ONGC as Per Sachdeva Final
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Transcript of ONGC as Per Sachdeva Final
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DECLARATION
I, Sameer Shah, student Of M.M.S. from Pillais Institute of Management
Studies and Research (PIMSR) hereby declare that the project work, which is
undertaken, is an original and authentic work done by me.
The contents of this report is based on the information collected by me during
my tenure at Oil and Natural Gas Corporation, Mumbai, during the two months
of my training period.
SIGNATURE OF THE STUDENT
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Table of ContentsChapter TOPIC Page No.
1
1. Introduction1.1 Oil and Gas Industry1.2 ONGC
2. Objectives2.1 ONGC as a case2.2 Financial Data Analysis of ONGC2.3 Implementation of SAP2.4 Asset Accounting procedure under the
Environment of ERP i.e. SAP3. Research Methodology
2
ONGC as a Case
2.1 Background2.2 ONGC Videsh Ltd.2.3 Organisation chart2.4 Office Chart
2.5 ONGC Operation2.6 Issues or problems
3 Financial Data Analysis from 2004-2008
4
ERP and SAP implementation
4.1 Project ICE
5Asset Accounting procedure under
Environment of ERP i.e. SAP
6 Finding and Conclusion
Appendix
Bibliography
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Chapter 1
1.1 Introduction
1.1.1 Oil & Gas Industry
Crude oil is the second most important source of energy in India after
coal. Crude oil and its products account for about 35% of the
energy supply as against nearly 50% by coal. But the size of the
Indian industry is very small when compared with global levels of
production and consumption. The country has less than 1% share in
the global crude oil production, 1.1% in natural gas production,
2.8% in crude oil consumption and 1% in natural gas consumption.So, there is long way to go for this Industry.
Background
The Oil & Gas industry was a highly regulated industry under the control
of Ministry of Petroleum & Natural Gas (MoPNG). Although, with
dismantling of Administered Pricing Scheme (APS), wef. April
2002, efforts are being made to adjust domestic prices at more
frequent intervals with international prices; the oil companies donot enjoy full rights to set the prices. This is inevitable as the
industry is dominated by a collection of public sector companies.
Both the upstream (exploration and Production) and downstream
(Refining, Marketing and Distribution). PSUs like ONGC & OIL
INDIA LIMITED account for 90% of domestic production of
crude oil & natural gas.
Further, share of PSUs in domestic refining capacity is 68% and
presence of private sector in distribution is negligible. But, sinceIndia depends on imports for nearly 70% of its crude requirements,
the input prices are volatile. As fuel, power light & lubricants have
a weight age of 14.23% in the Whole sale Price Index; the industry
prices have a high impact on inflation.
Further, dependence of other industries on this industry is high as the
fuel and freight charges are a critical component of cost for most of
the industries.
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1.1.2 Overview of ONGC
Oil and natural gas corporation (ONGC), formed in 1959, is the
largest oil exploration company in India and it is the largest
Company among all Nav ratna PSUs. It is the only fully
integrated petroleum company in India, operating along the entire
hydrocarbon value chain. It holds the largest share (about 57 per
cent) of hydrocarbon acreages in India contributes over 78 per cent
of Indias oil & gas production and also possesses about one-tenth
of Indias refining capacity. 6 out of the 7 producing basins in the
country have been discovered by ONGC.
ONGC is the flagship company of India; and making this possible is adedicated team of nearly 40,000 professionals who toil round the
clock. It is this toil, which amply reflects in the performance
figures and aspirations of ONGC. The company has adapted
progressive policies in scientific planning, acquisition, utilization,
training and motivation of the team. At ONGC everybody matters,
every soul counts. Over 18,000 experienced and technically
competent executives mostly scientists and engineers from
distinguished Universities / Institutions of India and abroad form the core of our manpower. They include geologists, geophysicists,
geochemists, drilling engineers, reservoir engineers, petroleum
engineers, production engineers, engineering & technical service
providers, financial and human resource experts, IT professionals
VISION
To be a world class Oil and Gas Company integrated in energy
business with dominant Indian leadership and global presence
MISSION
World Class
Dedicated to excellence by leveraging competitive advantages in
R&D and technology with involved people.
Imbibe high standards of business ethics and organizational values.
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Abiding commitment to health, safety, and environment to enrich
quality of community life.
Foster a culture trust, openness, and mutual concern to make
working a stimulating and challenging experience for our people.
Strive for customer delight through quality for our people.
ONGC is involved in exploratory & development drilling in
various water depths (including deep sea) and has created an
extensive production-related offshore infrastructure (platforms,
pipelines, etc). Presently, ONGC has the following assets:
Onshore
Production Installations: 240
Pipeline Network (km): 17,500
Drilling Rigs: 70
Work Over rigs: 60
Seismic Units: 29
Logging Units: 32
Processing Plants: 3 (Uran, C2C3 plant at Dahej and Hazira)
Offshore
Well Platforms: 149
Well-cum-Process Platforms: 5
Process Platforms: 27
Drilling Rigs: 9
Pipeline Networks (km): 4,500
Offshore Supply Vessels: 30 Special Application Vessels: 2
Seismic Vessels: 1
ONGC is primarily an exploration company that has grown to
become Indias most valuable PSU on the basis of its performance
over an increasingly larger area of business. ONGC today, focuses
on relational enterprise through:
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organization, which is knowledge of hydrocarbons, gained over
five decades.
1.2 Objective of the Project
1.2.1 ONGC as a case
To study the overview of the company and the functioning of itssubsidiaries.
To get the knowledge about finance and accounts departments in ONGC.
1.2.2 Financial Data Analysis of ONGC
To study the performance of the company.
To study the trend analysis of the company in last 5 years (2004-2008) with the help of financial data.
To understand the overall financial stability of the company.
1.2.3 ERP and SAP implementation
To Study the Implementation Of SAP
To study the Project ICE of ONGC
1.2.4 Asset Accounting procedure under the Environment of
ERP i.e. SAP
To understand the transactions of additions / deletions/movement
Of Fixed asset like transfer in and transfer out made in SAP
To study the depreciation policies on fixed assets in SAP.
To know how the reports are generated in SAP.
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1.3 Research Methodology
Analyzing few functions of the organisation and their
processes.
The collection of the data for the study is done through discussion
and reference manuals provided.
Analysing the Revenue Statement and Balance Sheet
Analysis of the financial data of the company from 2004-
2008 and applying the rat io analysis techniques to
understand the financial stability of the company.
Source: The data collected from few Internet sites for
balance sheet and revenue statement.
To Study the Asset Accounting procedure under ERP
environment,
For studying the procedures of fixed asset accounting
under ERP environment i.e. SAP, manuals are provided
which state the procedures and processes of accounting.
LIMITATIONS OF THE STUDY:.
The confidential data of the company cannot be used in
the project, so some of the concepts are explained with
general examples.
The analysis done would pertain only to present set of
years
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office of the Government, to function efficiently. So in August
1956, the Directorate was raised to the status of a commission with
enhanced powers, although it continued to be under the
government. In October 1959, the Commission was converted into
a statutory body by an act of the Indian Parliament, which
enhanced powers of the commission further
1961 1990
Since its inception, ONGC has been instrumental in transforming
the country's limited upstream sector into a large viable playing
field, with its activities spread throughout India and significantly in
overseas territories. In the inland areas, ONGC not only found new
resources in Assam but also established new oil province inCambay basin (Gujarat), while adding new petroliferous areas in
the Assam-Arakan Fold Belt and East coast basins (both inland
and offshore). ONGC went offshore in early 70's and discovered a
giant oil field in the form of Bombay High, now known as
Mumbai-High. This discovery, along with subsequent discoveries
of huge oil and gas fields in Western offshore changed the oil
scenario of the country.
After 1990
The liberalized economic policy, adopted by the Government of
India in July 1991, sought to deregulate and de-license the core
sectors (including petroleum sector) with partial disinvestments of
government equity in Public Sector Undertakings and other
measures. As a consequence thereof, ONGC was re-organized as a
limited Company under the Company's Act, 1956 in February
1994.After the conversion of business of the erstwhile Oil &Natural Gas Commission to that of Oil & Natural Gas Corporation
Limited in 1993, the Government disinvested 2 per cent of its
shares through competitive bidding. Subsequently, ONGC
expanded its equity by another 2 per cent by offering shares to its
employees. During March 1999, ONGC, Indian Oil Corporation
(IOC) - a downstream giant and Gas Authority of India Limited
(GAIL) - the only gas marketing company, agreed to have cross
holding in each other's stock. This paved the way for long-term
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strategic alliances both for the domestic and overseas business
opportunities in the energy value chain, amongst themselves.
Consequent to this the Government sold off 10 per cent of its share
holding in ONGC to IOC and 2.5 per cent to GAIL. With this, the
Government holding in ONGC came down to 84.11 per cent.
In the year 2002-03, after taking over MRPL from the A V Birla
Group, ONGC diversified into the downstream sector. ONGC will
soon be entering into the retailing business. ONGC has also entered
the global field through its subsidiary, ONGC Videsh Ltd. (OVL).
ONGC has made major investments in Vietnam, Sakhalin and
Sudan and earned its first hydrocarbon revenue from its investment
in Vietnam.
74%
2%
5%5%
8%2% 4%
Shareholding pattern as on 31st March 2009
Inidan Promoter(Government)
Mutal Funds and UTI
Banks, InsuranceComapanies, etc
FII
Indian Oil CorporationLtd.
Gas Authority of Ind ia Ltd
Indian Public
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2.2 ONGC VIDESH LTD.
ONGCs wholly owned subsidiary ONGC Videsh Ltd. (OVL) is
the biggest Indian multinational, with 44 Oil & Gas projects (7 of
them producing) in 18 countries, i.e. Vietnam, Sudan, Russia, Iraq,
Iran, Myanmar, Libya, Cuba, Colombia, Nigeria, Nigeria Sao
Tome JDZ, Egypt, Brazil, Congo, Turkmenistan, Syria, Venezuela
and United Kingdom. OVL has a committed overseas investmentof over 5 billion US dollars.
Objectives
To support India's energy security
To build balanced portfolio of exploration, discovered and
producing assets in focus countries
To build a team that excels in performance through
assimilation of best practices and technologies To be at par with the best international oil and gas
companies
Be the strongest Indian Player in the international E&P
Build collaborative relations with partners
ONGC Videsh: Accreting hydrocarbon resources
abroad
ONGC Videsh Limited (OVL) is a wholly owned subsidiary of Oiland Natural Gas Corporation Limited (ONGC) - the flagship
national oil company of India. The primary business of OVL is to
prospect for oil and gas acreages abroad including acquisition of
oil and gas fields, exploration, development, production,
transportation and export of oil and gas. Incorporated as
Hydrocarbons India Private Limited on March 5, 1965 and
rechristened as ONGC Videsh Limited on June 15, 1989, OVL,
over a period of time has grown to become the second-largest E&P
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Company in India both in terms of oil production and oil and gas
reserve holdings.
Starting with the exploration and development of the Rostam and
Raksh oil fields in Iran and undertaking a service contract in Iraq, a
major breakthrough was achieved by OVL in 1992 in Vietnam
with the discovery of two major free gas fields, namely LanTay
and LanDo, in partnership with British Petroleum and Petro-
Vietnam. The success carried on thereafter. In 2001, OVL acquired
20% stake in Sakhalin-1 project in the far east of Russia with an
investment of over USD 2.1 billion the single largest Foreign
Direct Investment made by an Indian company at that time.
The company, adopting a balanced portfolio approach, maintains a
combination of producing, discovered and exploration assets,
working as operator in 18 projects and joint operator in 2
projects. OVL produces hydrocarbons from its 7 assets, namely,Russia (Sakhalin-I), Syria (Al-Furat Project), Vietnam (Block
06.1), Colombia (Mansarover Energy Project), Sudan (Greater Nile
Oil Project and Block 5A) and Venezuela (San Cristobal Project).
Balance 5 projects are in development phase and 25 are in the
exploration phase.
OVLs international oil and gas operations produced 8.802 MMTof O+OEG in 2007-08 as against 0.252 MMT of O+OEG in 2002-
03. Today, OVLs cumulative investment overseas has crossed
USD 7.5 billion.
While OVL participates and operates in varied environments
both political and geographical, it is committed to the highest
standards of Occupational Health, Safety and Environment protection and compliance to all applicable local laws and
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regulations. Understanding well its Corporate Social
Responsibility, OVL makes valuable contributions to the
communities and economies in which it operates by investing in
education and training, improving employment opportunities for
nationals, and providing medical, sports and/or agricultural
facilities, besides payment of tax revenues to local
governments.Some of the leading alliance partners of OVL are BP,
CNPC, Ecopetrol, ENI, Exxon, Norsk Hydro, PDVSA, Petrobras.
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2.3 Organisation Chart
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2.4 ONGC OFFICES
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2.4 ONGC Operations
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2.4.1 Engineering Services
Engineering Services has its roots in the erstwhile Engineering &
Construction Division; Mumbai that was established in1970's for
planned development of India's oil fields in Western Offshore.
Engineering Services was visualized as Provider of Engineering
Services to Assets. The group comprises of officers drawn
from all disciplines to extend project services related to
Basic/Detailed Engineering, Maintenance, Project Management,
Contract Administration, Facility Renewal/Revamp, RIG/OSVRepair, Marine Survey and Technology scouting.
Role of Engineering Services:
To provide specialized service for detailed engineering and
management of offshore and onshore construction projects for
surface installations.
To gradually reduce the dependence on external consultants.
To adopt best-in-class practices in design and project management.
To track and adopt technological innovations in project implementation to
crash time for first oil.
2.4.2 Well logging
Role of well logging in E&P industry:
Well logs form the 'eyes' of the Hydrocarbon Exploration &
Production industry.
Well logs play an indispensable role in the exploration and
exploitation of hydrocarbons.
Well logs are used for prediction, location and quantification of
hydrocarbon reserves.
Well logs are also used in monitoring of reserves and physical well
conditions in the production stage.
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Well logging services are used in facilitating hydrocarbon
production; to diagnose problems and also for repair and
maintenance of wells for sustained production & injection.
Well logs provide invaluable information for exploration andproduction during and after the useful life of the well.
2.4.3 Geophysical Services
As a part of Corporate Rejuvenation Campaign (CRC),
Geophysical Services came into existence as the nodal agency
responsible for acquisition and processing of seismic data that in
turn becomes an important source after interpretation to discover
the hydrocarbons from the sub-surface strata. Offices of Regional
Geophysical Services are established at Baroda, Jorhat, Mumbai,
Chennai, Kolkata and Dehradun that are headed by Heads of
Geophysical Services. Chief, Geophysical Services is the overall
functional in-charge of these Regional Geophysical Services. The
headquarter of Geophysical Services is at Dehradun.
Each Regional Geophysical Services consists of Field Operation
Units and Regional Electronics Labs (RELs). Besides this,
Geophysical Services has six state-of-the-art data processing
centres located in different parts of the country viz GEOPIC
(Dehradun), SPIC (Panvel, Mumbai) and Regional Computer
Centers (RCCs) at Chennai, Baroda, Jorhat and Kolkata. INTEG is
the interpretation arm of GEOPIC and is equipped with state-of-
the-art hardware and software. Field Operation Units look after the
seismic data acquisition and are responsible for completion of
physical targets and for ensuring / maintaining the quality of data
acquired. Processing Operation Units are responsible for
processing of the seismic data acquired by the Field Operation
Units and the contractual seismic crews. Regional Electronics Labs
ensures hassle free operations of electronic equipments used in the
field operations. At present, there are 32 on-land seismic crews at
Jorhat, Baroda, Kolkata, Chennai & Dehradun and one marine
survey vessel MV Sagar Sandhani stationed at Mumbai.
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During the last couple of years, Geophysical Services has made
significant progress in achieving global standards in data
acquisition and processing. Some of the recent initiatives /
achievements are:
Induction of 10 nos. of state-of-the-art telemetry recording units in
the field crews
Induction of PC based field processing and mobile processing units
for in-field monitoring of data quality
Induction of state-of-the-art 3D survey design and modeling
software Induction of pre-stack time & depth imaging technology in
GEOPIC, SPIC, RCC, Chennai and On-board MV Sagar Sandhani.
MV Sagar Sandhani became the first marine survey vessel in the
world with on-board pre-stack depth imaging capabilities.
A new 6 streamer dual source seismic survey vessel is likely to be
commissioned by early 2006
Induction of time-lapse 3D seismic technology in Balol aera of
western Onshore Basin through departmental efforts. The 1st
repeatsurvey was completed in Dec04 and data is under processing.
2.4.4 MARKETING
The ONGC has obtained approval from the Centre for marketing
aviation turbine fuel (ATF) and refueling at airports and started
marketing products in 2006-07.
OIL and Natural Gas Corporation Ltd (ONGC) is selling all its
value-added products, especially naphtha, only through public
sector marketing companies. ONGC has been selling, even
exporting, naphtha on its own after the failure of the PSU
companies in effectively marketing its products.
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Value-added products including naphtha, LPG, kerosene and
heavy-cut, add about Rs 3,000 crore to ONGC's turnover of about
Rs 24,000 crore every year.
According to sources, a Government notification circulated are
selling kerosene and liquefied petroleum gas (LPG) to private
players. These products will have to be sold through PSUs despite
the sector decontrol as the products continue to attract subsidies.
Following this, ONGC is also shelving marketing of natural gas
liquid (NGL) or naphtha-equivalent and aromatic naphtha
(ARN) on its own initiative.
ONGC had begun selling naphtha on its own after delays in lifting
its product by PSU marketing companies, Indian Oil Corporation
(IOC) and Hindustan Petroleum Corporation Ltd (HPCL).
ONGC discovered "steep price differences costing almost Rs 200
crore each year because of dependence on IOC and HPCL" when it
sold naphtha through these PSUs.
Naphtha being a deregulated commodity, ONGC's product has
remained low on the priority list of PSUs trying to push their own
stocks, leaving the company with no other choice but to export. As
a result, the company set up its own marketing cell that carried
out independent sale and exports of naphtha for ONGC.
2.4.5 HUMAN RESOURCES
HR Strategy
To meet challenging demands of the business environment
Building quality culture and resources
Re-engineering and redeployment for maximizing utilisation of HR
potential
To build and upgrade competencies through virtual learning andalso opportunities for growth and providing challenges in the job
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Group Incentives for cohesive team working, with a view to
enhance productivity
2.4.6 RESEARCH AND DEVELOPMENT
ONGC, India's most valuable and profit-making corporate today,
is set to invest further in high-technology exploration and
production - and beyond.
Instead of confining itself to exploration for and production ofcrude oil and gas, it will have its own refineries to process crude
into petrol, kerosene, high-speed diesel, naphtha, and so on.
ONGC is also into the extraction of coal-bed methane (CBM),
having pioneered the technology in the country. Methane extracted
from coal beds is supplied through pipelines to be used as fuel in
industries and to generate electricity. But its extraction involves a
tough, technology-intensive process. India is estimated to have the
potential to produce around 1.5 trillion cubic metres of CBM.
ONGC has nine R&D institutes that are being independently
managed. The Keshav Dev Malaviya Institute of Petroleum
Exploration in Dehra Dun, which was established in 1962, is the
premier centre for basic and applied research in petroleum
exploration. KDMIPE deals with the research needs of the various
ONGC regions in the areas of basin analysis, petroleum
economics, geosciences and developing alternative sources ofenergy.
The Institute of Reservoir Studies (IRS), set up in 1978 in
Ahmedabad, is ONGC's nodal agency for formulating oil and gas
production schemes. ONGC's decisions on hydrocarbon
exploitation are based on IRS' recommendations. The major
projects it has completed include development plans for OIL's
Kharsang oilfield; OVL's Tuba field in Iraq; the Ain-Zalah oilfield
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for the Iraq National Oil Company; and techno-economic studies
of potential fields in Vietnam, Indonesia, Russia, China, and so on.
The other centres include the Institute of Oil and Gas ProductionTechnology, the Institute of Engineering and Ocean Technology,
both in Mumbai; the Institute of Petroleum Safety and
Environment Management in Goa, the Institute of Management
Development at Dehra Dun, and the Institute of Biotechnology
and Geotectonics Studies at Jorhat, Assam.
2.4.7 FINANCE
Finance is very important for any business, as without itbusinesses would not be able to start or survive. In order to start abusiness, sources of finance are needed such as grants or loans,which are used to buy essential items such as vehicles, premisesand other equipment. Finance is needed for any business tocontinue running, as money is needed to cover running costs suchas electricity and rent as well as towards expanding it.
If the planning of the financial side of a business is done
accurately, one can track the progress of the business in terms of
profit and cash surpluses. Accurate financial documents allow to
keep track of your cash flow and also monitor how much of your
loans have been paid off by you. One can measure the success
through accurate financial planning. Also, financial documents
allow us to see when we have enough retained profits to expand
and improve our business
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-: Finance Organogram :-
Director(Finance)
ED - CCF
Head Commercial &
Treasury
Regional Audit Heads
HQ/ER/SR/Western
Offshore/Western
Onshore
Head Corporate
Internal Audit
ED Chief PM&BG
Head Corporate
Accounts
Head Risk Management
Cell
Head Corporate Tax
Division
Heads of Finance
Assets/Basins/Services/
Institutes & Plants
Head Corporate Budget
& PAS
Head Integrated Trading
Desk
CRC Reporting Administrative Reporting Functional reporting
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Finance is the crux of any organisation. For any organisation it is
very important to utilise its monetary resources aptly. In the same
way the finance department in ONGC is very important
department. It consists of different sections such as:-
Budgeting
Inter Unit transfer
Pre-Audit
Cost accounting
Material accounting
Sales accounting
Cash and Bank
Asset accounting
Financial concurrence
Budgeting:
Budgeting is a technique whereby actual utilization is compared
with budgets in order to make the budget an effective financial
control tool. Any differences/ variances are the responsibility of key individuals
who can either exercise control action or revise the original
budgets after providing necessary justifications to the top
management
A.Objective
Facilitate the company in the preparation of its revised budgets,
budget estimates and commitment budgets;
Facilitate the company in monitoring actual performance against
the planned budget;
Adhering to statutory requirements with regard to declaring the
Companys plans to be included in the GOIs five year plans
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B. Budgeting process
The budgetary process provides flexibility to the managers in their
operations and at the same time makes them accountable for cost of
operations. At the corporate level, budget allocations to the assets,
basins, services, institutes and corporate functions are made on the
basis of physical work programme and overall resource
generations. The assets/basins, institutes and service chiefs have
operational flexibility to provide for the budget items and re-
appropriation within the budget items. In line with theinternationally accepted accounting methods followed by the
Company, expenditure is booked to various activities viz. survey,
exploratory drilling and development drilling and budget is
presented in terms of these activities, besides capital
expenditure. The process of activity cost build up is done at each
asset / basin by accepting the allocation cost from various services
within the work centre and transfer of cost from one work centre to
another to depict the activities in the geographical location wherethe physical activities are accounted as per requirement.
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Board of Dierctors
Project Appraisal Committee
Corporate Budget
Regional Budget Coordinator
Locational Budget Coordinator
(Asset)
Locational Budget Coordinator
(Institutes)
Functional Heads
Locational Budget Coordinator(Services)
Section Head
Locational Budget Coordinator
(Plants)
Functional Heads
Locational Budget Coordinator
(Basins)
Functional Heads Functional Heads
Locational Budget Coordinator(JVs)
Functional Heads
Executive Committee
Director (Plant)Director (Basin)Director (Asset)
Service Heads
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a) Distribution cost cycle:
In distribution cycle, costs from sender CC are allocated to the
receiver CC without losing the identity of the original cost element.
Cost elements are numeric codes through which CC are linked toGL in FI module. In ONGCs context, this cycle is used as a
primary activity of the period-end procedures to capture all non-
allocable costs including impairment provision, if any. Distribution is done at
the beginning of the month/ fiscal year by the central team/ or the designated
officer, Costing Cell at various locations in the organization.
b) Assessment cost cycle:
In assessment cycle, costs from sender cost center are allocated tothe receiver cost center using secondary cost element or allocation
structure. Allocation structure is logical grouping of cost elements
wherein the costs of sender cost center are allocated to the receiver
cost center as per the group defined for reporting purposes. In
assessment the identity of the original cost element from sender to
receiver is lost. This tool is widely used in ONGC for allocating all
support/operation support costs to the receivers. The cycles are run
in a particular sequence as per the business processes in order todetermine the activity price for the respective processes. Various
Statistical Key Figures (SKF) have been defined in Logistics
Information System (LIS) in CO module and they determine the
basis of allocation of costs from one cost center to other cost center
each time a particular assessment cycle is executed. Different cost
cycles have been designed in CO module for various locations of
ONGC depending on the activities undertaken at each location as
per the existing CRC structure. For example assets, basins, plants,institutes, workshops etc.
Accounting for Inter Unit Transaction:
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Overview
The Companys locations are spread all over the country and
transactions in the form of transfer of materials, services, assets
and expenditures take place at these locations. Different inter unittransfer (IUT) account codes are opened in SAP representing
different type transactions:
To properly account for these transactions
To give true and fair view of the accounts of the independent
locations, which operate as individual profit, centres.
IUTs take place through cross company code transactions where inan IUT generated at one location is responded to by the other
location in their respective company codes.
Objective
To ensure that IUTs are accurately recorded and reported in the
respective period so as to give a true and fair view of the
independent locations.
Materials Accounting:
Overview
This deals with accounting processes for the following three types
of materials:
Stores items Spares
Capital items.
These materials are procured from both international and domestic
markets. Imported materials are generally procured against 100%
advance payment through Letter of Credit (LC).
In case of certain materials, the actual usage (capital or revenue) is
not known at the time of procurement and therefore all materials
are recorded as normal inventory at the time of receipt. However,
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at the time of issue from Main Store, the material is booked as
capital expenditure or revenue expenditure depending on the use of
the material as specified by the user.
Objective
Accurate recording and control over receipt, issue, transfer of
materials;
Liabilities are fully recorded and distributed correctly;
Invoices are processed as per agreed terms; and
Applicable statutory compliances with respect to materialaccounting are duly complied with.
Sales Accounting:
Overview
It describes policies, procedures, control, roles & responsibilities
related to accounting for sales and collections from debtors. Sales
to collection cycle consist of pre- sales activities (like negotiations
on price and quantities, agreements), sales order (SO) preparation,
inventory sourcing, delivery of goods, billing and finally
collections.
The major sources of revenue for the Company are sale of:
a) Crude oil;
b) Gas;c) Value Added Products (VAP) like Naphtha, SKO, LPG, Ethane-
Propane etc.;
d) Services; and
e) Scrap.
f) ONGCs share in sales made by Joint Ventures.
Sale of these products takes place from different billing locations
like assets, plants, sales offices etc. The major sections involved inthe process of sales, distribution and collections are:
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Marketing: Finalization of SOs including sales quantities and
delivery schedules
Commercial: Fixation of product prices
Operations: Supply planning, dispatch of goods, details of services
rendered
Sales Accounts: Maintaining product prices in system, raising of
invoices, statutory compliances, debtor management
Cash & Bank (C&B): Collections and payment of statutory levies;
Materials Management (MM): Creating scrap inventory in case of
scrap sales and creating release order/ SO order in SAP.
Indenting Group: Inter unit transfer of material
Objectives
To ensure that sales are recorded accurately and are reported in the
correct period
To ensure that all statutory liabilities on sales are complied with;
To ensure effective debtor monitoring and timely collection.
Pre-Audit
Overview
Pre-Audit section is an integral part of Finance & Accounts (F&A)
function at ONGC (from here on ONGC will be referred to as the
Company). Pre-Audit section performs following activities,
a) Facilitates Letter of Credit LC payments/Letter of Short Credit
(LSC) payments through bank to foreign and domestic vendors
b) Verification and accounting of vendor invoices after makingcontractual deductions
c) Statutory deductions from vendor invoices
d) Refund of Tender Fees (TF), Earnest Money Deposit (EMD) & SD
Period-end activities consisting of accounting for materials in
transit, revaluation of liabilities in foreign exchange and GR/IR &
SR/IR account clearing.
Objectives
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Core to core can also be used as a mode of payment wherein both
parties have an account with the same bank.
Asset AccountingOverview
This section deals with policies, procedures, controls, roles
and responsibilities related to fixed asset accounting. Fixed
assets capitalized in the books of ONGC are classified into
following broad categories:
a) Land (leasehold and freehold)
b) Buildings and bunk houses
c) Plant & Machinery (P&M)
d) Furniture & Fittings (F&F)
e) Vehicles, survey ships, crew boats and helicopter
f) Railway sidings
g) Software (intangibles)
Fixed asset accounting is facilitated by Fixed Assets (FA)
module in SAP wherein different asset class have been
defined based on broader categories of asset like production
installations, buildings etc. For capitalization of any asset; an
asset master is created in FA module. Each asset has a
unique number assigned to it. Asset master has a General
Ledger (GL) account assignment based on the asset class for
posting of asset value to GL. For each capital item, a census
class has been created in SAP that is mandatory for
assigning a depreciation key to the asset. Depreciation key
determines the rate at which asset is depreciated. For
controlling purposes, indentor-wise asset details are
maintained in FA module.
Objectives
- All additions to/ deletions from/ movement of FA are
properly recorded in the books of accounts.
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- Depreciation is charged to Profit & Loss (P&L)
account/capitalized in accordance with the accounting policy
of the Company.
-
Fixed assets capitalized in the books of accounts actuallyexist on the reporting date.
- Intangibles are capitalized and amortized in accordance with
the accounting policy of the Company.
Financial concurrence
Overview
Financial concurrence is an endorsement of proposals initiated priorto approval of Competent Purchasing Authority (CPA). Financial
concurrence is required to be obtained for procurement of material
or procurement of a service or for any other kind of expenditure
(including capital expenditure).
Financial concurrence facilitates achievement of transparency in
decision making for procurement within the Company which is
subject to government audits; Central Vigilance Commission
(CVC) reviews etc.To help ensure judicious use of resources, the concurring officer is
responsible for ensuring financial prudence during procurement by
checking the requirement of the material or service, sufficient funds
availability for the same, etc. The whole process of financial
concurrence is recorded in a file for reference where complete
documentation for all cases is maintained. Also, all correspondence
between approving authority and concurring authority during the
financial concurrence process is maintained on the file. Preparationand maintenance of this file helps resolve disagreements at a later
date, if any. After the concurring officer in Finance & Accounts
(F&A) section releases the PR in SAP, CPA as per BDP finally
approves the PR.
Objectives
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The objective of financial concurrence is to protect financial
interests in decision making while ensuring financial propriety as
a part of internal control system. The internal control is exercised
through concurrence by F&A section so that decision making is in
accordance with the policies, guidelines, rules, regulations, and
provision of budgets, hence ensuring prudent decision making in
the interest of the Company.
2.6 Issues or problems at ONGC
1) ONGC being a PSU, the control of government of India is more.
2) Delay in decision making since the approval procedure is done through the GOI
3) Since ONGC being forced to concentrate on E & P, GOI has not give it a right
to market its project. IOC does the marketing for crude oil and GAIL for natural
gas. Hence ONGC cannot diversify.
Chapter 3
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3.0 Financial Data Analysis from 2004-2008
3.1 Balance Sheet
Liabilities 2008 2007 2006 2005 2004
Share
Capital21,388.87 21,388.87 14,259.30 14,259.28 14,259.27
Reserves
& Surplus684,785.12 597,850.39 525,337.39 454,194.87 391,171.66
Net
Worth (1)706,173.99 619,239.26 539,596.69 468,454.15 405,430.93
SecuredLoans (2)
0.00 0.00 0.00 0.00 0.00
Unsecure
d Loans (3)124,827.09 151,090.66 127,226.11 99,162.19 114,077.94
Total
Liabilities
(1+2+3)
831,001.08 770,329.92 666,822.80 567,616.34 519,508.87
Assets 2008 2007 2006 2005 2004
Fixed Assets
Gross Block 574,637.76 520,380.67 478,823.45 429,838.49 410,076.23
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It is a performance measure, which is used to evaluate the efficiency of an
investment or to compare the efficiency of a number of different investments.
To calculate ROI, the benefit (return) of an investment is divided by the cost of
the investment; the result is expressed in percentage or in ratio. The above,
graph indicates that the ROI has increased from 32.31 % to 35.78% during the
year 2008. This shows that if you invest Rs.100/- in the business you will earn
Rs 135.78 i.e a return of 135.78 %.
Debt- Equity Ratio
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Debt equity ratio is a measure of a companys financial leverage calculated
by dividing its total liabilities by stockholders' equity. It indicates what
proportion of equity and debt the company is using to finance its assets. Theabove graph indicates that the debt/equity ratio has declined substantially
from 0.28% to 0.18% in 2008 i.e. if you invest Rs.100/- in the business, the
proportion of borrowed fund and owned fund would be Rs 18/- is borrowed
fund and Rs.82/- is owned.
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2004 2005 2006 2007 2008
49.51% 49.47%
56.15%
50.96%
53.04%
Sales
The profit earned from a firm's normal core business operations. This value
does not include any profit earned from the firm's investments (such as
earnings from firms in which the company has partial interest) and the
effects of interest and taxes. The operating profit ratio has increased from
49% in 2004 to 53% in 2008.
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Gross Profit
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
70.00%
80.00%
90.00%
100.00%
2004 2005 2006 2007 2008Gross Profit 42.99% 43.69% 48.12% 47% 47.45%
A company's revenue minus its cost of goods sold. Gross profit is a
company's residual profit after selling a product or service and deducting the
cost associated with its production and sale. The above graph indicates that
the profit after bearing the cost has increased from 40% in 2004 to approx
45% in 2008.
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0
50
100
150
200
250
2004 2005 2006 2007 2008
TIMES
Debtor Turnover Ratio
The above graph indicates that the collection period from the debtors has
increased from 110 times in 2004 to 200 times in 2008. Which is a good sign for
the business.
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There were five major steps in the implementation of the
Project:
1. Project Preparation (Design for all Business modules for all Stages
and phases)
2. Business Blueprint (Design for all Business modules for all Stages
and phases)
3. Realization (phase wise)
4. Final Preparation (phase wise)
5. Go-live and Support (phase wise).
The following are the modules implemented in ONGC:
(1) Production and Planning (PP): The primary objective of the PP
module is to track planned and actual costs of production
processing of Crude Oil, Natural Gas and VAP. It facilitates real
time updating of data, helps in calculating actual & standard costs
at any stage in the product cycle, monitors real time production
environment with online availability of Information related to
Materials & Products, as well as customized report generation for
faster decision making.
(2) Plant Maintenance (PM): The PM module provides a system for
the management and maintenance of technical systems including
the cost incurred in the planned and breakdown maintenance. By
being integrated with other modules it gives the cost of eachmaintenance activity. It will also track various audit activities and
their 9 follow up actions in ONGC. New feature, like online
availability of equipment manuals was invoked through LDM
functionality.
(3) Financial Accounting: This module Integrates General Ledger,
Accounts Payable, Accounts Receivable with all the sub ledgers
synchronized with the G/L in an on-line, real-time manner. Theexisting UFSO (KUBER) is a standalone module with only FI
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functions. In ICE FI function is integrated with all the adopted R/3
modules starting from supply to the sales. FI function have been
suitably updated and up linked to this integrated system to
seamlessly interact with all other modules for comprehensive
transaction tracking and reporting facilities in all the areas of
Financial Management System.
(4) Controlling (CO): Controlling (CO) covers the functionalities of
Cost Centre Accounting, Profit Centre Accounting and Product
Costing for wide range of Management reporting. Controlling
features are integrated to the operational modules such as Sales &
Distribution, Material Management, Production Planning, Plant
Maintenance, OLM, Project System and Financial Accounting.
(5) Joint Venture Accounting (JVA): This module is to cover the
Joint Venture activities, starting from Joint operating agreements,
Work Programs, Equity equations, Expenditure, Cash Calls,
Recovery, Billing and Accounting (as operator and non-operator).
(6) Sales & Distribution (SD): SD module comprises of entire Sales
& Distribution activities starting from sales agreements to
delivery and generation & printing of invoice in integrated sales
process for all products of ONGC including scrap and services. It
is integrated with financial accounting for account receivable
management; material management and production planning for
real time stock updating and quality management for 10-quality
analysis and reporting. Fully compliant with Indian taxation
requirement including VAT, it will generate statutory documents,
e.g. Excise invoice and sales registers and maintain audit trail of
transactions through document flow.
(7) Project System (PS): This module encompasses all phases of a
project from Project Conceptualization, Budgeting, planning of
costs and resources and approval of Estimates to Execution,
payment and Completion of the project in an integrated scenario.
Many customized developments have been made in PS module
for Engg. Services, Drilling, Work over, Survey, NELP, Dry-
docking and consultancy/ R&D operations. It enables the treatment
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of a project as an Enterprise with links to other functional modules
and the project can be analyzed in its entirety.
(8) Material Management (MM): This module integrates all
transactions and functions necessary for material requirement planning, procurement, inventory management, invoice
verification, and material valuation. In addition to handling
special stock types for Crude oil and other product materials
transported by pipeline, this will monitor stocks and automatically
generate purchase order proposals for the purchasing department.
Existing IMMS system have been seamlessly updated into this
system. Additional feature of mapping Service Contracts and
Works has been done in this module.
(9) Quality Management (QM): QM module covers inspection of
procured material, inspection of in-house products, and generation
of Quality certificate for issuing finished products to the
Customers. Among many features, Vendor/Material complaints
processing, quality clearance certificate for incoming material and
for the products, failure analysis etc. shall be available through
this system.
(10) ABAP: The ABAP (Advanced Business Application
Programming) development team provides support to functional
module team pertaining to any new developments, enhancements,
feasibility, data migration etc. in the standard SAP R/3 system so
as to configure as per ONGC's business process pertaining to MIS
reports, strategic decision making reports.
(11) Business Information Warehouse (BW): This module shallgenerate analytical and strategic reports for Business Analysis and
performance tracking including the Corporate Key Performance
Indicators. The inputs will come from all finance and logistics
SAP modules as well as from non-SAP systems like Excel files
also. This would become the single, integrated, MIS System for
ONGC. These reports would be available online and on the web.
ICE, like any ERP implementation, has components of business
process reengineering, optimization of business process, re-
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Chapter 55.0 Asset Accounting procedure Under
Environment of ERP i.e. SAP
The integrated fixed asset accounting module in ERP is used to
manage fixed assets on an inventory basis, regardless of any
industry it is. It enables both a qualitative and quantitative
overview of the available fixed assets. Included in this are all year-end closing evaluations, such as the asset history sheet,
deprecation calculation and transfer of fixed asset in or out of the
company
Accounting policies
Fixed assets
FA is stated at historical cost. FA received as
donations/gifts are capitalized at assessed values with
corresponding credit transferred to Capital Reserve.
All costs relating to acquisition of fixed assets till the
time of commissioning of such assets are capitalized.
Intangibles
Costs incurred on intangible assets, resulting in future
economic benefits are capitalized as intangible assets and
amortized on Written down Value (WDV) method beginning from
the date of capitalization.
Depreciation
Depreciation on FA is provided for under the WDV
method in accordance with the rates specified in Schedule XIV to
the Companies Act, 1956
Depreciation on additions/deletions during the year is
provided on pro-rata basis with reference to the date of
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Fixed assets capitalized in the books of the Company are
classified into land (leasehold and freehold), buildings and
bunkhouses, P&M, F&F, vehicles, survey ships, crew boats,
helicopters, railway sidings and software (as intangibles).
This paragraph explains the processes, by which different
types of fixed assets are capitalized in the books of
accounts:
a) Capitalization of ready to use assets (other than
land).
b) Assets that require installation and/or commissioning
(other than those capitalized through WBS (work
breakdown structure) route in Project Systems (PS) modulein SAP). For example Air conditioning unit.
c) FA capitalized through WBS route in PS module (for
example PP), buildings and other capital projects).
d) Well materials (like casing pipes, tubular, well heads
etc.).
e) Capitalization of land (leasehold and freehold).
f) Intangibles (software).
g) Capitalization of insurance spares.
h) Capitalization of forex fluctuations, if any, on
purchase of capital items.
i) Capitalization of asset fabricated in central
workshop.
j) Creation of new capital item in SAP on firstpurchase.
k) Dry well assets.
Flow Charts
Ready to use assets (excluding land)
Ready to use assets include F&F, vehicles, crew boats,
helicopters and certain P&M that are ready to use. These
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capital items are procured through Purchase Requisition
(PR)/Purchase Order (PO) route and received in main
stores. Capitalization process commences when the
indenter/ requisitioned creates a reservation in the system
for issue of capital item from stores.
Main Store issues material
after receiving signed copy of
reservation & posts goodsissue in SAP
Competent authority createsreservation in SAP for issue of
asset & forwards copy to Main
Store/Site store
SAP Report pendingreservations for assets
reviewed by Asset Accounting
Section
Asset Accounting sectionallots asset number to capital
item in SAP
Asset under installation
Assets that require installation and/or commissioning before they
are ready for use are capitalized through Asset under Installation
(AUI) route. For example air conditioning units. This does not
include fixed assets capitalized through WBS route in PS modulein SAP. This process commences before a Purchase Requisition
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Asset Accounting sectioncreates AUI in SAP &
intimate s AUI number toindent or
Indent or creates PRin SAPwith asset & installation /
commissioning as separateline items
Indent or informs AssetAccounting section to create
AUI in FAmodule
Competent Authority createsreservation in SA P for issue of
asset & forwards it to MainStore /Site store
Indent or intimates Asset Accounting section & provides
details of reservation
Asset Accounting sectionallots asset number to capital
item in SAP
Main Store issue s capital itemafter receiving signed copy of
reservation & posts goodsissue in SAP
Indent or creates SES for
installation /commissioningcharges in SAP
Indenter intimates assetnumbers linked to AUI
numbers to Asset Accountingsection n
Asset A ccounting sectionsettles installation /
commissioning charges tomain asset
Indentor forwardscommissioning note to Asset
Accounting section
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Capitalization of well materials like casing
pipes, tubular etc
There are various materials used for drilling of exploration
or development wells like casing pipes, tubular, well heads,
drill pipes, X-mas tree etc. These materials are capitalized
as P&M and depreciated at 100% (except for well heads &
X-mas tree which are depreciated at 30%). Depreciation on
well materials is initially posted to internal order 1ZZ in
SAP. From the internal order it is finally posted to EWIP or
DWIP as the case may be. Well materials are issued from
stores on a daily basis to WBS element and capitalized as
one single asset at the month end.
Competent authority creates
reservation in SAP & forwards
copy to Main Stores /Site Store
Asset Accounting section
downloads consumption of
well materials in SAP
Main Store issue s well
materials after receiving copyof reservation & posts goods
issue in SAP
Asset Accounting section
creates new asset masters forwell materials used in
exploration & development
Asset Accounting section
passes direct FI entry for
capitali zation of well materials
in SAP
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Indenter creates ATN &
changes status of asset from
FA to FAIT in SAP
Asset Accounting section
reviews pending ATNs ondaily basis & posts transaction
in SAP
Receiving indentor forwards
signed copy of ARN to Asset
Accounting section
Receiving indentor creates
ARN in SAP
Asset Accounting section
reviews report & changesstatus of asset from FAIT to
FA in SAP
Within the same unit (inter indentor transfer)
Indentor wise asset registers are maintained in FA
module and there can be situations where asset in custody
of one indentor is transferred to other indentor within the
same unit. This entails the following under activitiesmentioned below:
a) Change in indentor code in the asset master
b) Updating of CC
c) Reclassification of asset if required.
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Replacement of fixed asset
Replacement of FA would involve discarding of original
asset as a first step and then creation of new asset
Accounting for depreciation/depletion
FA is depreciated whereas PP is depleted based on oil & gas
production and oil & gas equivalent reserve estimates. This
section has been divided into following three sections:
a) Accounting for depreciation on FA
Depreciation is accounted for in books of accounts in accordance
with the following accounting policies:
I. Depreciation on FA is provided for under the WDV method
in accordance with the rates specified in Schedule XIV to the
Companies Act, 1956 except items of P&M used in wells with
100% rate of depreciation and low value items not exceeding INR
Five Thousand that are fully depreciated at the time of addition.
II. Leasehold land is amortized over the lease period.
III. Depreciation on adjustments to FA on account of exchange
difference and price variation is provided for prospectively over
the remaining useful life of such assets.
IV. Depreciation on FA (including support equipment and
facilities) used for exploration and drilling activities and on
facilities is initially capitalized as part of exploration or
development costs.
Depreciation key is defined for each asset in the asset master.
Depreciation key determines the rate of depreciation of the asset.Depreciation on each asset is computed on daily basis in the
system and posted at the time of depreciation run in SAP. There
are certain items for which special rates of depreciation have been
prescribed under Schedule XIV of the Companies Act, 1956 and
the detailed list of these items is available on SAP. Depreciation
run is done on a monthly basis.
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Asset Accounting section
again executes deprun in testmode & generates deprun
report in SAP
Asset Accounting section
verifies report forabnormalities & changes, if
any, are made
Asset Accounting section
executes deprun in update
mode in SAP
Asset Accounting section
posts depreciation in SAP
Asset Accounting sectioninitially executes deprun in
SAP for assets less than equal
to INR Five Thousand
b) Accounting for depletion on PP.
PP are depleted on Unit Of Production method under whichdepletion is calculated on the basis of the number of production or
similar units expected to be obtained from the asset by the
enterprise. For the purpose of depletion computation and posting,
group asset is created corresponding to creation of PP asset in
SAP. Since, PP asset is created separately for expenditure,
depreciation and abandonment cost, corresponding group asset is
also created separately for these three items. A different
depreciation key 70 is assigned to group asset that facilitatesdepletion computation on depreciation run.
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Depletion recomputed by
CA,DDN manually andcommunicated to Asset
Accounting section at units
Asset Accounting section atunits posts the shortfall or
reverse excess depletion, as
unplanned depletion in SAP
Asset Accounting section atunits executes repeat deprun
in SAP for computation &
posting of depletion
Physical verification procedures
Physical verification policy
A separate stock verification team at each location in accordance
with the physical verification policy of the Company conductsphysical verification of FA. Policy specifies the frequency and
criteria for conducting physical verification:
In case of FA, coverage & frequency is based on the classification
of assets into category A, B, C for self verification by indenter
a) Category A includes individual asset with gross book value
greater than INR One Crore. These items are physically verified
annually.
b) Category B includes individual asset with gross book
value between INR Ten Lakh to INR One Crore. These items are
physically verified annually.
c) Category C includes individual asset with gross book
value less than INR Ten Lakh. These are further divided into sub-
categories i.e. C1, C2 and C3 for the purpose of verification.
C1 - Asset with gross book value greater than INR One lac but
less than INR ten Lakh
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C2 - Asset with gross book value greater than INR Fifty Thousand
but less than equal to INR One Lakh.
C3 - Asset with gross book value greater than INR Ten Thousand
but less than equal to INR Fifty ThousandThese items are physically verified every third year.
d) Self verification by indentor includes:
Verification of FA with gross book value less than equal to
INR Ten Thousand that are verified every year and
All F&F items irrespective of their value are verified once in
two years.
Generation of discrepancy report and settlement of
discrepancies
This section describes the process flow for physical verification
including generation of discrepancy reports if any deficit or
surplus is identified and finally settlement of discrepancy.
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Stock verification teamgenerates item wise report of
assets by indentor
Stock verification teamconducts verification &
updates status of each assetin SAP
Indentor forwards proposal for
write off to competentauthority.
Stock verification team
generates discrepancy reportin SAP & forwards a copy to
respective indentor
Indentor obtains approval ofcompetent authority
DeficitSurplus
On approval, indentorforwards a copy of approval
note to stock verification team
& Asset Accounting section
Stock verification teamexecutes BDC in SAP to
update status in asset master
Asset Accounting sectionprocesses approval note in
SAP & removes asset record
On receipt of approval AssetAccounting section posts
adjustment in SAP & creates
the asset
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Findings
The implementation of the Project ICE has resulted in the
following benefits:
Optimization and standardization of re-engineered business
processes to enable integrated information availability;
Availability of single source management information that is
accurate and on time to facilitate decision making;
Elimination of duplication of activities across business processes
by capturing data at source point itself
Facilitate information consolidation at all levels resulting in
decentralization of decision-making leading to better business
governance through the information system;
Availability of information at the right time, at the right place,
thereby, is enhancing managerial effectiveness leading to higherproductivity;
Integrating all business applications like Production and
Planning (PP), Joint Venture Accounting (JVA), Sales &
Distribution (SD) under single ERP platform
Improved responsiveness to changing global market scenario by
adopting new and improved technology solutions;
Improved stakeholder relationship management, providing better
services to the society, shareholders, partners, Government etc;
Integrated Supply Chain Management, optimization of inventory
holding achieving better working capital utilization.
Asset accounting has following advantages done on SAP
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SWOT ANALYSIS OF ONGC
Strengths
Efficient & trained ManpowerSound TechnologyLarge number of crude oil wellsHighest market capitalizationLarge asset structureBig and global business empire
Financial soundnessLeading in oil & gas sectorEffective seismic surveyGood liquidity positionAvailability of geological data
Weakness
Lack of Indian vendors for new technology
Different geographical culture.More Govt. interference
Opportunities
To venture into downstream activities like Marketing of oil inIndia.To spread business global under OVLTo explore alternate energy sources.To make expansion in petrochemicals & value added products
Threats
Continuous decrease in oil & gas resourcesControl of Govt. and PPAC regarding price fixationDecreasing market price of crude oilGovts decision regarding fixation of price band on import ofCrude OilFrequent changes in technology
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8/6/2019 ONGC as Per Sachdeva Final
79/79