself or in the notes.
Statement no. 144 requires a company to disclose information in the notes for a period in which it either
sells a long-lived asset or classifies it as held for sale. Companies must disclose
· The facts and circumstances leading to the expected disposal, the likely manner and timing and,
if not separately presented, the carrying amount(s) of major classes of assets and liabilities
included in the disposal group.
· The loss recognized for any initial or subsequent write-down to fair value less cost to sell or a
gain not more than the cumulative loss previously recognized for a write-down to fair value less
cost to sell.
· The gain or loss on sale of the long-lived asset. Financial manager should do this if these gains
and losses are not separately presented on the face of the income statement, the caption in the
income statement or statement of activities.
· If applicable, the revenue and pretax profit or loss reported in discontinued operations.
· If applicable, the segment in which the long-lived asset is reported under Statement no. 131.
· If an entity decides not to sell a long-lived asset previously classified as held for sale, or removes
an asset or liability from a disposal group, it must describe in the notes the facts and
circumstances leading to the change in plan and its effect on operations for that period and any
prior period presented.
6.3.) FIXED ASSET DISPOSAL PROCEDURE:

The fixed assets that are not being used or that are obsolete or that are beyond repairs are to
be disposed off through submission of Form ADR to physical plant. The actual disposal or transfer of
fixed assets between departments should not occur without the ADR form. Assets cannot be removed or
disposed from the department without properly executed ADR signed by the Department Head.
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I.) The Following steps are required during Asset Disposal/Scrapping process in Fixed Asset
accounting module
Step1: Prepare asset disposal request form

Requesting Dept. and authorized personnel review and approve Requesting department
prepares asset disposal request documents for review and approval of authorized personnel.
Step2: Receive & review approved asset disposal documents

Asset maintenance department receives and reviews asset disposal request approved by
authorized personnel.
Step3: Contacts 3rd party buyer
Asset maintenance department contacts interested buyer.
Step4: Prepare Tax Invoice

Finance Personnel Asset maintenance department requests preparation of tax invoice from
Finance personnel. This applies only to sale to third party.
Step5: Submit disposal documents to Finance

Asset maintenance department submits to Finance A/A personnel all approved disposal
documents.
Step6: Verify disposal documents against tax invoice

Asset personnel verify supporting documents to ensure that there is no discrepancy between
invoice and disposal documents. This applies only to sale of assets.
Step7: Perform asset retirement

Asset personnel perform asset retirement in Asset Accounting module.
II.) Reasons for Disposal

Items can be available for disposal because they are:
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· Required to be disposed of under a particular policy eg. Motor vehicles

· No longer required due to changed procedures, functions or usage patterns;
· Occupying storage space and not being needed in the foreseeable future;
· Reaching their optimum selling time to maximize returns;
· No longer complying with occupational health and safety standards;
· Found to contain hazardous materials (Disposal of such items should only be carried out after
prior discussion with the Manager, OH&S); and/or
· Beyond repair but able to be sold for scrap. Responsibilities of Head of Unit
III.) A Sample of Asset Disposal Request Form is as under
ASSET DISPOSAL / TRANSFER REQUEST FORM

1. DEPARTMENT NAME: 2. DATE 3.BAR CODE
SIGNATURE
4.SERIAL NO. 5. BRAND MAKE 6. MODEL 7. PURCHASE DATE 8. COST
9. DESCRIPTION OF THE ASSET 10. REASONS FOR DISPOSAL

o NOT WORKING BEYOND REPAIR
o OBSOLETE
o TRADE IN
o NO LONGER NEEDED
o OTHER REASON PLEASE EXPLAIN IN
DETAIL-------
…………..………………………………………
………
PURCHASE ORDER NO. COMMENT
TRANFER EMPLOYEE ACCEPTING RESPONSIBILITY OF ABOVE ITEM

TRANSFERRED TO DATE:
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SIGNATURE OF THE EMPLOYEE RECEIVING ASSET
TRANSFER APPROVED BY DEPARTMENT HEAD COMMENTS:
DISPOSAL – BY MY SIGNATURE I REPRESENT UNDER OATH THAT THE ABOVE

FACTS ARE TRUE AND CORRECT TO THE BEST OF MY KNOWLEDGE.
REASON FOR DISPOSAL DATE:
APPROVED BY: COMMENTS
CENTRAL OFFICE USE ONLY:

PICKED UP BY DATE:
DATE APPROVED FOR DISPOSAL BOARD OF RECORDED DELETION/ TRANSFER FIXED

TRUSTEES ASSETS INVENTORY RECORDS BY:
IV.) Options For Disposal Of Assets

1. Assets identified for disposal may be dispensed with using the procedures below. Acceptable
methods of disposal are:
· Sale by public tender.

· Private Sale.
· Donated to a community service organization.
· Private sale by an agent acting for the Company.
· Transfer of the asset to another unit of the Company.
· Trade-in.
· Junked or destroyed or cannibalized.
2. Choice of the most appropriate disposal option will normally be influenced by the nature of the
goods for disposal and by their location and market value.
3. In all cases, assets disposed of must be reported on an 'Asset Disposal' form to ensure they are
removed from the central asset register.
Page | 67
A more detailed description of each disposal option is set out below:
o Sale by Public Tender

Public tender must dispose of items with an initial cost of $10,000 or more unless the item
is more than 10 years old. Tender where the items are known to have a market value but the amount
is unclear may dispose of other items.
Tendering is the most expensive disposal procedure and should only be undertaken where
there is a clear net return to the Company] from such a process.
o Private Sale
Private sale involves assigning a price to the item(s) and publicizing the items availability
for sale and the price is a suitable manner. This may range from a newspaper advertisement to a
general email notice.
To ensure a fair price is paid in the case of a private sale, an independent person (outside the Unit
concerned and with appropriate expertise E.g. Information Technology Services
(ITS) in the case of computers) should be involved and confirm that the sale price is appropriate.
Prospective buyers should be given adequate opportunity to inspect the goods prior to
sale. Collection or forwarding of the goods is normally contingent on the presentation to the
Company] of evidence of payment of the sale price. The item may on receipt of an offer, be sold to
the first person to make such an offer. The provision relating to the sale of items to staff as outlined
in section 1, paragraph 8 above must be observed.
o Donations
Where the Company has determined that goods have no residual value, and where their
disposal is therefore unlikely to produce offsetting revenue, it may authorize the donation of the
goods to another organization.
Page | 68
Ideally, such donations should be to organizations and not to individuals. Organizations

with a community service role are recommended. This includes schools, charities and volunteer
organizations.
A delegated approving officer must approve donations and there must be confirmation
by Financial Services that the goods have no residual value and no significant market value.
o Using disposal agents

A unit may in some circumstances engage an agent to undertake the disposal by sale of
goods. Where an agent is to undertake sales on behalf of the Company, it is important to advise the
agent, in writing, of the Company's instructions relating to the sale. Information might include
timeframe for sale, target revenue, condition and location of assets, reserve price, and end-user
restrictions.
This advice is the formal agreement or contract with the agent and constitutes the
authority for the agent to undertake the sale in accordance with the Company's requirements. An
authorized officer should sign the advice.
o Transfer to another Unit

In some cases, an asset may have no use for one unit but may be of value to another unit
within the organization. In such case, the asset may, with the agreement of both Units be transferred.
Such transfer may be at no cost to either unit or entail a fee or price negotiated by the two units
concerned.
o Trade-In
Items may be traded in where this maximizes the net return to the Company. The asset
number of the item traded-in and the value of the trade-in should be shown on the Purchase Order.
o Destroyed or Cannibalized Plant and Equipment

Items with no market value and no use to any other organization or person may be
destroyed in an appropriate and safe manner.
Page | 69
An Asset Disposal Form must be completed and authorized by the Head of Unit and forwarded to
Financial Services for updating the central asset register.
CHAPTER – 7 RESEARCH METHODOLOGY
RESEARCH METHODOLOGY
This report is based on primary as well secondary data, however primary data collection was
given more importance since it is overhearing factor in attitude studies. One of the most important users
of research methodology is that it helps in identifying the problem, collecting, analyzing the required
information data and providing an alternative solution to the problem .It also helps in collecting the vital
information that is required by the top management to assist them for the better decision making both
day to day decision and critical ones.
Page | 70
A.) DATA SOURES:
Research is based on primary data as well as secondary data. The secondary Data source plays a
major role in the Research. Research has been done by primary data collection, and interacting with
various people has collected primary data. The secondary data has been collected through various
journals and websites.
Duration of Study:
The study was carried out for a period of two months, from 3rd May to 29th July 2010.
B.) SAMPLING:
Sampling procedure:
The sample was selected of them who are the employees of the ISPAT INDUSTRIES LTD. DOLVI,
RAIGAD. It was also collected through personal visits to persons, by formal and
informal talks and through filling up the questionnaire prepared. The data has been analyzed by using
mathematical/Statistical tool.
Sample size:
The sample size of my project is limited to 50 people only.
Sample design:
Data has been presented with the help of bar graph, pie charts, line graphs etc.
Page | 71
CHAPTER – 8 DATA ANALYSIS AND INTERPRETATION
8.1.) ANALYSIS OF THE COMPANY:

Based on the Financial Results and the Annual Report of IIL the following analysis was made to check
whether is there any need for Disposal of Fixed Asset or not.
I.) NET FIXED ASSETS TO NET WORTH RATIO:
Page | 72
Definition:
A fixed asset to proprietor’s fund ratio establishes the relationship between fixed assets and
shareholders funds. The purpose of this ratio is to indicate the percentage of the owner's funds invested
in fixed assets.
Formula:
Significance of this Ratio:
The ratio of fixed assets to net worth indicates the extent to which shareholder's funds
are sunk into the fixed assets. Generally, the purchase of fixed assets should be financed by
shareholder's equity including reserves, surpluses and retained earnings. If the ratio is less than 100%, it
implies that owners funds are more than fixed assets and a part of the working capital is provide by the
shareholders. When the ratio is more than the 100%, it implies that owner’s funds are not sufficient to
finance the fixed assets and the firm has to depend upon outsiders to finance the fixed assets.
A trend analysis of this ratio is done taking into consideration the financial results and the annual
report of last five years of ISPAT INDUSTRIES LTD. The trend analysis of the NET FIXED ASSET
TO NET WORTH of the Ispat Industries Ltd shows the following trend:
(rs in crores)
Net Fixed Asset To Net Worth Ratio

Year Net Fixed Assets Net Worth Net Fixed Asset To Net Worth
2006 8901.44 2049.81 4.34:1
Page | 73
2007 9823.33 2294.16 4.28:1

2008 9206.01 2901.61 3.17:1
2009 8887.81 2036.82 4.36:1
2010 8002.40 3744.19 2.13:1
5
4 4 .3
3
2
1
0
2006
Interpretation:
It has been observed that Net Fixed Asset to Net Worth ratio is above 1:1 for Ispat Industries
Ltd. which implies that the shareholders funds are not sufficient to finance the Fixed Assets and the
company has to depend on outsiders funds or borrowed funds to finance the fixed assets which results in
increase in interest amt. The trend analysis of this ratio for last five year is showing a downward trend
which is a good sign for a company but Net Fixed Asset to Net worth ratio must be below 1:1 then only
it can said that it is perfect. The current ratio of Net Fixed asset to Net woth is 2.13:1,but either the fixed
assets are to reduced or the net worth should be increased to match with industry averages. The ideal net
worth to net fixed assets ratio is 0.65:1.
II) FIXED ASSET TURNOVER RATIO:
Definition
Page | 74
This ratio indicates how well the business is using its Fixed Assets to generate its sales. Higher
the ratio better for the company as a high ratio indicates the business has less money tied up in Fixed
Assets for each Rupee of the sales revenue. Measure of the productivity of a firm, it indicates the
amount of sales generated by each dollar spent on fixed assets, and the amount of fixed assets required
to generate a specific level of revenue. Changes in this ratio over time reflect whether or not the firm is
becoming more efficient in the use of its fixed assets.
Formula:
Significance of the Ratio

The Fixed Asset Turnover Ratio helps the financial manager to know whether the amount of
sales generated by each rupee spent on fixed assets, and the amount of fixed assets required to generate a
specific level of revenue.
The Fixed Asset turnover Ratio of Ispat Industries Ltd. based on the financial data of past five years is as
follows:
(rs in crores)
FIXED ASSET TURNOVER RATIO
Year Total Sales revenue Net Average Fixed Assets Fixed Asset turnover
ratio
2006 5010.73 7535.69 0.66:1
2007 7595.49 9362.38 0.81:1
2008 8711.00 9514.67 0.91:1
Page | 75
2009 8537.84 9046.91 0.94:1

2010 7782.86 8445.10 0.96:1
The average Net Fixed Asset is calculated as follows:
Fixed Asset Turnover Ratio of IIL
1.2
1 0.96
0.91 0.94
0.8 0.81
0.6 0.66
0.4
0.2
0
2006 2007 2008 2009 2010
Fixed Asset Turnover Ratio
Interpretation:
It has been observed that the higher the ratio better for the company as a high ratio indicates the
business has less money tied up in Fixed Assets for each Rupee of the sales revenue. In case of Ispat
industries ltd the ratio shows an increasing trend, which is a good sign for the company but till date it
has not achieved 0.99 yield. The Fixed Asset Turnover Ratio has increased from 0.66 in 2006 to 0.96 in
2010 i.e. every single rupee invested in Fixed Asset can generated sales of 96 paise.
Page | 76
III) RETURN ON FIXED ASSET:
Definition:
Return on fixed asset ratio is a comparison of net profit before interest and tax to the fixed
assets. This ratio helps the financial manager to know how much profit is generated from every Re.
Invested in the Fixed Assets.
Formula:
(rs in crores)
RETURN ON FIXED ASSETS (ROFA)
Year Net Profit Before Interest and Average Net Fixed ROFA
Tax Assets
2006 - 241.23 7535.69 - 3.20 %
2007 993.52 9362.38 10.61 %
2008 960.89 9514.67 10.09 %
2009 782.47 9046.91 8.64 %
2010 756.27 8445.10 8.95 %
Page | 77
Return on fixed asset ratio
12.00%
10.61%
10.09%
10.00% 8.95%
8.64%
8.00%
6.00%
4.00%
2.00%
-3.20%
0.00%
2006 2007 2008 2009 2010
-2.00%
-4.00%
Returnfomvypisdxa
Return on fixed asset (ROFA)
Interpretation:
The ROFA in case of Ispat Industries shows very unstable growth. In 2006 there was a negative
ROFA i.e. – 3.20 %, which was increased to 10.61 % in the successive year and
records again a drop in 2008. Currently the Return on Fixed Asset is 8.95% in the year 2009-10. This
shows that the fixed assets are not properly utilized to produce more returns. The fixed assets should
minimum produce atleast 25% return.
IV) REPAIRS AND MAINTENANCE TO FIXED ASSET RATIO:
Definition:
The ratio is defined as the comparison of repairs and maintenance to the fixed asset. This ratio
helps us to know the Maintenance & Repairs Cost on a particular Fixed Asset. It enables us to know the
company’s capacity to invest in the repairs and Maintenance on the particulars Fixed Asset.
Page | 78
Formula:
(rs in crores)
Maintenance & Repair Expenses To Fixed Asset Ratio
Year Maintenance & Repairs expense Gross Fixed Asset Ratio
2006 79.83 10996.05 0.72 %
2007 123.31 12425.00 0.99 %
2008 158.95 12521.80 1.27 %
2009 160.26 12892.94 1.24 %
2010 130.39 12687.79 1.03 %
Note: The gross fixed asset includes the fixed asset excluding the land and building and also the
repair & Maintenance of the same is not taken into consideration, as the company will not be
disposing the land and building.
Maintenance & Repairs to Fixed Asset Ratio
1.40%
1.27% 1.24%
1.20% 0.99% 1.03%
1.00%
0.80% 0.72%
0.60%
0.40%
0.20%
0.00%
2006 2007 2008 2009 2010
Page | 79
Interpretation:
The Maintenance & Repairs Expenses compared to Fixed Assets shows an increasing trend
in case of Ispat Industries Ltd. In 2006 the Repairs & Maintenance Compared to Fixed assets was 0.72
% and increases to 0.99 % in the next year. Currently it is 1.03%, this indicates that the Repairs and
Maintenance expenses on Plant and Machinery, Office Equipments and Vehicles keeps on increasing
every year as many of the equipment have crossed their useful life and need to be replace to reduce the
repairs and maintenance cost.
8.2.) COMPETITOR ANALYSIS (COMPARISON WITH INDUSTRY

AVERAGES)
Based on the financial results of the year ended 31st March 2009 the following Analysis of the major
competitors in the industry is done. The Financial Results of 2009 are taken into account, as the results
of 31st March 2010 are not yet published in case of some companies. The analysis is done considering
five major competitors of the company namely:
Ø Tata steel
Ø JSW Steel
Ø Essar Steel
Ø Bhushan Steel
Ø Uttam Galva
1.) The Competitor Analysis includes the comparison of Sales and Net Profit After Tax of Ispat
Industries to other competitors in the Industry.
(rs in crores)
COMPARISON OF NPAT AND SALES OF IIL WITH COMPETITORS
Name Of the Company Total Sales Net Profit After Tax
Tata Steel 1,45,686.32 4849.24
Page | 80
Essar Steel 12,703.78 185.20

JSW Steel 17,112.88 274.91
Ispat Steel 9063.44 (- 689.91)
Bhushan Steel 5399.08 424.74
Uttam Galva 4,509.75 100.19
100.19
Uttam Galva
4509.75
424.74
Bhushan Steel
5399.08
-689.91
Ispat Ind
9063.44
274.91
JSW Steel
17112.88
185.2
Essar Steel
12703.78
4849.24
Tata Steel
145686.32
-20000 0 20000 40000 60000 80000 100000 120000 140000 160000
Net Profit After Tax Sales for the year 2009
Interpretation
It is observed that the major competitors in the market having sales more than that of Ispat
Industries are gaining profit but in case of Ispat Steel in spite of having sales of
9063.44 cr. records a loss of (- 689.91) cr. Whereas the companies like Bhushan steel And Uttam Galva
having a sales less than ILL still earning profit. This implies that the operating cost in case of ILL,
which includes Depreciation, Maintenance & Repairs expense, is high as compared to other industries.
The analysis of the competitors stated above is as follows:
Page | 81
2.) NET FIXED ASSET TO NET WORTH RATIO:

Formula:
The Net Fixed Asset to Net Worth ratio of the competitors is stated in the following table:
NET FIXED ASSET TO NET WORTH RATIO

Company Name Net Fixed Asset Net Worth Net fixed Asset to Net
Worth Ratio
Ispat Industries 8897.46 3933.28 2.26:1
Tata Steel 45305.58 27714.28 1.63:1
JSW Steel 18309.16 7803.95 2.3:1
Essar Steel 9128.82 4775.66 1.91:1
Bhushan Steel 5803.10 2202.35 2.63:1
Uttam Galva 1784.52 821.80 2.17:1
INDUSTRY AVERAGE 2.15:1
Page | 82
Net Fixed Asset to Net worth
3 2.63
2.5 2.26 2.3 2.17
1.91
2 1.63
1.5
1
0.5
0
Ispat Tata Steel JSW steel Essar steel Bhushan Uttam Galva
Industries Steel
Net fixed assets to net worth
Interpretation:
Also after doing the industry analysis the major competitors in the iron and steel like Tata Steel,
Jindal Steel, Essar Steel, etc it has been observed that the net fixed asset to net worth ratio for Ispat
Industries is having a ideal net fixed asset to net worth ratio and it matches the industry average which is
2.15:1 Whereas Ispat Industries ratio is 2.26:1.
3.) FIXED ASSET TURNOVER RATIO:
Formula:
The industry analysis in case of the fixed asset turnover ratio is as follows:
Fixed Asset Turnover Ratio (year 2009)
Name Of The Total Sales Revenue Net Average Fixed Fixed Asset Turnover
Page | 83
company Assets ratio

Ispat Industries 9063.44 9046.91 1:1
Tata Steel 145686.32 43635.93 3.33:1
Essar steel 12703.78 9201.35 1.30:1
JSW steel 17112.88 16670.01 1.02:1
Bhushan Steel 5399.08 5985.14 0.90:1
Uttam Galva 4509.75 1552.12 2.90:1
INDUSTRY AVERAGE 1.74:1
The graphical representation of the data stated in the above table is as follows:
Industry Analysis of Fixed asset Turnover Ratio
1.3
1.02 Ispat Ind.
Tata steel
0.9
Essar steel
3.33
JSW steel
Bhushan steel
2.9 Uttam Galva
Interpretation:
It has been observed that the higher the ratio better for the company as a high ratio indicates the
business has less money tied up in Fixed Assets for each Rupee of the sales revenue. The Fixed asset
Turnover Ratio in case of IIL is 1:1 in the year 2009, which is not satisfactory when compared to the
industry average of 1.74:1. This implies that the revenue generated from every rupee invested in the
fixed asset for Ispat Industries Ltd is not satisfactory when compared to industry average. It shows that
every Re. Invested in fixed
asset generates 1re sales whereas the company average demands that at least 1.74 rs sales should be
generated from every re. Invested in Fixed assets. A lower ratio as compared to the industry average
Page | 84
means that sales are low or the investment in plant and equipment is too much when compared to the
other competitors in the market.
4.) RETURN ON FIXED ASSET (ROFA):

Formula:
The ROFA analysis of the major competitor in the market for the year ended 31st March 2009 is as
follows:
Industry Analysis of ROFA (year 2009)
Name of the Net Profit Before Net Fixed Average ROFA
Company Interest And Tax Assets
Ispat Industries 782.47 9046.91 8.64 %
Tata Steel 11008.63 43635.93 25.22 %
Essar steel 1918.39 9201.35 20.84 %
JSW steel 2265.73 16670.01 13.59 %
Bhushan Steel 817.86 5985.14 13.66 %
Uttam Galva 267.01 1552.12 17.20 %
INDUSTRY AVERAGE 16.52 %
The graphical representation of the above tabular data is as follows:
Page | 85
Return On Fixed Asset
17% 9% Ispat Industries
Tata Steel
25%
14% JSW Steel
Essar Steel
14%
20.84% Bhushan Steel
Uttam Galva
Interpretation:
When the competitor analysis of Return on Fixed Asset is done it is interpreted that the Return
On Fixed Assets in case of the Ispat Industries is 9%, which is very less as compared to the industry
average of 16.52 %. So IIL should take an analysis of its fixed assets as well as the costs, which are
related to these fixed assets, that affects the profits of the company.
Page | 86
CHAPTER – 9 RESULTS AND FINDINGS
FINDINGS:
From the above analysis it was found that the company should go for diposal of some ideal and
unoperational assets. The Disposal of following Assets can be done in IIL.
A.) SPONGE IRON PLANT (BUSINESS AREA 1101):
In SIP Area (1101) the assets that are depreciated to 95% value having total acquisition cost of
653,28,873.21 INR and the current book value of those assets is 34,07,583.07 INR. The assets that have
been depreciated to 99.99% value have acquisition cost of 40650.80 INR and current book value of 3
INR.
On Investigating with the different department regarding the Fixed Assets, which not used in the
operational process or which idle and those Fixed Assets, which are adding to the maintenance cost the
following findings, were listed.
Ø It was found that an Italian Barge Unloader which is not used in the production process till date
from the day it is acquired. The Acquisition cost of this equipment is 16,71,899.07 INR and has a
current book value of 3,57,477.23 INR.
Ø There are 6 grabs lying at the Jetty area, which are not used, in the operational process and each
grab is having an Acquisition cost of 6,45,000.00 INR and the current book value of these grabs
is 4,10,000.00 INR approximately.
Ø There are around 30 nos. of used conveyor belts of different sizes and screens are kept aside in
the Jetty Area.
B) HOT STRIP MILL PLANT (BUSINESS AREA 1102 TO 1104):
Page | 87
In HSM Area (1102 to 1104) the assets that have depreciated to 95% having acquisition value of
247,46,61,149.71 INR and current book value of those assets is 123,66,491.02 INR. The
assets that are depreciated to 99.99% have acquisition value of 1,05,80,730.60 and current book value of
those assets is 283 INR.
On Investigating with the different department regarding the Fixed Assets the following findings, were
listed.
Ø There is a Tilting Machine kept idle in the coil yard and also coil hanging Tong. Both the
Equipments need heavy maintenance to put back again to work. The Acquisition cost of Tilting
Machine is 12,94,892.00 INR and current book value is 10,33,190.78 INR. The Acquisition cost
of coil Hanging Tong is 10,25,000.00 INR and the current book value of the tong is 1,52,045.00
INR.
Ø There are 8 dot matrix printer Model WEP (WIPRO MADE) under the custody of Logistics
Outbound dept. are transferred to the I.T. department as they were not in working condition. The
Acquisition cost of each printer is 81,500.00 INR and the current book value is 22,050.00 INR.
Ø There are 2 Datamax label printers and laser printer are sent to the I.T. dept. for maintenance and
are not in the condition to be repaired. The acquisition cost of Label Printers is 1,45,000.00 INR
and that of laser printer is 24,000.00 INR. Also the current book value of the label printer is
21,574.00 INR and laser printer is 20,400.00 INR respectively.
Ø There are 3 Air conditioners for E.O.T crane, which are not in working condition and cost a lot
on maintenance. The acquisition cost of these AC’s is 43,111.00 INR and the current book value
is 36,797.00 INR.
Ø Under HSM Mill area there are 5 caterpillars of model 973C in the SMS Dept., which are in
critical situation. From these 5 caterpillars three are in the auto repair shop for maintenance from
Page | 88
a longer period, one is lying at the slag area in a broken condition and the remaining one is in
working condition but requires a heavy maintenance. The acquisition cost of those with the auto
repair shop is 1,67,37,982.00 INR and the current book value of the same is 1,09,45,370.00 INR
The one which is at the Slag Pit
Area is having an Acquisition cost of 55,06,299.00 INR. The one, which are in working
condition but requires heavy maintenance frequently is having Acquisition
Ø cost of 53,49,845.00 INR and the current book value of this Equipment, is 2,75,315.00 INR
C) BLAST FURNACE PLANT (BUSINESS AREA 1111 TO 1121):
In BF Area (1111 to 1121) the assets that are depreciated to 95% value having an acquisition value of
31,48,841 INR and Current book value of those assets is 94,942.05 INR. The assets that are depreciated
to 99.99% having acquisition value of 16,79,009.12 and the current book value of those assets are 77
INR.
On Investigating with the different department in Blast furnace Plant regarding the Fixed Assets, the
following findings, were listed.
Ø There is a Barge Loader lying at the Pig Casting Machine, which is under the custody of Blast
Furnace Plant. This Equipment is having an Acquisition cost of 1,56,05,409.52 INR and the
current book value of it is 99,85,971.78 INR.
Ø Asset register of the company was including two assets namely sinter plant and no further details
was given. So a list of the assets was taken from the sinter plant and after doing the
reconciliation if was found that some of the assets were not found in the asset register. So those
assets were segregated and adjusted against the amount of sinter plant. It shows a total amount of
289,86,36,872.67 INR.
Page | 89
CHAPTER - 10 CONCLUSION
Conclusion:
Modern equipment in good repair, is essential for high productivity and efficiency, and hence
for profits. Fixed Assets analysis involves calculating the earnings potential, use, and useful life of Fixed
Assets. Running a successful Manufacturing plant requires a well-developed technology and well-
maintained Equipment. After doing a research on the fixed
assets of Ispat Industries Ltd, I concluded that the company is having a huge amount of Fixed Assets
amounting to Gross total of 13360.63 Cr. The company has invested huge amount in the Fixed Assets,
which are having a potential of high productivity and efficiency. It is really difficult to manage such
huge amount of Fixed Assets but the company management has successfully able to manage these
assets.
It can be also concluded that some of the assets are really obsolete and need a replacement with
new and improved technology. Also the Fixed Asset Register of the company does not provide the
precise information and has some errors, which are to be rectified to manage the fixed assets of the
company in a better way. It was also observed that most of the plant of Ispat Industries Ltd are properly
maintained and are working at its maximum efficiency. There are some equipments which need to be
disposed off or needs a replacement but otherwise the plant is well maintained. It is also concluded that
the employees in the plant are not having information regarding the assets. They don’t have the assets
no. or the acquisition cost or the year of acquisition,etc.
Page | 90
CHAPTER – 11 LIMITATIONS OF THE PROJECT
The Limitations that are faced during the prject study are as follows:
Ø Possibility of error in the Fixed Asset information as the Fixed Asset register of the company
does not give a detailed information about the fixed assets for example the quantity purchased,
etc. and also there are spelling errors in the register.
Ø Sample size is limited to 50 employees of the Ispat Industries Dolvi plant, Maharashtra. The
sample size may not adequately sufficient give information of the Fixed Assets of the whole
Company.
Ø As the research contains secondary data so the reliability of the result depends upon the
reliability of the data published.
Ø Management generally not willing to reveal their internal strategies regarding the Fixed Assets to
combat with the competitor. So, the information, which was provided, was basic.
Ø Some respondents were reluctant to divulge information, which can affect the validity of all
responses.
Page | 91
Ø The research is confined to a certain part of Raigad, Dolvi plant. It cannot state the situation of
the whole Ispat Industries Ltd.
Ø Some of the employees do not answer the question due to time constraint.
CHAPTER – 12 SUGGESTIONS AND RECOMMENDATIONS
The suggestions and recommendations that I would like to give to the company management are as
follows:
· The company should give emphasis to Fixed Asset Management, which will focuses on
Acquisition of new Fixed Assets, depreciation on the current Assets, Impairment or Disposal of
Fixed Assets and replacement of the obsolete Fixed Assets.
· The company should think about the depreciation fund method of calculating depreciation.
Where the depreciation for every year is transferred to sinking fund account and then is invested
in the market securities, which can earn a profit.
· Every Fixed Asset should be given an assets number, which is to be written on that particular
fixed asset as it is very difficult to physically locate a particular asset present in the asset register.
· There should be a physical audit of all the fixed assets in order to know, which assets is to be
disposed and which is to be replaced. The Asset disposal / transfer request form should be used
in case of any transfer or disposal.
Page | 92
· The Company complex is spread in over 1200 acres and to travel from one department to other
the company employees uses petrol or diesel driven vehicles, instead of these new technology
battery driven vehicles should be used. This will save the fuel cost as well as maintenance cost.
· Every department should give a report of all the assets with the department to the personnel in
the account department who looks after Fixed Asset Management after every six months. The
reporting from each department should include information of the total assets available, the
assets, which are disposed off, and the assets newly acquired.
· The company has a surplus land available, which should be given to some organization on lease.
This will produce an income for the company.
· Company should have an integrated GIS (geographic information system) to locate fixed assets.
Page | 93
GLOSSARY
INDIAN GAAP.: Indian Generally Accepted Accounting Principles

NESD: No Extra Shift Depreciation
SIP: Sponge Iron Plant
BF: Blast Furnace
HSM: Hot Strip Mill
RDIF Tag: Radio Frequency identification Tag
Scrap: dispose
PP&E: Plant Property and Equipment
FASB: Financial Accounting Standards Board
NPO:Not for Profit Organisation
ICAI: Institute of Chartered Accountants of India
ADR: Asset Disposal Form
Page | 94
REFERENCES
BIBLIOGRAPHY AND WEBLIOGRAPHY
Bibliography:
Books:
1. Prasanna Chandra, “Financial Management”, Ed. 7e 2007, McGraw-Hill Education.
2. C.R.Kothari, ”Research Methodology Methods and Techinques”, Ed. 2008 New Age publication
(Academics).
3. Ispat Industries Ltd., “Annual Report and Financial results”.
Page | 95
4. Meigs, Robert F., and Walter B. Meigs,“Accounting: The Basis for Business Decisions”, Ed.
11th, New York: McGraw-Hill, 1998.
5. Peterson, Raymond H. Accounting for Fixed Assets. New York: Wiley, 1994.
Webliography:
Ø www.ispatind.com
Ø www.indiainbusiness.nic.in
Ø www.indiainfoline.com
Ø www.worldsteel.org
Ø www.icai.org
Ø www.steel.nic.in
Ø www.wikipedia.org
Page | 96
ANNEXURE
Income statements of Ispat Industries Limited:

(Rs. In Crore)
Particulars 2010 2009 2008 2007 2006
1.) Sales/Income from Operations 8398.23 9063.44 9401.67 8378.44 5580.02
Less: Excise Duty 615.37 931.46 1117.53 891.87 621.28
a) Net Sales/Income from Operations 7782.86 8131.98 8284.14 7486.57 4958.74
b) Other Operating Income 235.99 405.84 375.75 108.92 51.99
c) Gain on Exchange fluctuation on
operating balances/ Forward Exchange 50.71 - -
Contracts 129.69 -
Total Sales 8148.54 8537.82 8710.60 7595.49 5010.73
2.) Expenditure
a) Decrease/ (Increase) in stock in
trade and work in progress (99.57) 86.12 158.19 (30.20) (73.53)
b) Consumption of raw materials 4331.97 4650.84 4535.83 3702.04 2910.12
c) Power & Fuel Cost 1466.93 1289.81 1250.41 1153.52 849.86
d) Purchase of traded goods - - 10.71 - -
e) Employees cost 216.30 207.60 202.60 165.34 131.55
g) Depreciation 624.80 646.62 638.12 623.83 571.43
h) Other expenditure 854.01 872.74 950.27 986.72 861.32
Total Expenditure 7394.44 7753.73 7746.13 6631.45 5250.75
3.) Profit from Operations before 754.10 784.09 964.47 964.04 (240.02)
Other Income, Interest &
Exceptional items (1-2)
4.) Other Income 2.17 0.02 0.40 - -
5.) Profit before Interest & 756.27 784.11 964.87 964.04 (240.02)
Exceptional items (3+4)
Page | 97
6.) a) Interest 1026.36 1061.65 1024.02 990.87 956.83

b) Loss/ (Gain) on Exchange
Fluctuations on Foreign Currency Term (174.77) - -
Loans - 97.65
7.) Profit/(Loss) after Interest but
before Exceptional Items (5-6) (270.09) (375.19) 115.62 3.37 (1196.85)
8.) Exceptional Items
- (648.70) - - -
9.) Profit/(Loss) from Ordinary

Activities before tax (7-8) (270.09) (1023.89) 115.62 3.37 (1196.85)
10.) Tax Expenses
- Current Tax 0.02 0.03 0.04 (0.03) (0.03)
- Deferred Tax Charge / (Credit) (17.01) (338.81) 77.04 (9.87) 388.67
- Fringe Benefit Tax - 3.00 3.74 (3.00) (4.46)
Net Profit/(Loss) (9-10) (253.10) (688.11) 34.80 (9.53) (812.67)

Paid-Up Equity Share Capital
(Face Value of 10/- each) 1221.75 1221.65 1221.58 1218.40 1218.38
Reserves excluding Revaluation
Reserve as per Balance Sheet of - 501.66 519.08 531.13
474.04
previous Accounting Yr.
Earning Per Share (EPS) (not
annualized)
Basic and Diluted EPS (Rs.) (2.67) (6.25) (0.36) (0.81) (7.93)
Balance Sheets of Ispat Industries Limited:

(Rs. In Crore)
Page | 98
2010 2009 2008 2007 2006

SOURCES OF FUNDS
Share Capital 2251.01 2324.49 2294.03 2288.74 2288.7
Reserves and surplus 1493.18 (-287.67) 607.58 652.93 (-238.89)
Shareholder's Funds/ Net Worth 3744.19 2036.82 2901.61 2294.167 2049.81
Secured Loans 6871.76 7150.81 6940.05 7849.07 8241.06

Unsecured Loans 71.85 200.24 284.99 466.43 20.03
Total Debts 6943.61 7351.05 7225.04 8315.5 8261.09
Total Liabilities 10687.8 9387.87 10126.65 11257.17 10310.9
APPLICATION OF FUNDS:
Gross Block 13360.63 13557.39 13167.93 13067.37 11455.71
Less: Accumulated Depreciation 5358.23 4669.58 3961.92 3244.04 2554.27
Net Block 8002.4 8887.81 9206.01 9823.33 8901.44
Capital Work in Progress 76.34 98.52 108.25 546.8 398.19
Pre-operative Expenses pending 0 4.19 0 0 217.65
Investments 229.37 232.89 118.04 113.59 113.32
Current Assets, Loans & Advances

Inventories 985.61 1056.19 1368.38 1382.93 1419.36
Sundry Debtors 594.13 645.02 579.83 560.09 728.15
Cash and Bank 128.86 327.65 92.52 78.92 123.1

Loans and Advances 587.65 778.85 834.06 931.42 787.93
Total Current Assets 2296.25 2807.71 2874.79 2953.36 3058.54
Less: Current Liabilities and
Provisions
Current Liabilities 3677.02 3708.97 2693.67 2136.94 2231.83
Provisions 36.47 35 33.34 28.81 12.42
Page | 99
Total Current Liabilities (3713.49) (3743.97) (2727.01) (2165.75) (2244.25)

Net Current Assets -654.95 -785.67 147.78 641.96 52
Miscellaneous Expenses not written
off 0 0 0 0 0
Deferred Tax Assets / Liabilities 967.14 950.13 546.57 623.61 628.3
Total Assets 10687.8 9387.87 10126.65 11257.17 10310.9
Page | 100

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A

SUMMER TRAINING PROJECT REPORT

“FINANCIAL SAVINGS THROUGH FIXED ASSETS

ISPAT INDUSTRIES LTD.

Submitted in partial fulfillment of the requirement

MASTER’S OF MANAGEMENT STUDIES (MMS)

UNDER THE GUIDANCE OF

SARASWATI EDUCATION SOCIETY’S

There is something about steel

There is something about ISPAT

I, Rohan S Shirdhankar, student of MMS IIInd semester, studying at Saraswati College

(Rohan Sunil Shirdhankar)

It is my pleasure to be indebted to various people, who directly or

I express my sincere gratitude to Dr.J.G.Kori worthy Principal for

I am thankful to Mr.Pravin More our H.O.D for his support, cooperation,

(Rohan Sunil Shirdhankar)

Purpose of the project:

4. EXECUTIVE SUMMARY VIII

5. 1. INDUSTRY OVERVIEW AND COMPANY 1-9

1.1 OVERVIEW OF THE INDUSTRY 1-4

1.2 COMPANY PROFILE 4–9

6. 2. OBJECTIVES AND SCOPE OF THE STUDY 10 – 11

7. 3 INTRODUCTION OF THE TOPIC 12 - 14

8. 4 FIXED ASSETS AND ACCOUNTING OF 15 - 31

9. 5 FIXED ASSET DISPOSAL AT IIL 32 - 37

10. 6 SAVINGS THROUGH FIXED ASSETS 38 - 57

11. 7 RESEARCH METHODOLOGY 58 - 59

12. 8 DATA ANALYSIS AND INTERPRETATION 60 – 72

13. 9 RESULTS AND FINDINGS 73 - 75

15. 11 LIMITATIONS OF THE STUDY 77 - 77

16. 12 SUGGESTIONS AND RECOMMENDATIONS 78 - 79

CHAPTER 1- OVERVIEW OF THE INDUSTRY AND COMPANY

1.1 OVERVIEW OF THE INDUSTRY

A.) STEEL INDUSTRY IN WORLD

CONTRIBUTION OF THE COUNTRIES TO GLOBAL STEEL INDUSTRY

Steel Production in world

B.) STEEL INDUSTRY IN INDIA

STEEL SECTOR TRENDS

Public sector undertakings in steel Industry:

Other Public Sector Undertakings (PSUs):

· KudremukhIronOre Company Limited (KIOCL)

1.2 OVERVIEW OF THE COMPANY PROFILE

C) VISION AND MISSION OF IIL:

In September 1994, Ispat Industries

II. Hot Rolled coils:

Ispat Industries Limited manufactures

III. Cold Rolled Coils:

Ispat Industries Limited, cold rolled coils are

IV. Galvanized Sheets:

Ispat Industries Limited was the first Indian

V. Colour Coated Sheets:

Ispat manufactures colour coated sheets called

CHAPTER – 2 OBJECTIVES AND SCOPE OF THE STUDY

2.1 OBJECTIVES OF THE STUDY:

2.2 SCOPE OF THE STUDY:

CHAPTER – 3 INTRODUCTION TO THE PROJECT

The project topic “FINANCIAL SAVINGS THROUGH FIXED ASSETS MANAGEMENT”