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FUNCTIONING OF PEM-FINANCE

BY

SWATI NAIR

STAFF NO. 6075975

EXECUTIVE TRAINEE

BATCH: 2009-10

FINANCE

PROJECT ENGINEERING MANAGEMENT

BHEL, PEM/PPEI NOIDA


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PEM/PPEI Building Page 2Plot No.25, Sector- 16ANoida-201301

ACKNOWLEDGEMENT

At this moment, I have hardly enough words to express my gratitude

towards those who were constantly involved with me during my on the job

training period at PEM- (FINANCE), BHEL.

First of all, my heartfelt thanks to Functional Head Mr Shashi Kant Sahni

who helped me every possible manner. He ensured a proper environment for us

to work in. For my Department Head Miss. Rita Saxena, it cannot be gone unsaid

that she put in a sincere effort to make me learn and devoted a lot of her valuable

time to see that I receive a proper modular training in different areas.

I express my sincere gratitude to my mentor and guide Mrs. Poonam Lulla, being a

constant source of inspiration. He ensured that my learning in this department is

complete and reposed faith in my work by assigning responsibilities and giving

freedom. Besides, I express my sincere thanks to all the members of Finance

Deptt. for their friendly and helpful attitude.

SWATI NAIR

EXECUTIVE TRAINEE

STAFF NO. 6075975

BHEL PEM


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CERTIFICATE

This is to certify that this project report entitled " ON JOB TRAINING

REPORT by Ms. SWATI NAIR after completion of on-the-job training, is a

record of bonafide work carried out by her under my supervision and

guidance. This is as a part of her training programme and being

submitted to HRDD - Power Sector, Kribhco Bhavan, Noida.

Ms. Rita Saxena Mrs. Poonam A. Lulla

DGM Sr. MGR

BHEL - PEM BHEL - PEM


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ABSTRACT

The purpose of this report is to give a brief idea about the project work

that has been done during On Job Training to sharpen the skills in

practical aspects of the job. Project work is carried out in work related

area. Broadly, the various activities which made a part of our on the job

training were PEM familiarization, familiarization with work

particularly in Finance and finally the day to day learning of the

routine work in the department. It contains introduction about

organization and PEM is given followed by description of Finance

department and its functions in PEM. On the whole, this report gives a

clear picture about my ten months on the job training in BHEL during

my tenure as Executive Trainee.


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INDEX

Title

TABLE OF CONTENT

ACKNOWLEDGEMENT 2

CERTIFICATE 3

ABSTRACT 4

OVERVIEW OF ORGANISATION

ABOUTTHEORGANIZATION 6-8

PROJECTENGINEERINGMANAGEMENTDIVISION 9-10

OVERVIEW OF FIN DEPARTMENT 11-12

WORK CONTENT OF ON THE JOB TRAINING

ASSIGNMENTSDURINGON-JOBTRAINING: 12-24

CONCLUSION 25


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1.BHEL: AN OVERVIEW

1.1 INTRODUCTION

BHEL is the largest engineering and manufacturing enterprise in India in the energy-

related/infrastructure sector, today. BHEL was established more than 45 years ago with

the vision to become a world class engineering enterprises, committed to enhancing

stakeholders value. The company is striving to give shape to its aspirations and fulfill the

expectations of the country to become a global player.

1.2 HIGHLIGHTS

BHEL sets contributed 74% of the power

generated in the country in Financial

Year 2009-10.

Has earning profit continuously since

1971-72 and paying dividend since

1976-77.

Total order in hand for, at 31st March

2010, execution in 2010-11 and

beyond stands about Rs. 143800Crores the highest-ever.

Caters to the core sector of the Indian

Economy viz. power generation and

transmission, industry, transportation,

renewable energy etc.

Have a wide network of 14

manufacturing divisions, 4 power

sector regional centres, 8 service centres, 18 regional offices and more than 100s of

projects. Apart from it BHEL has one subsidiary named Bharat Heavy Plates &

Vessels (BHPV). BHPV is a fully owned subsidiary of BHEL taken over in May, 2008.

BHEL have multiple portfolios operating at the same point of time. More than 70% of

the BHELs total business comes from power sector.

Has made its presence over 60 countries. Foray into a new market Belarus.


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Has acquired certification to Quality Management System (ISO 9001), Environmental

management System (ISO 14001) and Occupational Health and Safety management

System (OHSAS 18001).

Manufactures over 180 products under 30 major product groups.

Capability to deliver 15000 MW of power equipment per annum established and

further augmentation to 20000 MW per annum by March, 2012.

For the second time, Business Standard newspaper recognized BHEL as the Star

Public Sector Company of the year for Financial Year 2009-10.

1.3 FINANCIAL PERFORMANCE

BHEL notched up its highest ever turnover of Rs.

34050* Crore with a PBT of Rs. 6353* in the

Financial Year 2009-10.

Net Profit of Rs. 4287* Crore with a EPS of Rs.

87.60* for the Financial Year 2009-10.

Total export turnover (Physical + Deemed)

touched Rs. 14436 Crores.

Total Net Worth of Rs. 15721* Crores at the end

of Financial Year 2009-10.

Expected Performance for the year 2010-11

Parameters

Gross Sales (Millions) 380,000

Gross margin (Million) 81,200

PBDIT to Total Employment (Million) 1.740

Gross Margin to Gross Block (%) 92.02

Gross Profit to Capital Employed (at year

end) (%)

45.71

Net Profit to Net Worth at year end) (%) 25.64

Added Value to Gross Sales (%) 17.03


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Further a stretch Turnover target of Rs. 395,000 Millions has been fixed under Excellent

rating.

1.4 STRENGTH

The greatest strength ofBHEL is its highly skilled & committed employees. Every employee

is given an equal opportunity to develop himself and grow in his career. Continuous training

and retraining, career planning, a positive work culture and participative style of

management, all these have engendered development of a committed and motivated

workforce leading to productivity, quality & responsiveness.


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2. PROJECT ENGINEERING MANAGEMENT (PEM)

2.1 Introduction of PEM

Project Engineering Management Division (PEM) is a division within the power

group of BHEL to provide total Systems Engineering for BHEL equipment, as well as for

procurement, erection & commissioning of non-BHEL systems & equipment for thermal

power stations.

Fig. 2.1 PEM and its Coordination

Project Engineering

Management

Customer/

Consultants National

BodiesProject Engg

Balance Of Plant

Vendors

Quality/Inspection

Agencies

Project/site

Management

Contracting

Agencies

BHEL

Mfg. Units


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In 1974, BHEL set up its engineering consultancy wing under the name Consultancy

Services Division (CSD) to address the market demand for turnkey services in power and

related areas. In 1977, CSD was re-christened as Projects Engineering Division (PED). Since

1984, it has been known as Project Engineering Management (PEM).

Project Engineering Management (PEM) division is BHEL's power plant 'System

Integrator' providing total engineering solutions for power projects as well as procurement

and erection & commissioning of non-BHEL systems & equipment for thermal power

stations, thereby enabling BHEL to offer complete Engineering, Procurement and

Construction (EPC) services.

PEM is responsible for the procurement of Balance of Plant (BOP) items, these are the

items which are not manufactured by BHEL and required for the setting up of the Power

Plant.

PEM also provides total engineering solutions for Power Projects as well as procurement

and erection & commissioning of non-BHEL systems & equipment for power stations,

thereby enabling BHEL to offer complete Engineering, Procurement and Construction (EPC)

services.

Currently PEM is handling more than 125 customer projects.

2.3. DEPARTMENTS IN PEM

Mechanical System Engineering(MSE)

Mechanical Piping Layout(MPL)

Mechanical Auxiliaries (MAUX)

Electrical

Civil

Control And Instrumentation(C & I)

QualityProposal Engineering(PE)

Project Group (PG)

Finance

Human Resource.


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3. MY DEPARTMENT: FINANCE

Finance Section of PEM is divided as below;

A brief of responsibility of the above sections of finance departments are as follows;

Project Section:

Routine Accounting of all the power projects.

Preparation and regular updating of AS-7 (Accounting for construction contracts).

Making payments to indigenous vendors and foreign vendors (LC payments) for the

material supplied by them.

Customer billings, updation of collections, and reconciliation of debtors.

Getting the Quarterly and Annual audit of Power Projects which is being handled.

Concurrence Section:

Granting concurrence to procurement files, which involves vetting of Comparative

Statements and ordering proposal.

For the purpose of procurement of material it is necessary to have good vendor base

for different items, so that advantage of competitive prices could be availed. Hence

PEM have a dedicated cell which is known by the name of Vendor Development Cell

which is involved in evaluating and registration of new vendors.

Ensuring that items are procured at lowest possible for prices, for this concurrence

cell ensures that Reverse Auction is conducted where ever is required, so that the

items are procured at the lowest possible prices.

FINANCE

PROJECT CONCURRENCE ESTABLISHMENT BOOKS AND

MIR

TAXATION


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To take part in negotiation with the vendors in order to obtain the best prices for the

items.

Establishment:

Processing of employees salary and other benefits payable to employees, payment of

advances and processing of employees claims (Like Medical, Tour allowances etc.).

Taxation Cell:

Monthly reporting and filling of returns of CST and VAT.

Timely depositing of TDS and Service tax.

Issuing C forms to the vendors.

Dealing with various Nodal Agencies on the issues relating to Central sales tax and

VAT.

Books and MIR:

All the activities relating to budgeting.

Maintaining the records of all the fixed assets.

Coordinating statutory, Government, Tax and internal audit.

Monthly preparation of various MIR`s.

Controlling the inter unit transactions.

Vetting of proposals of PE`s.Review of all the balances, including the Debtors.

Ensuring the proper quarterly and annual closing of accounts.


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4.WHERE I STANDS:

4.1 My work consists of the following;

Billing to the customers.

Processing of vendor bills.

AS 7 sheet preparation and updation.

Updating cash collection

Quarterly & Financial Closing.

Accounting for Inter Unit Transaction.

4.1.1 BILLING TO THE CUSTOMERS

Billing advices are submitted by PG to finance department along with invoice, Material

dispatch clearance certificate(MDCC),Packing list, Lorry Receipt as required by the

particular contract between BHEL & Customer.

Items to be billed should be in line with BBU.

Before making billing invoice to the customer we should ensure that concern liability is

booked.

Billing is done as per the terms of payment with customer. For example 10% on advance

60% on dispatch, 20% on deffered & 10% on MRC billing.

Billings are of following types types. One is dispatch billing, second is MRC billing third

is PVC billing, and forth is Freight billing.


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4.1.2 PROCESSING OF VENDORBILLS

Bills are submitted by vendors to the Project Groups

(PG), upon the checking of by PG this are forwarded

to Finance for the payment, each payment is allotted

a unique number which is known as CMP control

number for keeping the track of payments.

Item description, quantity and rate are verified with

the billing schedule.

Amount and rate of taxes & duties, packing &

forwarding and freight charges are checked with

respect to the conditions given in the purchase

order.

Calculations are checked and the net amount claimed is verified with respect to the

terms of payment.

It is ensured that all necessary documents like Packing List, LR, MDCC, Guarantee

Certificates, Insurance Intimation, as required in the purchase order, are enclosed

with the bill.

It is ensured that the date of LR falls within the contractual delivery date LD amount,

as per the terms of the PO, is deducted from the net amount claimed.

It is verified that the bank guarantee (PBG/SDBG), has been received from the

vendor and the same is valid, as per the terms of the PO.

For making MRC payment, MRC issued at site is to be accompanied with the bill. Any

shortage/ damage reported in the MRC is to be taken care of, and necessary

recovery is made from vendors bill. Bill date should not be earlier than MRC date.

Freight claims are to be accompanied with MRC and transporters money receipt,

where ever applicable. Total freight to be restricted to the amount mentioned in the

PO.


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Claim of initial 5% payment, against approval of category I/II drawings, is released

on declaration of the same by CMP/ Eng.

In case the payment is through bank and any deduction has been made from the

vendors bill, a letter from the vendor, advising their bankers to accept the reducedamount, is obtained.

In case of payment through LC, advance set of documents is to be scrutinized and

ensured that all the documents, as required under LC terms, have been provided by

the vendor.

Check list for passing of vendor bill;

o Copy of LR & Packing Slip.o Copy of dispatch clearance customer.o Copy of test certificates/inspection reports, CQIR report etc if indicated in the

SCC/ Project checklist.

o Copy of vendor invoice.o Insurance intimation letter.o Copy ofGuarantee certificate issued by vendor.o Excise invoice of vendor if indicated in the Project checklist.o Any other document if specified in the Project checklist.


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Combining and Segmentation of Assets for AS 7.

Criteria for Segmenting and Combining Segment Combine

A contract comprises of number of assets

Separate proposals have beensubmitted for each asset.

Each asset has been subject toseparate negotiation.

Contractor / Customer ca accept/reject a part of contract linked to

that asset. and

Cost and revenue of each asset canbe separately identified.

Treat each asset

as separate

contract unit.

Construction of an additional asset at the option

of the customer or amendment to the original

contract to construct an additional asset:

When asset differ significantly in design,technology or function;

Price of the asset is negotiated withoutregards to the original contract.

Treat as separate

contract unit.

A group of contracts are negotiated as single

package.

Contacts are closely interrelated which ineffect can be treated as a single project

with an overall profit margin.

Contracts are performed concurrently orin a continuous sequence.

Treat all such

contracts as a

single contract.

It may so

happen that

those contracts

are with asingle customer

or several

customers.


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CONTRACT REVENUE AND COST

CONSTRUCTION CONTRACT

FIXED PRICE COST PLUS

REVENUE REVENUE

Initial Price Agreed Actual Cost Incurred as per

Add: Agreed Variation or claim agreed cost formula.

for changes in design, etc. Add: Agreed % on cost

Add: Agreed Cost Escalation Add: Incentives

Add: Incentives Less: Penalties

Less: Penalties

COST COST

Direct Cost to Contract Direct Cost to Contract

Add: Cost that can be allocated to Add: Cost that can be

Contract. allocated to contract.

Add: Cost Specifically chargeable Add: Cost Specifically to

customer. Chargeable to customer.


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NOTES:

1. Claims Arise from delay in supplying the design or specification by the customer oralteration to work which has been done as per approved design. They are included in

the contract revenue when negotiations have reached an advance stage such that

the customer will accept the claim and amount can be reliably measured.

2. Incentives incentives are paid to the contractor when specified standard isachieved or exceeded. Incentive can be recognized as contract revenue when the

contract is sufficiently advanced to ascertain the degree of standard achieved and

the amount of incentive to be awarded by the customer can be reliably measured.

3. It can be noted that in order to recognized the revenue revenue can be

reliably measured is a must condition.

4. Direct cost should not be reduced by the sale proceed of surplus material or plant

and machinery. They are treated as only Other Income. However as per IAS 11

costs can be reduced by the mentioned sale proceeds.

5. Again following question may arise;

For which period cost may be accumulated? What will happen to the cost incurred prior to the date of securing the contract?

The point wise answer is as follows;

Cost should be identified from the date of securing the contract to the finalcompletion of contract.

Cost of obtaining the contract may be included in the contract cost. However if thecost has already been charged to expenses it cant be written back for the purpose of

inclusion into contract cost. In case cost for obtaining the contract is spent in one

year and contract is secured in another year, then such cost can be deferred subject


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to there is a reasonable certainty that the contract will be obtained. If in the

subsequent year contract is not obtain then such expenses should be written off.

6. However the following cost should not charge to contract;

General Administration Selling Research and development. Depreciation on plant not used in the particular contract.

RECOGNITION OF REVENUE AND COST.

When the outcome of a contract can be estimated reliably, contract revenue

and contract cost associated with the construction contract shall be recognized as

revenue and expenses respectively by reference to the stage of completion of

contract activity at the end of the reporting period. An expected loss on the

construction contract shall be recognized as expenses immediately.

Since the recognition of revenue and expenses under construction contract isdepend upon reliable estimation of outcome of the contract. How to satisfy

that outcome can be reliably estimated? It can be clear from the following

table.


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CONSTRUCTION CONTRACT:

Outcome of the contract can be reliably estimated if

Fixed Price Contract Cost Plus Contract

- Total contract revenue can bemeasured reliably.

- It is probable that economicbenefit attached to the

contract will flow to the

enterprises.

- Stage of completion can bereliably measured.

- Cost to complete the contractcan be reliably measured.

- Cost attributable to thecontract can be clearly

identified and measured

reliably.

- Contract cost attributable tothe contract can be clearly

identified and reliably

measured.

- Contract cost may or may notspecifically reimbursable.

- It is probable that economicbenefit attached to the

contract will flow to the

enterprises.

Secondly how to determine the stage of completion?Stage of completion should reflect the work performed. For this standardspecified three methods as below;

Ratio of cost incurred to date to estimated total cost. The formula canbe put as below;

Cost to Date

% of Completion = ------------------------------------------------------------------

Cumulative Cost Incurred + Estimated Cost to Complete.

Survey of work performed. Completion of a physical proportion of the contract work.


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Note: The question may arise whether stage of completion be measured

with reference to progress payment received? The answer is NO; it can

only be a indicator.

Revenue when outcome of the contract can be reliably measured.Revenue = Contract Price X Percentage of Completion Revenue Previously

Recognized

Cost: Contract costs are usually recognized as an expense in profit and loss

account in the accounting period in which the work to which they relate

is performed.

Finally the billion dollar question comes? What accounting to be done whenoutcome cant be reliably measured.

Revenue should be recognized only to the extent contract cost areincurred and recovery of which is probable.

Any expected loss should be recognized as an expense.

This may happen during the early stage of completion when the outcome of

the contract cannot be reliably measured. However as soon as the

uncertainties attached to the reliable estimation of outcome do not exist,

revenue recognition should be carried out as per percentage completion

method.

AS 7 operations in BHEL PEM.

Overall revenue to be generated from the contract is to be ascertained at theinception, for this purpose Marketing is responsible for dividing the total contract

price to be received from the customer to various units of BHEL; scope for

individual unit is also decided by marketing itself.

On the basis of scope decided by marketing Proposal Engineering provides theestimated cost to be incurred (commonly known as PE estimates) for each of the

package covered.

After determination of PE estimates, next is the issue of Indent by the respectiveengineering department for the procurement of particular package. Indent


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specifies the technical specification of the packages which are required to be

procured, along with the estimated cost. At this stage PE estimates are replaced

with the indent values for the purpose of determination of estimated cost.

After the indenting of stage, next stage is of placing the order for theprocurement of the item, for this purpose Notice inviting tenders are issued to

Customer and BHEL approved vendors, on the receipt of tenders statement of

comparative prices is prepared and the Purchase order is placed to the L1

vendor.

Once the purchase order are placed the indent values are replaced with purchaseorder price as the estimated cost.

For the purpose of determination of contract revenue for a particular period, AS 7factor is worked out by dividing estimated contract revenue by total estimated

cost and the same is multiplied by the actual cost incurred for the particular

period.

In order to match the AS7 revenue as the revenue as per books a adjustmententry is passed, either by debiting or crediting valuation adjustment account.

Amount to be debited or to be credited to adjustment account is arrived ;{Revenue as per AS7- GDPB- Billing done}

GDPB; - are the goods which are dispatched by vendor, but the same have notbeen billed on customer because of non-availability of certain documents same is

treated as good as billing done for a particular period.

Important Points to be considered for working of AS-7:

First of all it is important to go through the customer contract, in order toascertain the following:

The status of project weather it is Mega Power Project or not and weather thecustomer has obtained the necessary clearances from the respective authorities.

Weather there is any re-imbruement of applicable taxes or duties, like exciseduty, customs duty etc.

The major terms and conditions for claiming the payment from the customer.


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If there is any re-imbruement of applicable taxes or duties same should not betaken into the total estimated cost.

Total amount of allocated by Marketing should me checked with reference to thecommunication received.

4.1.4 UPDATING CASH COLLECTION

Collections are received by the corporate office from the customers & itsintimation is given to project section by the books section.

Further details of collections like, against which project & which invoice cashis received, are given by Project Group.

Details of LD deducted or TDS deducted by customer are also given by theProject Group.

After receiving credit from corporate office finance deptt., debited 4190account which is cash collection from corporate office & credited debtors

account.

Project section also updates their sales register with collection received.

4.1.5 QUARTERLY/FINANCIAL CLOSING

Booking of all liabilities for the dispatches, taxes & duties freight, testcharges, supervision charges, and engineering consultancy incurred up to the

date of closing.

AS-7 Recognition of turnover as per Accounting standard 7.Review theestimated cost to complete and actual cost incurred in respect of each

contract at the time of each closing

Passing JVs for inter unit debits. Matching of cost & turnover. Booking ofGDBP (Goods dispatch pending billing): The booking of turnover in

respect of those goods which are though dispatched to customers site but

billing is still pending.


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PEM/PPEI Building Page 25Plot No.25, Sector- 16ANoida 201301

Reversal of turnover which has been recognized but remains unbilled as GDBPfor more than six months, to be shown as finished goods stock

5. CONCLUSION

PEM is a hub of learning and engineering activity, which enables overall understanding and

provides a total view of a power plant. This division, being the core engineering division for

design of power plant is a great platform to start the process of learning about the

commercial aspect of power plants.

I got opportunity to interact with all the Engineering Departments also and came to know

about different activities carried out in PEM.

I am looking forward to contribute to the best of my capabilities in my department and

make my career in BHEL to get rewarding and enriching experience.

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