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Budget and

BudgetarycontrolIndian FarmerFertilizer Co-Operative Limited

The Report contain, indepth understanding ofBudget and Budgetarycontrol. Adding it alsofeatures IFFCOS round

over knowledge and allhappenings

Deepak S.

Gyanchandani


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AcknowledgementEven if a Project Report is in the end the sole

responsibility of student, it is always the final

result of the efforts of a larger group of people

that contributed to it in different ways,

providing information and critical review,

suggesting alternative approaches and new

ideas, sharing their experiences and providing

guidance and support. Also in my case thisproject report would have not been possible if

it was not for the contribution of many people.

I would like to thank all the people at IFFCO,

with whom I had the pleasure to spend the two

months in which I have worked on this project

report. In particular I would like to give

special acknowledgments to Mr. D D Pandya,

Mr. H T. Bhambhani, Mr A G.

Radhakrishnan, Mr. Dushyant Chouhan, Mr.

K M. Patel, Mr. Ranjit Kumar, Mr. V H.

Ambawani, Mr. V Shrinivasan, Mr. H J.

Devaria And Mr.D N josh Mr. S C.

Bhoummik for the time he dedicated me in

reading, revising and discussing the contents

of this work.

A special thank goes to Professor Nandini

Sinha for her valuable comments, corrections

and suggestions and especially for being a

precious guide in the field. I would also like to

thank Dr. Renu Choudhary who also provided

countless valuable thinking and reviewed part

of the project report.

I would like to mention also two people who

provided imperative contributions for the

discussion, namely Mr. V J. Mankodi In

addition I would also like to thank Mr. D C

Maheshwari for the time they dedicated me.

Furthermore I would like to thank some

people who did not actively participated in the

work of this project report but whose support

has been essential for developing in my

studies, namely Mr. Satish Kakani IFFCO, for

being my first valuable contact in the

company and friends, for always reminding

me to believe in myself.

Finally my greatest thank you goes to my

mother, and my father, without whose support,

assistance and love nothing of this, for the

little value it may have, would have ever been

written


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Budget and Budgetary Control

Amity Global Business SchoolPage | 2

Contents

Acknowledgement ..................................................................................................................... 1OBJECTIVE .............................................................................................................................. 6

PREFACE .................................................................................................................................. 7

RESEARCH METHODOLOGY............................................................................................... 8STEPS IN RESEARCH DESIGN ............................................................................................. 9DATA SOURCES ..................................................................................................................... 9

Primary data ........................................................................................................................... 9Secondary sources ................................................................................................................ 10

BENEFICIARIES .................................................................................................................... 11INTRODUCTION OF INDIAN FERTILIZER INDUSTRY ................................................. 12Major Players in Indian Fertilizer Market ............................................................................... 13Public Sector Companies in Indian Fertilizer Market.............................................................. 14INTRODUCTION TO IFFCO ................................................................................................. 20

Ownership ................................................................................................................................ 23Investment of IFFCO in other Firms. ...................................................................................... 24UNITS OF IFFCO ................................................................................................................... 28COMPANY PROFILE ............................................................................................................ 29ACHIEVEMENTS OF IFFCO KANDLA UNIT.................................................................... 32INTRODUCTION TO F & A DEPARTMENT OF IFFCO ................................................... 33BUDGET AND BUDGETARY CONTROL .......................................................................... 37

Introduction .......................................................................................................................... 37The Objectives of Setting the Budgets..................................................................................... 39What is Budgeting? .................................................................................................................. 40

Fixed budget......................................................................................................................... 45

Flexible Budget .................................................................................................................... 46Basic Budget ........................................................................................................................ 46Current Budget ..................................................................................................................... 46Continuous Budget............................................................................................................... 47Rolling Budget ..................................................................................................................... 47Types of budget.................................................................................................................... 47Responsibility Budget .......................................................................................................... 47Program Budget ................................................................................................................... 48Operational Budget .............................................................................................................. 48Functional Budget ................................................................................................................ 48Financial Budget .................................................................................................................. 48

Capital Budget ..................................................................................................................... 48Performance Budget............................................................................................................. 48FIXATION OF TARGETS.................................................................................................. 51COMMUNICATION OF TARGETS: ................................................................................ 51DELEGATION OF RESPONSIBILITY FOR FORMULATING REVENUE .................. 52Budget proposals at unit level. ............................................................................................. 52Budgeting process at unit level: ........................................................................................... 52PRODUCTION DEPARTMENT ........................................................................................ 54MAINTENANACE DEPARTMENT: ................................................................................ 55TECHNICAL SERVICE DEPARTMENT: ........................................................................ 56CIVIL DEPARTMENT ....................................................................................................... 57FIRE & SAFETY SECTION: .............................................................................................. 57


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TRAINING SECTION: ....................................................................................................... 57PERSONNEL & ADMINISTRATION DEPARTMENT ................................................... 58MATERIALS DEPARTMENT: .......................................................................................... 58FINANCE & ACCOUNTS DEPARTMENT:..................................................................... 58INCOME/OTHER REVENUE ............................................................................................ 59

INSURANCE EXPENSES .................................................................................................. 59BANK CHARGES............................................................................................................... 59DEPRECIATION ON FIXED ASSETS ............................................................................. 59PROCEDURE FOR USING THE BUDGET APPROVED:............................................... 60REVISION OF BUDGET ESTIMATES............................................................................. 61Budget Period....................................................................................................................... 64Key Factor ............................................................................................................................ 64

Budgeting Methods .................................................................................................................. 65BUDGET AND BUDGETARY CONTROL AT IFFCO: KANDLA UNIT .......................... 68REVENUE, PURCHASE BUDGET ....................................................................................... 71& .............................................................................................................................................. 71

BUDGETARY CONTROL ..................................................................................................... 71COLLECTION OF VARIOUS ESTIMATES FROM INDENTORS / H.O: ..................... 72PRODUCTION TARGETS ................................................................................................. 72C& F PRICE OF IMPORTED RAW MATERIALS .......................................................... 73RATES TO BE ADOPTED FOR PACKING MATERIAL................................................ 74EXCHANGE RATES TO BE ADOPTED FOR US $: ....................................................... 74NORMS OF ACTUAL INPUT QUANTITY OF VARIOUS RAW MATERIAL,UTILITIES AND PACKING MATERIALS: ..................................................................... 74STREAM DAYS ESTIMATES FOR PRODUCTION TARGETS................................... 75ALL ESTIMATES OF VARIOUS TYPES OF DIRECT / INDIRECT EXPENSESRELATED TO PRODUCTION .......................................................................................... 75COLLECTION OF VARIOUS DATA IN SPECIALLY DESIGNED STATEMENT /ANNEXURE........................................................................................................................ 76

BRIEF EXPLANATIONS OF STATEMENTS / ANNEXURES: ......................................... 77STATEMENTI: PRODUCTION AND SALES TARGET .............................................. 77Budgeted profitability .......................................................................................................... 79STATEMENTIII: TOTAL COST OF PRODUCTION .................................................. 80Variable cost: ....................................................................................................................... 81Fixed cost: ............................................................................................................................ 81Chemicals ............................................................................................................................. 82Employees remuneration and benefits:............................................................................... 82

Salaries and wages: .............................................................................................................. 82PF & FPF contribution ......................................................................................................... 83Welfare expenses ................................................................................................................. 83Repairs and maintenance: .................................................................................................... 84Insurance .............................................................................................................................. 84Depreciation: ........................................................................................................................ 85STATEMENTIV: PURCHASE BUDGET ..................................................................... 87

ANNEXURES: ........................................................................................................................ 88ANNEXUREIII: TOWNSHIP RECOVERIES AND OTHER REVENUE ........................ 89

A. Plant Machinery .............................................................................................................. 94Meeting by Unit Head with various HODs / SHs:- ........................................................... 101

FINAL PROPOSAL TO BE SENT TO H.O.:- ................................................................. 102REVENUE / PURCHASE BUDGET CONTROL ................................................................ 102
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CAPITAL BUDGETING ...................................................................................................... 103What is capital budgeting? ................................................................................................. 103Capital budgeting techniques: ............................................................................................ 104Intimation from Head Office to send proposals for Next F.Y. :- ....................................... 105Collection of various estimates from Indentors :- .............................................................. 106

Compilation of various data in specially designed Proformas :- ....................................... 106Proposals for New Items :- ............................................................................................. 107N-I: Energy Saving System / Schemes:- ............................................................................ 108N-II: Operational Necessity:- ............................................................................................ 108N-III: Reliability Improvement:- ....................................................................................... 108N-IV: Safety Equipments:- ................................................................................................ 109N-V: Replacement of Ageing Equipments:- ...................................................................... 109N-VI: Pollution Control / Environmental Protection Schemes:- ...................................... 109N-VII: Minor Modification:- ............................................................................................ 110N-VIII: Inspection Facilities:-............................................................................................ 110N-IX: Research & Development Equipments:- ................................................................. 110

N-X: Admn. Office Building, Furniture, Fixtures, and Vehicles etc.:- ............................. 111N-XI: Associated Areas Like Welfare Colony Amenities, G.H.etc. ................................. 111N-XII: Computer & Computer System:- ......................................................................... 111Proposal for ongoing items: ............................................................................................... 112Completed items of current year:- ..................................................................................... 114Dropped items of current year:- ......................................................................................... 114Re-appropriated items:- ..................................................................................................... 115Re-conciliation ................................................................................................................... 115Proforma ............................................................................................................................ 116What is this project about? ................................................................................................. 118Why was the nee for this project felt? ............................................................................... 118Financial Benefits/ Advantages arising from the project? ................................................. 119Financial:............................................................................................................................ 119Break up of cost estimate ................................................................................................... 120Are any ancillary facilities needed? ................................................................................... 120What are basis of cost estimates? ....................................................................................... 120If the proposal is not implemented? ................................................................................... 120

BUDGET FOR LOANS & ADVANCESTO EMPLOYEES ............................................... 122House Building Loan ......................................................................................................... 122Conveyance Loan............................................................................................................... 122Personal Loan /One month salary advance:- ..................................................................... 123

BUDGETARY CONTROL ................................................................................................... 126Variance Analysis .............................................................................................................. 130Selling price changes. ........................................................................................................ 130Material price variance ...................................................................................................... 131Material usage variance ..................................................................................................... 131Direct wage rate variance ................................................................................................... 131Direct labour efficiency variance ....................................................................................... 132Overhead expenditure variance .......................................................................................... 132Overhead efficiency variance ............................................................................................ 133Overhead volume variance ................................................................................................ 133Disposition of variance ...................................................................................................... 133

The choice of method depends on: .................................................................................... 133Methods of variance disposal............................................................................................. 133


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LIMITATIONS OF THE STUDY......................................................................................... 136Findings & SUGGESTIONS ................................................................................................. 137

FINDINGS: ........................................................................................................................ 137SUGGESTIONS: ............................................................................................................... 138

CONCLUSION. ..................................................................................................................... 139

BIBLIOGRAPHY. ................................................................................................................. 141


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OBJECTIVE

Management student has to apply his theoretical knowledge in the practical field and

compare with the results. he has to find new ways for further improvement in the practical

field. Industrial training for management student is the first stage towards the industrial

exposure which tells him what difficulties he has to face while entering into corporate

world.

The main idea was to know the methods followed in IFFCO-KANDLA for preparation of

budget, budgetary control and to compare the same with the concepts.


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PREFACE

This report is prepared at Indian Farmers Fertilizers Co-operative Limited ( IFFCO ),

KANDLA Unit on functional areas of IFFCO KANDLA. It contains the brief description of

the company and all its departments. It also covers the different functions performed in

different departments at IFFCO KANDLA.

The report contains the details regarding the information related to BUDGET &

BUDGETARY CONTROL of Indian Farmers Fertilizers Limited (IFFCO KANDLA). In this

report it is mentioned that how budget is being managed at Indian Farmers Fertilizers Limited

(IFFCO KANDLA).


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RESEARCH METHODOLOGY

As the main objective of the study is to know about the budgeting process and techniques and

insights to it, the research carried out is descriptive in nature. The information needed has to

be clearly defined to carry out descriptive research. Thus the information available is from

secondary sources. The data mainly consists of budget reports of the company and annual

reports of the company.

The data is also obtained from primary sources such as from staff of the Finance and

Accounts department of IFFCO KANDLA.


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STEPS IN RESEARCH DESIGN

There are various steps which have to be followed while for budgetary process. Various

budgets have to be prepared and on basis of that they are analyzed and revised. The following

budgets have to be prepared:

Capital budget

Revenue budget.

These budgets include production budget, expense budget, sales budget, consumption

budget, procurement budget, cash budget.

DATA SOURCES

Primary data

The primary data has been collected in the following way.

I used to have discussion with the financial staff of the company

Other staff of the company helped me to gather the information and provided with necessary

guidance about the project.


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Secondary sources

The secondary sources have been obtained in the following way.

The data has been collected from the annual reports and the budget reports of the company.

Some data has been collected from the official site of IFFCO ltd.


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BENEFICIARIES

To student: The study of budget and the budgeting process would help me in enhancing

my skills and gain practical knowledge about the budgeting process being carried out.The study would help me to understand the various concepts of budgeting and to dealwith the difference arising.

To the company: The Company would be able to find out any variances arising due toinappropriate budgeting and methods to solve those variances. Thus the company wouldbe able to make proper estimates and thus would increase the companys profit.

To customers: The customers would be able to buy goods at a cheaper rate which willbe arrived after solving the variances. Thus the customers would be benefited in terms ofgood quality and affordable cost.


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INTRODUCTION OF INDIAN

FERTILIZER INDUSTRYThe Indian fertilizer industry has been

meeting a substantial portion of the

growing demand of fertilizer now. As on

today the demand-supply gap in the

fertilizer industry is very marginal. The

industry had a very humble beginning in

1906, when the first manufacturing unit of

Single Super Phosphate (SSP) was set up

in Ranipet near Chennai with an annual

production capacity of 6000 M.T. The

Fertilizer and Chemicals Travancore ltd.

(FACT) at Cochin in Kerala and the

Fertilizer Corporation of India Ltd, Sindhri

in Jharkhand were the first large sized

fertilizer plant set up in forties and fiftieswith a view to establish a base for

industrialization and achieving self-

sufficiency in food grains. The seventies

and eighties witnessed a significant

addition to the fertilizer industry.

Presently there are 66 large sized fertilizer

plants in the country manufacturing a wide

range of nitrogenous, phosphatic and other

complex fertilizer. Besides there are about

80 medium and small-scale single super

phosphate plants. As of now the country is

almost self-sufficient in case of nitrogen

but in case of phosphates the scarcity of

domestic raw material constraints the

attainment of self-sufficiency in the

country. Indigenous rock phosphates

supplies meet only a small percentage

(5%-10%) of total requirement of P2O5.

also there are no known commercially

exploitable reserves of potash in the

country and hence the entire requirement

are met through imports.


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Major Players in Indian Fertilizer

Market

The development trajectory of the agricultural industry derives its main stimulus from

the growth in production of fertilizers in India. The fertilizer industry earlier witnessed the

preponderance of the public sector units who still retain their status as the major players in

Indian fertilizer market. Coupled with the private enterprisers manufacturing fertilizers, India

has emerged as the third largest producer of the agro-input. The country has also emerged as

one of the largest consumers of fertilizers along with China and the United States of America.

The fertilizer sector in India holds a major share among the energy intensive industries

of the country. The industry has shown unparalleled growth in the past few years. Although

growing in an accelerating rate, the industry is faced with a number of challenges, interalia,

and the lack of major plant resources such as nitrogen, phosphate and potassium.

Notwithstanding these specificities, India produces both nitrogenous and phosphatic

fertilizers in the domestic market. Urea and ammonium are the two popularly manufactured

nitrogenous fertilizers in India. The various companies dedicated to the manufacture of

fertilizers also produce straight phosphatic fertilizers such as single super phosphate and

complex fertilizers such as di-ammonium phosphate or DAP. The lack of indigenous reserves

of potash in India has stunted the production of potassic fertilizers in the country.

The Indian fertilizer industry has a capacity of 56 lakh MT of phosphatic nutrient and

121 lakh MT of nitrogen. While the private sector has a huge installed capacity for

phosphatic fertilizers, capacity utilization of nitrogenous fertilizers is higher in the public

sector.


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Public Sector Companies in Indian

Fertilizer Market

There are a number of public sector companies in Indian fertilizer market producing

complex fertilizers, ammonium sulphate, DAP, calcium ammonium nitrate and urea. At

present, there are nine public sector undertakings in the Indian fertilizer market and one

cooperative society. These function under the supervision of the Department of Fertilizers of

India. Of the 63 large units producing fertilizers in India, 9 units are dedicated to the

production of ammonium sulphate and 38 units produce urea. There are 79 small and medium

scale units dedicated to the production of single super phosphate. The Indian industries

producing fertilizers have to total capacity of 56 lakh MT of phosphatic nutrient and 121 lakh

MT of nitrogen.

Some of the public sector undertakings in this sector are mentioned below:

Fertilizer Corporation of India Limited (FCIL)

Hindustan Fertilizer Corporation Limited (HFC)

Pyrites, Phosphates & Chemicals Limited

Rashtriya Chemicals and Fertilizers Limited (RCF)

National Fertilizers Limited (NFL)

Projects &Development India Limited (PDIL)


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The Fertilizers and Chemicals Travancore Limited (FACT)

Madras Fertilizers Limited (MFL)

FCI Aravali Gypsum & Minerals India Limited, Jodhpur

Some of the other companies engaged in the production of fertilizers are listed

below:

Paradeep Phosphates Limited (PPL)

Neyveli Lignite Corporation Ltd. (NLC)

Hindustan Copper Limited (HCL)

Steel Authority of India Limited (SAIL)

Private Companies in Indian Fertilizer Market

A number of private companies in the Indian fertilizer market are engaged in

production of the agro-input. Most of the companies also engage in exporting fertilizers in the

global market, earning foreign capital from the business. The country stands at the third

position among the largest producers of the product in the world. India is also ranks among

the highest consumers of fertilizers. The euphoric growth in the business has also facilitated

the agricultural industry of India, which is dependent for its optimization on the fertilizer

industry.

Private Companies Producing Fertilizer in India:

Khaitan Chemicals and Fertilizers Limited

Mangalore Chemicals

Nagarjuna Fertilizers

Zauri Chambal

BEC Fertilizers

Gujarat State Fertilizers &Chemicals Limited

DSCL


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Some of the other private companies engaged in the production of fertilizers in

India are listed below:

The Scientific Fertilizer Co Pvt Ltd

Coromandel Fertilizers

Deepak Fertilizers and Petrochemicals Corporation Limited

Apratim International

Aries AgroVet

Devidayal Agro Chemicals

The production of nitrogenous fertilizer in the private sector has been increasing in

the past few years. The private sector had only 13% share in the production in 1960-

61. The private sector has always retained a higher share in the production of

phosphatic fertilizer production

Cooperative Companies Producing Fertilizer in India

Indian Farmers Fertilizers Co-operative Ltd.(IFFCO)

Krishak Bharati Cooperative Limited KRIBHCO


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What is Cooperative Society?

Meaning:

Co - operation refers to an organization of individuals for achieving a common economic

objective by mutual help and collective efforts.

The word Co - operation has been derived from the Latin word Co-operate which,

means to work together, to labor together, to endeavor for some common purpose.

Features or Characteristics of Co -operative Society:

The following are the characteristics and/or features of the cooperative societies:

1. Voluntary Association

2. Equal Voting Rights

3. Democratic Management

4. Service Motive

5. Limited Interest on Capital

6. Distribution of Profits or Surpluses

7. Cash Trading

8. State Control

9. Serving all at Market Price without discrimination between members and

Nonmembers.

10. Member renders Honorary Services

11. Political and Religious Neutrality

12. Honest Trading

13. Principle of Thrift


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Difference Between Co-operative society & Company.

S. Item Cooperative Society Company

1 Object Interest of members and

community

Self interest either of

management or the share

holders

2 Number of

members

Minimum number of members

should be 50 for a multi state

cooperative society from each

state in case of individual

membership

In case societies are members of

a Multi State Cooperative

Society, two societies from

different states should sign the

application of registration of the

society

If a Multi State Cooperative

Society is a member then the

multi state cooperative and a

society should sign the

application of registration

In a public limited company,

minimum number of

members should be 7 and in a

private limited company

minimum number of

members should be 2

3 Management Chairperson is elected by the

Board of Directors from among

themselves. The Managing

Director / Chief executive is

appointed by the Board of

Directors

Usually, Chairperson /

Managing Director are

persons with maximum

number of shares in the

company

4 Share

Capital

The shares of cooperative

society are not issued to general

public by advertisement and can

be issued any time. Shares can

Shares are issued to general

public or by invitation. In a

company shares cannot be

withdrawn by a share


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be withdrawn member / society

as prescribed by rules in their

byelaws.

holder.

5Types of

shares

Only equity shares are availableEquity and preferentialshares may be issued

6 Voting

Power

Member of a cooperative society

have right of only one vote,

irrespective of the number of

shares held of any denomination

Voting rights depend

directly on the holding of

shares

7 Distribution

of Profits

Minimum 25% of net profits

should be transferred to the

General reserve and the

maximum dividend cannot

exceed 20%

No restrictions on a

company

8 Taxes Cooperatives are exempt from

few taxes in some states like

stamp duty. Tax rates also vary

No exemptions provided

9 Workers

participation

Provision for workers

participation in the management

through a representative exists

No such provision for

workers

10 MRTP Act Not applicable to Multi State

Societies

Applicable

11 Control The Central registrar of

Cooperatives advises in the

affairs of a multi state society

Companies are governed by

the Company Registrar of the

states where its registered

office is located


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INTRODUCTION TO IFFCODuring mid- sixties the Co-operative sector in India was responsible for distribution of 70 per

cent of fertilisers consumed in the country. This Sector had adequate infrastructure to

distribute fertilisers but had no production facilities of its own and hence dependent on

public/private Sectors for supplies. To overcome this lacuna and to bridge the demand supply

gap in the country, a new cooperative society was conceived to specifically cater to the

requirements of farmers. It was a unique venture in which the farmers of the country through

their own Co-operative Societies created this new institution to safeguard their interests. The

number of co-operative societies associated with IFFCO has risen from 57 in 1967 to 38,155

at present.

Indian Farmers Fertilizer

Co-operative Limited

(IFFCO) was registered

on November 3, 1967 as

a Multi-unit Co-

operative Society. On

the enactment of the

Multistate Co-operative

Societies act 1984 &

2002, the Society is

deemed to be registered

as a Multistate Co-operative Society. The Society is primarily engaged in production and

distribution of fertilisers. The bylaws of the Society provide a broad framework for the

activities of Indian Farmers Fertilizer Cooperative Limited as a Co-operative Society.

IFFCO commissioned ammonia - urea complex at Kalol and the NPK/DAP plant at Kandla

both in the state of Gujarat in 1975. Ammonia - urea complex was set up at Phulpur in the

state of Uttar Pradesh in 1981. The ammonia - urea unit at Aonla was commissioned in 1988.

In 1993, IFFCO had drawn up a major expansion programme of all the four plants under

overall aegis of IFFCO VISION 2000. The expansion projects at Aonla, Kalol, Phulpur and

Kandla have been completed on schedule. Thus all the projects conceived as part of Vision


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Head Office

Kandla Kalol Aonla Phulpur

Aonla -1 Aonla-2 Phulpur-1 Phulpur-2

Paradeep

Kandla Kandla 2

2000 have been realized without time or cost overruns. All the production units of IFFCO

have established a reputation for excellence and quality.

A new grow

th path has been chalked out to

realize newer dreams and

greater heights through Vision

2010 which is presently under

implementation. As part of the new

vision, IFFCO has acquired fertiliser

unit at Paradeep in Orissa in

September 2005. As a result of

these expansion projects and acquisition, IFFCO's annual capacity has been increased to 3.69

million tonnes of Urea and NPK/DAP equivalent to 1.71 million tonnes of P2O5.

IFFCO has made strategic investments in several joint ventures. Godavari Fertilisers and

Chemicals Ltd (GFCL) & Indian Potash Ltd (IPL) in India, Industries Chimiques du Senegal

(ICS) in Senegal and Oman India Fertiliser Company (OMIFCO) in Oman are important

fertiliser joint ventures. Indo Egyptian Fertiliser Co (IEFC) in Egypt is under implementation.

As part of strategic diversification, IFFCO has entered into several key sectors. IFFCO-Tokio

General Insurance Ltd (ITGI) is a foray into general insurance sector. Through ITGI, IFFCO

has formulated new services of benefit to farmers.

'Sankat Haran Bima Yojana' provides free insurance cover to farmers along with each bag of

IFFCO fertiliser purchased. To take the benefits of emerging concepts like agricultural

commodity trading, IFFCO has taken equity in National Commodity and Derivative

Exchange (NCDEX) and National Collateral Management Services Ltd (NCMSL). IFFCO

S.R.

NO.

COMPETITORS MARKET

CAPTURED IN%

1 IFFCO 50

2 KRIBHCO 24

3 GNFC 21

4 OTHERS 05

Total 100


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Chattisgarh Power Ltd (ICPL) which is under implementation is yet another foray to move

into core area of power.

IFFCO is also behind several other companies with the sole intention of benefiting farmers.

The distribution of IFFCO's fertilizer is undertaken through over 40,000 co-operative

societies. The entire activities of Distribution, Sales and Promotion are co-coordinated by

Marketing Central Office (MKCO) at New Delhi assisted by the Marketing offices in the

field. In addition, essential agro-inputs for crop production are made available to the farmers

through a chain of 158 Farmers Service Centre (FSC). IFFCO has promoted several

institutions and organizations to work for the welfare of farmers, strengthening cooperative

movement, improves Indian agriculture. Indian Farm Forestry Development Cooperative Ltd

(IFFDC), Cooperative Rural Development Trust (CORDET), IFFCO Foundation, Kisan

Sewa Trust belongs to this category. An ambitious project 'ICT Initiatives for Farmers and

Cooperatives' is launched to promote e-culture in rural India. IFFCO obsessively nurtures its

relations with farmers and undertakes a large number of agricultural extension activities for

their benefit every year.

At IFFCO, the thirst forever improving the services to farmers and member co-operatives is

insatiable, commitment to quality is insurmountable and harnessing of mother earths' bounty

to drive hunger away from India in an ecologically sustainable manner is the prime mission.

All that IFFCO cherishes in exchange is an everlasting smile on the face of Indian Farmer

who forms the moving spirit behind this mission. IFFCO, to day, is a leading player in

India's fertilizer industry and is making substantial contribution to the efforts of Indian

Government to increase food grain production in the country.
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Ownership

One of the strongest parts in Ownership of the IFFCO is in the hand of the Farmers who

are the part of Co-operative society who are holding the major share holder part in share

capital of company. So we can say farmers are the real owner of IFFCO.

The membership of IFFCO is open to the following:

National Cooperative Federations of agricultural credit / marketing / processing

/ supply and other agricultural Cooperative societies;

State level Cooperative Federations of agricultural credit / marketing /

processing / supply and other agricultural cooperative Societies;

District, Regional and Primary cooperative credit / marketing / processing /

supply and other agricultural Cooperative Societies including Cane Unions

Primary Agricultural Cooperative credit, service, multi-purpose, cane, irrigation,

farming societies and other village agricultural societies;

National cooperative Development Corporation;

Government of India;

Public Financing Institutions.

Any cooperative society activities of which are augmentative to the activities

and conducive to overall growth of IFFCO.


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Investment of IFFCO in other

Firms.

IFFCO has started the joint venture in all below mention firms in India as well as in other

country and all the detail regard all the joint venture of IFFCO:

International

Industries Chimiques du Senegal (ICS).

Industries Chimiques du Senegal (ICS) is producing Phosphoric Acid at Darou (Senegal)

which IFFCO needs in producing the NPK/DAP. Its production capacity is 1.5 million TPA

of Phosphoric acid. Its paid up capital as on 31st March, 2000 was Rs 6.5 billion out of which

IFFCO's share was Rs 927.4 million i.e.14.32% of paid up capital.

Indian consortium, consisting of Government of India, IFFCO & SPIC, entered into a long

term agreement with Industries Chimiques du Senegal (ICS) in March 1980. The agreement

was for purchase of Phosphoric Acid by setting up a plant at Darou, Senegal. The plant with a

capacity of 313000 TPA phosphoric acid started commercial production in February 1984.

ICS had been consistently supplying phosphoric acid to Kandla unit since commencement of

production. Doubling of the capacity of the existing plant for production of an additional

313000 TPA was taken up at a total investment of US$ 250 million. IFFCO has committed to

purchase the entire quantity of the acid that would be produced by the ICS expansion project.


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Oman India Fertilizer Project

IFFCO and KRIBHCO have entered into a Joint Venture Agreement with Oman Oil

Company (OOC), Oman for setting up of a Urea - Ammonia Fertilizer Plant at a Capital Cost

of US$ 969 million, with a Debt : Equity Ratio of 2:1. The Fertilizer Plant would be located

on the east coast of Oman, and have a capacity of producing 16.52 lakh MT of urea per

annum and surplus Ammonia of 2.5 lakh MT per annum.

Raw Material (Natural Gas) will be supplied by Omani Government under a long Term Gas

Supply Agreement. Entire Urea will be purchased by Government of India for 15 years under

a Urea Off take Agreement. Surplus Ammonia will be purchased by IFFCO for 10 years

under Ammonia Off take Agreement. The main project Agreements, Urea Off take (UOTA),

Ammonia Off take (AOTA) and Gas supply (GSA) were signed on 29th May 2002. Other

Project Agreements have been finalized amongst the Sponsors and the Arranging Banks. The

Arranging Banks, a consortium of International Banks, appointed for arranging Debt

finalized the financing arrangements for the Project. All the contracts leading to the Financial

Closure for the Project have been executed. The zero date for the project was 15 August,

2002. The construction of the Project will be completed in 35 months.

IFFCO and National Commodity & Derivatives Exchange Limited

IFFCO has picked up 12% stake in Commodity Exchange NCDEX recently. IFFCO's

endeavor had always been to ensure that the farmers receive best quality fertilizer input at

economical price. The present association facilitates enhancement in the scope of services for

farmers wherein the farmers can realize higher prices, minimize risk and strive for reliable

market conditions. With this new relationship, farmers & cooperatives will have a newplatform floated by reputed national institutions to herald a new era in Indian agriculture.

The on-line multi commodity exchange promoted by ICICI Bank Limited (ICICI Bank), Life

Insurance Corporation of India (LIC), National Bank for Agriculture and Rural Development

(NABARD) and National Stock Exchange of India Limited (NSE). Punjab National Bank

(PNB) and CRISIL Limited (formerly the Credit Rating Information Services of India

Limited) by subscribing to the equity shares have joined the initial promoters as shareholders

of the Exchange.


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NCDEX is a public limited company incorporated on April 23, 2003 under the Companies

Act, 1956. It obtained its Certificate for Commencement of Business on May 9, 2003. It has

commenced its operations on December 15, 2003.

NCDEX has an independent Board of Directors and professionals not having any vested

interest in commodity markets. It is committed to provide a world-class commodity exchange

platform for market participants to trade in a wide spectrum of commodity derivatives driven

by best global practices, professionalism and transparency.

NCDEX currently facilitates trading of fifteen commodities - Gold, Silver, Soy Bean,

Refined Soy Bean Oil, Rapeseed-Mustard Seed, Expeller Rapeseed-Mustard Seed Oil, RBD

Palmolein, Crude Palm Oil, and Cotton - medium and long staple varieties, Pepper, Rubber,

Jute Sacking, Chana and Guar Seeds. At subsequent phases trading in more commodities

would be facilitated.

IFFCO - Tokio General Insurance Company Limited (ITGI)

IFFCO had done the amalgamation with the Tokio General Insurance Company Limited and

started serving the insurance sector in India as well as in other countries. It involve in General

Insurance Activity, its Corporate Office is situated at New Delhi. The total paid up capital of

Tokio General Insurance Company Limited was Rs 1 billion as on 31st March, 2001. Out of

which IFFCO's share was Rs 510 million i.e. 51% of its paid up capital.

Godavari Fertilisers & Chemicals Limited (GFCL)

Godavari Fertilisers & Chemicals Limited (GFCL) is situated at Kakinada in Andhra

Pradesh. It is producing NPK/DAP fertilisers, its production capacity in P2O5 terms is 1.5

million TPA. The paid up capital of Godavari Fertilisers & Chemicals Limited (GFCL) was

Rs 320 million as on 31st March, 2000. Out of which IFFCO's share was Rs 79.7 million

i.e.24.9% of its paid up capital.


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Indian Potash Limited (IPL)

Indian Potash Limited (IPL) mainly involve in activities like supply of imported potash as

well as supply of imported fertilizers. The paid up capital of Indian Potash Limited (IPL) was

Rs 95 million as on 31st March, 2000. Out of which IFFCO's share was Rs 32.4 million i.e.

34% of its paid up capital.


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UNITS OF IFFCO

KANDLA

PHULPUR

Kalol

lAONLA

PARADEEP


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COMPANY PROFILE

INTRODUCTION OF IFFCO-KANDLA

Kandla Unit Location

State Gujarat, India

State Capital Gandhinagar

District Kutch

Distance from New Delhi Approx. 1100 kilometers by rail

Distance from Mumbai Approx. 800 kilometers by rail

Nearest Airport Kandla Airport, Near Gandhidham,and Bhuj

Airport 65 KM from Gandhidham.

Railway Station Gandhidham (12 Km from plant and 3 Km

from IFFCO's township at Gandhidham)

and Kandla (3 Km from the plant)

Road Adjacent to Kandla Port Trust on National

Highway 8-A, 365 Km. from Ahmedabad

Area under Plant 70.61 Hectares

Area under Township 79.65 Hectares

Temperature (o

C ) 47 (Max.) in summer to 7 (Min.) in winter.

Rainfall (mm) Scarcity

Longitude 70o

13'26" E

Latitude 23o

00'00" N

Address IFFCO, Kandla Unit, Post BoxNo.12,

Gandhidham - 370201, Kandla (Kutch),

Gujarat, INDIA

Phones :91-2836-270381,-270382,-270539 ,-270639,

-270641.FAX : 91-2836-270642, -270658, -270685.


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Website : www. Iffco. nic. In

E-Mail : [email protected]

IFFCOs NPK plant is located on the water front adjacent to Kandla Port Trust Oil Jetty. The

plant was built at a cost of about Rs. 30 crores with two streams (called train A and train B)

and with the licensed capacity of 127000 tonnes of P2O5. This plant was designed by the M/s

Door Oliver-Inc to produced three grade ok NPK based on DAP, the plant was commissioned

on 26th November, 1974 and its commercial

production started on 1st January, 1975.

With increase in demand for complex fertilizers,

the capacity of NPK has been doubled at a cost

of about Rs. 28.6 crores. Two more streams

(train C and train D) had been added with the

increased licensed capacity from 127000 MT

P2O5 to 260000 MT P2O5 per annum. The new

two streams are called Kandla Phase 2 was

completed one month ahead of the projected

schedule. This is a rare phenomenon not only in

India but in entire South East Asian region.

Kandla Phase 2 commissioned on 4th June 1981

with the production record for IFFCO. The

production of Kandla Phase 2 was started from 6th September 1981.

IFFCO went for expansion of their unit at Kandla in 1996-97. Kandla phase-II NPK/DAPproject conceptualized the setting up of two additional streams (train E and train F) for

manufacture of the same grades of NPK/DAP fertilizers with an annual production capacity

of 2,10,700 MTPA thus increasing the total capacity from 3,09,000 MTPA of P2O5 to

5,19,700 MTPA of P2O5. The actual cost of the project was Rs. 205.30 crores against a

budgeted cost of Rs. 212.20 crores.

The total annual production of the Kandla unit was 127000 MTPA as on 26 th November,

1974 with two streams (train A and train B), which was increased by 182000 MTPA as on 6 th

VISION

To augment the incremental incomesof farmers by helping them to

increase their crop productivitythrough balanced use of energyefficient fertilizers, maintain the

environmental health and to makecooperative societies economically &

democratically strong for

professionalized services to thefarming community to ensure an

em owered rural India
mailto:[email protected]:[email protected]


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September, 1981 by starting two more stream (train C and train D), which was further

increase to 210700 MTPA as on 1999 by introducing two more streams (train E and train F).

So currently the total production capacity of the both plant at Kandla unit is 519700 MTPA.

Currently all six streams (train A, B, C, D, E and F) is working in its full-fledged capacity

and giving its optimum output. In 1974 when the Kandla Unit was started IFFCO was

importing its raw material with help of Kandla Port Trust Oil Jetty and currently Kandla unit

has its own Oil Jetty.


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ACHIEVEMENTS OF IFFCO KANDLA

UNIT

Nineteen Safety Awards from National Safety Council - U.S.A.

Fourteen Safety Awards from the National Safety Council, Bombay, government of

India.

Twenty-six Safety Awards from Gujarat Safety Council, Baroda.

Six Fertilizers Association of India (FAI) Awards for the best overall production

performance during the years 1981, 1982, 1996-97, 1997-98, 1998-99 & 2002-03.

One National Productivity Council (NPC) Best Productivity Award for the year 1997-

98 in the category of Fertilizers Industry - Phosphatic Sector presented in August'00.

One Safety award from FAI for Excellence in Safety for 1999-2000.

One Safety award from Directorate General Factory Advice Service & Labour

Institutes, Ministry of Labor, Government of India Runner, National Safety award

1999.

One Labour, Government of India Runner, National Safety award - 1999".


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INTRODUCTION TO F & A

DEPARTMENT OF IFFCO

Finance is the lifeblood of the business.

According to Howard and Upton Finance

is that administrative area or set of

administrative function in an organization

which relate with the arrangements of cash

and credit so that the organization may

have the means to carry out of its objective

as possible.

FUNCTIONS OF FINANCE AND ACCOUNTS DEPARTMENT

Finance & Accounts Department of

KANDLA Unit is controlled by Head Of

the Department i.e. CM (F & A). His main

function is to co-ordinate all activities

related to Finance & Accounts and report

to Head Offices Finance & Accounts

Department / Finance Director as well Unit

Head. Finance & Accounts Department

function various type of activities as per

the Guidelines issued by Head Office,

Purchase Procedure, Service Rules,

Powers of officer etc.

At present to carry out all the related

activities, following four sectional heads

are reporting to him for work connected to

their Sections. All the four sectional heads

independently report to Departmental

Head. However, in case, Departmental

Head happens on tour or on leave, the next

senior sectional head takes the charge of

the department and remaining here

sectional head will report to him for all the

work connected to their Sections.

Finance department comprises of :

Pay roll section

Raw materials

Fixed assets & insurance

Works bill section

Purchase bill section

Books & budgets

Financial concurrence


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PAY ROLL SECTION

Pay roll section takes care of all the financial issues of employees in co-ordination with

Administrative & Personnel Department. Its functions includes management of salaries,

TA/DA, loans & advances, misc payment related to employees, Perk/There allowance

payments etc. Here records of each employee are maintained regarding basic pay, leave

encashment, medical, salary, increments, promotion based perks , etc.

RAW MATERIALS

Different types of Raw Materials that are required at IFFCO KANDLA Unit are as follows :

P2O5Imported

AmmoniaImported & Indigenous

Potash - Imported

MAP - Imported

UreaKalol

Filler

Raw Material section in F & A department does the accounting of above mentioned raw

material which includes receipt of raw material are purchased, monthly consumption as pert

the production department and payment to the suppliers.

MISCELLANEOUS ACCOUNTS

The miscellaneous jobs can be broadly divided into following categories:

Passing of bills of miscellaneous nature;

Accounting of cash imprest and advances for expenses;

Miscellaneous recoveries from outside agencies.


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Miscellaneous bills includes rates contracts for service contract for air conditioner, water

coolers, weighing machines, franking machines, knitting of chairs, etc. Others miscellaneous

bills includes telephone rentals, STD calls, local calls, teleprinters, fax, service bills,

advertisement bills, electricity bills, printing and block making bills, bills of travel agents,

bills of canteen purchases, etc. Annual Contracts and Hiring of taxi, motors, etc. is also

included in this.

WORKS BILLS

Work bills section is entrusted with the task of checking and authentication of APF receivedfrom various departments such as Civil, Plant, and Township etc. They have to keep record

and maintain account. They have to verify W.R.T. measurements, Tax provisions like TDS

and other deductions like EMD, Security and penalty etc.

PURCHASE BILLS

In purchase bill, treatment is given to the bills on purchase of machinery and tools and sparesetc. for accounting requirements and book keeping as well as record maintenance and tax

deductions and authentication of AFP on purchase of Goods and Services.

FINANCIAL CONCURRENCE

Financial concurrence deals with crosschecking and green signaling the requisition forpurchases made by various indent departments of the unit. They check for the availability of

budget and ascertain its necessity and critically for regular and smooth operations of the

plants and activities of various departments.

BOOKS & BUDGETS


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Books and budget deal with revenue budget compilation, monitoring and control,

reconciliation of inter unit accounts, maintenance of books of accounts and submission of

monthly / quarterly / annual reports, COP processing and attending internal / statutory / tax

auditors.


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BUDGET AND BUDGETARY

CONTROL

IntroductionComplexities are increasing in

running the modern business and

management has to face a number

of problems, which are to be solved

with utmost care. Number of new

tools and techniques are being

evolved and used by management in

modern times to solve such complex

problems of business. Budgeting is

one of such effective tools in the

hands of management. Now

planning has become an inevitable

part of business management. They

have come to realize that success in

business depends to a large extent

on the planning of its activities with

great care and foresight. The

management gets ready to face the

challenges of future contingencies by

peeping into the future. They are

thus able to keep off the heavy

financial losses and fatal errors.

It is through budgeting that the

management is able to guide the

business in proper direction.

Budgeting is planning and

controlling, two most importantfunctions of management. It is

perhaps a very important tool for

achieving business objectives.


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Concept of Budget

A budget is a financial and / or quantitative statement, prepared prior to a defined period of

time, of the policy to be perused during that period for purpose of attaining objectives. It may

include income, expenditure and employment of capital

Budgeting is an exercise in allocating scarce economic resources among alternative uses. The

necessary of budgeting arises out of the scarcity of economic resources and the number of

alternative uses in which these resources can be deployed.

An analysis of this definition will reveal the essential features of the budget, namely that:

1. A budget can be expressed in terms of money or quantity, or both.

2. It should be developed prior to the period during which it is to operate.

3. It is set for definite period.

4. Before its preparation, the objective to be attained and the policy to be pursued to

achieve that objective are required to be laid down.


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The Objectives of Setting the

Budgets

A budget is blue print of desired plan of actions or operations. Plans covering

the entire organization and all its functions like purchase, production, sales,

financial management, research & development are expressed through

budget.

The budget serves as a declaration of policies and also defines the objective

for executives at all levels of management.

Budgets provide a means of co-ordination of the business as a whole. In the

process of establishing budgets, the various factors like production capacity,

sales possibilities, are procurement of material, labor, etc. are balanced and

co-ordinate so that all the activities proceed according to the objective.

The budgets inculcate team spirit and are like putting so many heads together

to solve a common problem.

Budgets are means of communication. Complex plans lead down by the top

management are passed on to those whole are responsible for putting them

into action.

Budgets facilitate centralized control with delegated authority and

responsibility. Group according to the responsibilities of different executive

levels, they facilitate decentralization of work.

Budgets are instruments of managerial control by means of which the

management can measure performance in every part of the concern and take

corrective actions as soon as any deviations from budgets come to light.


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What is Budgeting?

Institute of Cost and Management Accountants, England defines A Budget is a

financial and/or quantitative statement, prepared and approved prior to a defined

period of time, of the policy to be pursued during that period for the purpose of

attaining objectives. It may include income, expenditure and employment of

capital.

Budgeting is an exercise in allocating scarce economic resources among

alternative uses. The necessity of budgeting arises out of the scarcity of

economic resources and the number of alternative uses in which these scarce

resources can be deployed.

In brief, budgeting can be defined as The statement of plan of activities of

an organization expressed in financial and/ or quantitative terms for a definite

future.

Objectives of budgeting

The following are some of the important objectives of budgeting:

1. To prevent wastes

2. To control economic expenditures

3. To ensure availability of adequate working capital for efficient operation of

plants.

4. To ensure adequate return on capital employed.

5. To identify and bring to the light areas where prompt action/remedial actions

are required to be taken up by the management.


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Essentials of Budgeting?

Top Management

Clear and realistic goals

Assignment of authority and responsibility

Creation of responsibility centers

Adoption of accounting system

Full participation from all employees

Effective communication system

Budget education Flexibility

Top management support

Top management must realize that budgeting is not merely an accountingdevice but it is an important management tool. Top management must:-

Understand the nature and characteristics of budgeting.

Be convinced that this particular approach to managing is preferable to their

preparation.

Be willing to devote the effort required to make it operative.

Support the program in its entire ramification.

View the results of the planning process as performance commitments.

Clear and Realistic goals

Budgeting is the means to achieve goals and objectives. All planning presupposes

that objectives and goals have been clearly and unambiguously established.


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Budgeting will not succeed if the goals to be achieved are not clear, budget

implementation will not be systematic.

The enterprise objective and budget goals to be achieved through budgeting

should be reasonable and realistic, they should be capable of attainment. Budget

goals should not be set at too higher or too low level. Goals set at very high level

are impossible to attain and as a result, have a depressing effect of the emp loyees

morals. Goals set at a very low level do not give any challenge to employees. Their

achievement does not require any special effort and therefore, employees do not

feel motivated.

Assignment of authority and responsibility

A sound organizational structure is essential for the success of the

budgetary system. Authorities and responsibilities of each should be clearly

identified and established. A sound organizational structure and a clear cut

assignment authorities and responsibilities provide an effective means to achievethe enterprise objective and budget goals in a coordinate manner. The budgetary

system should be established in terms of the assigned authorities and

responsibilities, the performance of each manager should be evaluated

accordingly.

Creation of the responsibility centre

A small firm can possibly be managed by an individual or a small group of

individual but the activities of the large firm cannt be supervised by an individual or

few individuals. For the effective control of all activities, a large firm is divided into

meaningful segment, departments or divisions. Each sub units has certain activities

to perform and its manager is assigned specific authority and responsibility to carry

out those activities, and is held responsible for his decision affecting those

activities. The subunits of an enterprise for the purpose of control are called

responsibility centers or the decision centers.


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For planning and control purposes, responsibility centers are usually classified

into three classes.

Cost centers:

A cost centers is a responsibility center where the manager is responsible only for

costs (expenses) incurred in the sub unit. It is not responsible for profit on

investment in the center. Thus, costs are the primary planning and control data in a

cost center.

Profit center

A profit center is a responsibility centre where is manager is responsible for both

costs and revenue and thus, for profit. A profit is more effective assessment of

performance is both costs and revenues are measure in financial terms. A profit is

more relevant for profit planning and controls it allows measurement of both output

and input units of centers.

Investment center

An investment is responsibility center where the manager is responsible for costs

and revenue as well as investment in assets used by the center. In an investment

center, performance is assessed not only by profit but by relating profit to

investment.

Thus, return on investment is used as the performance evaluation criterion in aninvestment center. In a business, investment are treated as separate firms where

manager is responsible for overall activity affecting cost revenues and investment.

Adoption of the accounting system

Budgeting is based on the data generated by the accounting system. Therefore,

the accounting system should be suitably adopted to facilitate the planning and


45/144



control process; it should be structured around the areas of responsibility. In fact, a

sound budgetary system is primarily creation of a responsibility accounting system.

A responsibility accounting system is primarily oriented towards the organizational

responsibilities and a means to achieving effective control.

Accounting system has two primary aims:-

1) To measure the cost of production

2) To furnish data for planning and control

Full participation

Participation tends to increase commitment; commitment tends to heighten

motivation; motivation which is job oriented tends to make managers work harder

and more productively; and harder more productive work by managers tend to

enhance the companies prosperity; therefore, participation is good.

Effective communication

Communication is the process of the transmitting the ideas or information from one

person to another. The basic purpose of communication is to generate mutual trust

between two or more persons by creating similar understanding of ideas and

thoughts.

A sound budgeting system requires effective communication of

objectives and budget goals and means of implementing budget through the

organization so that a unified effort be directed to accomplish those objectives and

goals.


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Budget education

The success of budgeting, everyone in the enterprise should have confidence in

the budgeting system and should be involved and committed to it. The line

executives, who actually prepares the budgets, but also should understand the

technicalities of budgeting, they should know how to read just the budget when the

circumstances change they must be able to sell the ideas of budgeting to

subordinates in order to seek the meaningful participation and involvement. This

requires a continuous budget educati

Flexibility

A rigidly administered budgeting program causes tension and anxiety

and imposes Straight jackets in implementing the budgets. On the other hand, if

the budgeting program is administrate in a flexible way, managers feel free and

relaxed in implementing the budgets.

Scope of budget

A budget established either as a fixed budget or a flexible budget.

Fixed budget

A fixed budget (static budget) is which is designed for specific planned output level

and is not adjusted to the level of activity attained at the time of comparison

between the budgeted and actual cost. This budget is also known as a planned

budget and it is prepared for short period of time.

Fixed budget is most suited for fixed expenses. Fixed budget are useful where the

plan permits maximum stabilization of production. A fixed budget has only a limited

and is ineffective as a tool for cost control.


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Flexible Budget

Flexible Budget (also known as control budgetor variable budgetor sliding

scale budget) is a budget which is designed to change appropriately withfluctuations in output or turnover and to furnish budget cost for any level of activity

attained.

A flexible budget is small elastic, useful and practical. It takes into account

the changes in the actual circumstances and is useful for purpose of performance

evaluation and control. In order to prepare flexible budget, items of anticipated

expenditure are first , classified into fixed, variable and semi variable.

There are two methods of preparing flexible budget, which are listed as below:

1) Prepare the budget of any activity level which is closer to your expectations

for upcoming year then give the breakup of all items/expenses into fixed and

variable.

2) Formula method: In order to prepare the budget under this method a formula

Y= a + bX, is used, where

a = fixed cost

b = variable cost

Basic Budget

Basic budget is a budget which is established for use unaltered over a long

period of time. This is generally used for capital expenditure, research and

development, acquisition of capital funds, etc.

Current Budget

Current budget is a budget which is established for use over a short period

of time and is related to current conditions.


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Continuous Budget

In continuous budget the period is fixed. For e.g. if the budget is for

January to December, then it will always remain the same. And then if the budgetis revised after 6 months, the revised budget will be for July to December.

Rolling Budget

Rolling budget duration is fixed i.e. if in the budget period some months

have passed then they will be deleted a same number of new months will be

added.

For e.g. if the budget duration is 12 months and the budget is prepare for

January to December and in the budget period Jan, Feb, March have passed then

the revised budget will be prepare for the April-March.

Types of budget

Depending on the requirements of the concern and the purpose of the budget

is to serve; budgets are classified into several types or groups. Some of these are:

1. Responsibility Budget

2. Program Budget

3. Operational Budget

4. functional Budget

5. Financial Budget

6. Capital Budget

7. Performance Budget

Responsibility Budget

Budgets are set for operations by a department or by an executive responsible

for it. The stress therefore is on the control aspect of budgeting.


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Program Budget

Separate budgets are set for each plan or program of action of concern. This

enables management to access the economies of various program.

Operational Budget

The operational budget shows planned operations for the forthcoming period

and include the sales, production, production cost, and the selling and distribution

expenses budget.

Functional Budget

This refers to budget foe each function of business, such as sales, production,

research, purchase, finance etc.

Financial Budget

This includes the cash budget showing the anticipated sources and utilization

of cash, budget balance sheet, and budgeted profit and loss a/c.

Capital Budget

Capital budget relates the capital expenditure. It accesses the economies of

capital expenditure and investment.

Performance Budget

The performance budget is established in such a manner as to plan and

control the performance of individual sectors, area and function of management.

Budgets can also be classified as:


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Classification of budget

Sales budget Long Term Budget

Production Budget Short Term Budget

Purchase Budget Current budget

Personnel Budget

Cash Budget

Capital Budget

Function factor Time Factor

Two Factor effects


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BUDGET INTERLINKED

Sales Budget

Loan to Employees

Capital Expenditure

Bud et

Marketing Budget

Head Office

Administration

Cost of Production

Cash Budget

Production Budget

Purchase Budget

Consumption

Overheads Budget


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STEPS IN FIXATION OF BUDGET:

At IFFCO the following steps are followed for compilation of Budgeting procedure:

FIXATION OF TARGETSa. While initiating the budgeting exercise at the head office level, sale targets are fixed

in consultation with marketing division.

b. Production targets are fixed in consultation with Unit Head after giving due

consideration to various constraints some of which are given below:

Plant capacity i.e. production and storage capacities for raw materials, finished

stock etc.

Capacity utilization.

Availability of raw materials particularly imported raw materials like phos. Acid,

Ammonia, Potash etc.

Availability of power and related policy of Gujarat Electricity Board.

Availability of water and related policy of state water supply board.

Availability of packing materials.

Industrial relation position.

Availability of railway wagons and other transportation media for distribution of

finished products form plants etc.

COMMUNICATION OF TARGETS:

After taking into consideration the above parameters and constraints, Units are advised to

communicate their production plan, consumption norms and other proposals which arereviewed at Head Office. Having due regard to other constraints and parameters with in

the knowledge of top management, production targets are fixed for individual production

units and same are communicated to concerned units. Norms of consumption of raw

materials, utilities, fuel and other items proposed by the units are also reviewed and after

obtaining approval of the top management, the same are also communicated to the

concerned units.


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Detailed circular for initiating the budget exercise is issued to all the units by Executive

Director (Finance) from Head office. The circular contains necessary information and

guidelines required for the purpose of preparation of budgets. Commercial Department at

Head office intimates anticipated rates and quantities of major raw material for adopting

the same in the units budgets proposals particularly in respect of the following items:

Imported Phos.Acid (P2O5)

Imported Ammonia

Imported MOP (Potash)

Bags and other packing materials.

Part of ammonia requirement for Kandla unit is met from Kalol unit. Balance

requirement is either imported or procured indigenously from KRIBHCO, GNFC and

other suppliers. Quantity requirements to be met for ammonia from different sources are

intimated by Head Office. Commercial department consults to Head Office finance

department. Urea requirement for Kandla unit is partially fulfilled from Kalol/Aonla

Plants & Partially by way of Import.

DELEGATION OF RESPONSIBILITY FOR FORMULATINGREVENUE

Budget proposals at unit level.

On receipt of the communication from Head office regarding formulation of budget, a

meeting is arranged by Unit Head with all Head of the Departments to explain various

important aspects of budget to be prepared. The compilation of revenue budget is

coordinated by Head of Finance and Accounts Department, who is responsible forcollecting the required data from all the concerned and compiled budget proposals,

discusses the same with the unit head and submits the budget proposal to Head Office

within the scheduled date prescribed in the Head office circular/communication.

Budgeting process at unit level:

Based on the preliminary discussion, detailed circular is issued by the Unit Head for

initiating budgeting exercise at unit level to all the Head of Department. The budgeting

exercise at unit level to all the concerned departments like sanctioned budget and actual


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expenditure up to the period of the year and other particulars/information are furnished to

the concerned departmental Heads and they are advised to formulate the budget

requirements for their activities on Conventional Budgeting Concept i.e. not by

adopting percentage increase or decrease on the past data but all activities proposed to be

taken up for the ensuring budget period, are required to be identified and budget

requirements are required to be furnished accordingly with complete details and working

separately item wise for each activity proposed to be taken in the ensuring budget period.


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CONTRIBUTION OF VARIOUS DEPARTMENTS IN BUDGETING PROCESS

Contribution of v